Anglo Irish Bank is considering making a bid for Irish Nationwide Building Society. The bank has expressed serious interest in acquiring the building society within the last 10 days.
A tentative dialogue with the Government and regulators intensified this week as volatility swept through international markets. Anglo believes it would have the blessing of the Government should it proceed with a transaction. The bank would not be prepared to go ahead with a takover process if it did not have the Government's support.
No transaction is imminent and many aspects of any potential deal are still subject to agreement.
Irish Nationwide, which has been on the market since last year, has come under increasing pressure in recent weeks as a result of the sharp downturn in the Irish and British property markets. The society's debt rating - an indication of its ability to repay its borrowings - was downgraded by two credit ratings agencies over the last fortnight. The agencies expressed concern about the society's exposure to the deteriorating UK and Irish property markets.
In a separate move last night, the Financial Regulator announced it was banning short-selling on Irish publicly quoted banks from midnight, stopping investors from making money on share prices falling. The measure follows a similar move by the UK regulator earlier yesterday. Short selling, which is a normal stock market practice, has been blamed for pushing bank share prices lower and helping to destabilise the global financial system.
The chief executive of the regulator, Pat Neary, last night encouraged consumers to continue doing business with their banks.
Amid concern that any serious deterioration in Irish Nationwide's financial strength could erode confidence in the bank sector at large, the future of the building society has been the subject of high-level discussions involving a number of banks.
A takeover by one of its peers could significantly reduce any risk to the banking system arising from the pressure on Irish Nationwide's business. The building society has strongly defended itself and said it "fundamentally disagreed" with the rating downgrades.
"It is important to emphasise that the society is and continues to be a strong profitable financial institution and that profit budgeting projections are on target for the first half of 2008," it said.
Anglo, the third-largest bank on the Irish Stock Exchange, and Irish Nationwide are heavily involved in lending to the commercial and residential property development sector in Ireland and Britain.
A takeover would be seen as a compatible tie-up in the banking sector. Anglo would directly manage Irish Nationwide's loan book should a deal be agreed.
A spokesman for the bank declined to comment. Irish Nationwide had no comment.
A takeover of Irish Nationwide could be seen as a sign of confidence in the market, combining two institutions with large property loan books.
Irish Nationwide would be joining a far larger financial institution - Anglo Irish Bank's balance sheet, which stood at €101 billion at the end of March, dwarfs that of Irish Nationwide, which was at €16 billion at the end of last year. Both organisations are well capitalised.
A large portion of Irish Nationwide's €12.3 billion loan book is to the property development sector.
While legislation to facilitate the demutualisation and sale of the building society was passed by the Oireachtas in July 2006, the sale started in earnest only last year and came close to a deal at one point.
Speaking at the launch of the Irish operations of Australian bank Macquarie, Taoiseach Brian Cowen said the Irish financial services sector had "weathered developments well to date" and that the Financial Regulator was "liaising closely with the industry".
Central banks and regulators around the world fought back against the storm in global financial markets yesterday, offering $180 billion of liquidity to banks outside the US that are desperate for dollars.
The US stock market rallied on reports that treasury secretary Hank Paulson and Federal Reserve chairman Ben Bernanke are considering a new plan to address the credit crisis.
"The Federal Reserve and the Treasury are realising that we need a more comprehensive solution," according to the chairman of the congressional Joint Economic Committee, Senator Charles Schumer.
His comments were interpreted as indicating momentum is building for some wider plan after the Fed and treasury's takeovers of Fannie Mae, Freddie Mac and American International Group (AIG) this month.
President George Bush yesterday sought to reassure Americans that the federal government would take all necessary action to stabilise markets.
Morgan Stanley and Goldman Sachs, the last two independent investment banks on Wall Street, saw their shares fall further as Morgan Stanley entered talks to sell a stake of up to 49 per cent to China Investment Corp (CIC), the state-owned investment fund. Earlier this week, the US bank Wachovia approached Morgan Stanley about a possible merger.
