In the quiet week leading up to Christmas, the Irish government said it plans to start selling off part of its 71% share of Allied Irish Banks (AIB). Over the course of the next month, slightly over 3% of the equity will be placed on the market, and, if it goes well, we can expect to see the rest of the shares steadily sold off over the next few years. This raises a question: why don’t the British banks make a move and buy it up?
The go-go years
AIB has had a mixed history, to put it politely. In the wake of the 2008 crash and the eurozone crisis that followed it, and with fresh capital impossible to raise, the bank was bailed out by the Irish government for an eye-watering €21bn. Leading up to that, like many of the Irish banks in the go-go years after the country joined the single currency, AIB had expanded and lent wildly. Even a decade later, there is probably not much hope of ever getting the money the state invested back. The share price would have to more than triple for the Irish taxpayer to make a return on the rescue. Still, all that is history. It still looks like a tempting buy for British banks.
Sure, it is easy to make the case for caution. Irish banking, even more than most comparable markets, has a history of wild boom and bust cycles. No one wants to buy in just before the next crash. The British retail banks have struggled to expand in other countries, often spending a fortune, and then being forced to retreat. And the finance industry has plenty of challenges to deal with, from responding to the rise of app-based competitors to coping with rising interest rates to closing down obsolete branch networks, without distracting themselves with foreign acquisitions. On top of all that, the issues over Northern Ireland mean relations between the governments in London and Dublin are very strained; Irish ministers would probably not be very pleased by a British takeover of one of the country’s largest financial institutions.
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Still, there is a strong case in favour as well. Ireland is still a very attractive banking market. It has long since recovered from the financial crash and remains one of the fastest-growing of the developed economies. Indeed, it was the fastest growing economy in the EU last year, and its overall output is now significantly above the pre-pandemic level. Its low corporate tax rate still makes it a key hub for global multinationals (it may have to raise that under plans to create a global minimum corporate tax rate, but the country still has plenty of momentum to carry it forward). Its GDP per capita is one of the highest in the world and wages are high. With an average age of 38, the population is relatively young (it is above 40 in the UK). Its housing market has bounced back from the crash, and is robust and stable. And, of course, it is inside the European Union’s single market, making it a natural base for providing financial services right across the continent.
Seize the day
It is hard to see why none of the British banks would be tempted by that. It’s not as if they don’t need fresh sources of growth. Lloyds is expanding into the housing market, which hardly seems a safer bet. HSBC and Barclays are building up their capital markets units. NatWest already owns Ulster Bank, and although it said it was withdrawing from the market south of the border last year, and still has to complete its own privatisation, it has plenty of experience of the market.
AIB or Bank of Ireland would make a perfect acquisition for one of the UK’s big four retail banks. With market values of around £5bn, they are not hugely expensive, and are hardly going to be a strain on anyone’s balance sheet. If they don’t want to expand into the Irish market, then it is hard to see what country they would be willing to take on. A cash offer would save the Irish government a lot of trouble, and at a 20% to 30% premium would make it more money than selling off the shares in dribs and drabs. The only real question is whether one of the British banks will be brave enough to seize an opportunity that might not come again.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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