Anglo Irish Bank's decision to end merger talks with First Active has been received positively by the markets but sent shares in the former building society to even lower depths. Anglo Irish Bank shares gained 10 cents in Dublin yesterday ending the day at €2.52, up 4 per cent in the wake of the termination of the merger talks, on the back of positive sentiment to the outcome. First Active shares, however, turned weaker, losing 12 cents to close at €2.05, a drop of 6 per cent on the day. The breakdown of the negotiations is a disappointment for First Active. It is now left to search for a chief executive and find another potential suitor to help to reverse its fortunes.

The talks, which were announced a week earlier, came as a surprise to market analysts, primarily because they marked a totally new departure for Anglo Irish Bank - linking up with a retail bank.

The merger was viewed as opportunistic, with Anglo Irish looking to buy First Active at a relatively cheap price and use it to provide greater scale from which it could develop its business. Anglo Irish shares had dipped in the intervening days amid uncertainty about the merits of such a link-up and concerns about its likely future success. Analysts suggested the deal would depress earnings growth at Anglo Irish and this was reflected in its weaker share price. The bank will have to work hard now to reassure the markets of its strategic objectives for the future. It has consistently stated it intends to focus on niche areas, such as the small and medium-sized business sector and internationally to expand its fund management operations.

Given its dalliance with First Active, the markets will be looking for reassurances about its plans and whether it will revert to its original strategy or consider further retail banking link-ups.