With Bank of Ireland proposing to merge with Alliance & Leicester, it comes as little surprise that AIB is also expanding further overseas. Ireland's largest bank is expected to announce that it is buying a share of around 25 per cent in a Singapore bank, Keppel Tat Lee, representing a significant investment in that region. AIB already has substantial operations in the US and Poland and a step into the Far East would further diversify its earnings. The main banks here know that they cannot rely on the domestic market for continued growth. Such is their size in the home market that significant further growth can only come overseas.
The latest moves show that Bank of Ireland and AIB are taking different approaches to international expansion. Bank of Ireland proposes effectively to pool its future with the UK group. The idea was initial greeted enthusiastically in the financial markets, but more considered reaction has been sceptical. As many of the details of the merger remain unknown, judgment on its merits should be reserved. AIB's expansion plan - as shown by the proposed move into Singapore and negotiations under way to expand its operations in Poland - is more conventional. The bank is planning to acquire further subsidiaries to build its international presence and provide it with a more diversified source of profits.
International expansion of business is now the norm and by moving in this direction the two Irish banks are trying to ensure that they control their own future. Sitting on their hands - and on the large pile of profits they have made from the Irish market - would leave them vulnerable to takeover in the years ahead, even if their current market valuations mean this is unlikely in the short term. Becoming larger and more internationally diversified organisations means the two big banks will be of a scale which would make a takeover more difficult - though by no means impossible. Greater geographical spread would mean they are less likely to be left vulnerable by a downturn in the Republic's economy.
Whether the moves now being planned work out for the long term good of both institutions will depend on a number of factors. Luck is one of them; not even the bravest of forecasters would confidently predict what the overseas economies being targeted by our main banks will be like in ten years time, yet this will be a central factor determining the success of their ventures. The most crucial factor of all, of course, is management. In the case of Bank of Ireland, it is up to its board and management to ensure that its experienced executives have a strong input into the running of the merged group, even though it is likely to look to the UK for growth. Likewise, AIB management will have spent considerable time looking at the deals on the table in Poland and Singapore and will know that the success or failure of its international operations will ultimately be determined by how well they are managed.
Across all areas of business, the success - or failure - of our management will ultimately determine how much control and ownership can remain in Irish hands. The international expansion of business is inevitable. Much effort has gone into attracting as much mobile investment as possible into the Republic, but the success of our home-grown operations in expanding overseas is also vital for our economic future.