Irish Nationwide sought tie-up with UK building society giant

IRISH NATIONWIDE, which will shortly need capital to absorb mounting loan losses, approached its namesake, Nationwide Building Society, in the UK in September about making an investment but the approach came to nothing.

Gerry McGinn, chief executive of Irish Nationwide, contacted senior management at Nationwide in the UK about a potential tie-up between the two mutuals, according to sources with knowledge of the society’s approach.

Irish Nationwide put considerable work into assessing a possible investment by Nationwide, pressing the benefits of the Irish building society’s 50-branch chain and €4 billion in retail deposits.

The approach was made as Nationwide said in September that it would seek to increase its presence in Ireland after the growth in its Irish deposit base was “in line or slightly higher than expectations” since opening an office at Spencer Dock in Dublin last April.

However, the UK building society has ruled out investing in an Irish financial institution, instead preferring “gradual” growth starting with a high-street branch in Dublin city centre.

Asked to comment on the approach, a spokeswoman for Nationwide in the UK said it was not the society’s policy to comment on such issues.

“We would only consider an arrangement with another organisation if it was in the interests of our members,” she said.

Earlier this month Nationwide, the largest building society in the world with 15 million members, reported a 64 per cent slump in underlying profits in the six months to September after losing £5.6 billion in retail savings.

Around the time of the Nationwide approach, Irish Nationwide was in contact with Irish Life Permanent to review potential mergers in the sector and the creation of an enlarged financial institution comprising Irish Nationwide, EBS building society and ILP’s bank, Permanent TSB.

Contacts took place at a senior level between Irish Nationwide and ILP about the prospects of consolidation, with ILP said to have shown some interest in the building society’s deposit base.

Formal talks on a potential merger between EBS and Irish Nationwide began last week at the instigation of the Government.

Minister for Finance Brian Lenihan has said the State’s stake in any enlarged building society would be substantial given the quantity of loans moving from the lenders to the National Asset Management Agency.

Irish Nationwide will transfer €8.3 billion of its €10.3 billion loan book to Nama, while EBS will sell about €900 million out of a loan book of €17 billion to the agency.

ILP is reshaping its group structure to enable the group to offload Permanent TSB, which it may seek to adjoin to the merged EBS-Irish Nationwide entity with a capital investment of €500 million in return for a stake of 40 per cent. This would dilute the Government’s shareholding in any enlarged building society down from as high as 80-90 per cent.

The 462,000 members at EBS and 200,000 at Irish Nationwide may retain a small shareholding in the merged entity despite the Government’s estimated combined capital investment of €1.3 billion to €1.8 billion in the two lenders.

Irish Nationwide has been enhancing its board and management structures since the resignation of Michael Fingleton as chief executive last April. It has hired senior executives to bolster the management of commercial loans.

Non-executive director Sean Carey now chairs the building society’s provisions committee, which determines the level of loan losses.

The Government’s two public interest directors, Adrian Kearns and Rory O’Ferrall, chair the assets and liabilities committee and audit committee respectively.