Bank of Ireland's overtures to Abbey National have failed to impress the stock market leaving many fund managers questioning the rationale and timing of the proposed deal.
Bank of Ireland's share price moved sharply lower yesterday, shedding 85 cents to close at €9.37. This reflected concerns about the bank's ability to derive enhanced profits from a takeover of Abbey National based on the limited details which have been made public.
News of its approach helped to set a floor under the Abbey National price and trigger a boost in its shares with investors buying the bank stock in anticipation of further bids emerging. Abbey National shares gained nearly 6 per cent to close at £5.35, up 30p.
Bank of Ireland has confirmed its tentative approach to Abbey National to the Stock Exchanges in Dublin and London but Abbey National has refused to make any comment on the proposal.
Mr Joe O'Dwyer, a fund manager at Montgomery Oppenheim in Dublin, said he was sceptical about the timing and motives behind the proposed takeover. "It is difficult to see the extent to which there will be cost savings. Initially they look to be limited enough."
Mr Seamus Murphy, an analyst at Merrion Stockbrokers, said the bid appeared to be "opportunistic" and that the potential value for both sets of shareholders did not seem that obvious. "There is some logic in that it could integrate Bristol & West with Abbey National while costs could also be saved through the integration of the banks' head offices and treasury divisions."
Many fund managers are wondering whether Bank of Ireland is trying to do a deal for the sake of it at a time when Abbey National's share price had slumped to a seven-year low. One noted that Mr Soden previously floated the notion of merging the bank with AIB shortly after it became the victim of a $691 million fraud at its US subsidiary, Allfirst, earlier this year.
Mr Jonathan Gollins, a banking analyst at Bank of America in London, said it was difficult to understand Bank of Ireland's strategic thinking. "He seems to be shooting from the hip. If he keeps floating ideas and then nothing happens investors will begin to question his judgement".
At first glance there are concerns about what appear to be only very limited potential cost savings, a lack of clarity about the inherent risk in its investment portfolio and the extent to which capital will have to be raised for its troubled insurance subsidiary, Scottish Mutual.
Mr Eugene Kiernan, a fund manager at Irish Life, said it was questionable as to whether this was the right time to move into the UK mortgage market.
A UK fund manager at Morley Fund Management, Mr Dvid Lis, said that a nil premium merger would make very little obvious sense. Fund managers in the UK suggest that Bank of Ireland will have to pay a premium to Abbey National shareholders if they are to sweeten the deal. This in turn raises questions for Bank of Ireland shareholders and would make the deal less attractive for them.
Mr Eamon Hughes, an analyst at ABN AMRO, who had dismissed the benefits of Bank of Ireland merging with Abbey National last month said the collapse in its share price had improved its attractiveness. He too believes the potential cost savings are likely to be limited.
Abbey National is broadly of a similar size to Bank of Ireland and together the two banks could emerge as one of the top 12 in Europe in terms of its market size. Sources close to the bank have suggested that it will reject the latest takeover bid.
In 1999 Bank of Ireland attempted to merge with Alliance & Leicester but was ultimately forced to abandon the deal after its shares dropped sharply on concerns about the proposed corporate structure.
