For years there has been a cloud hanging over the future of the three State-controlled banks, the ICC Bank, the ACC and the TSB. It is a credit to each of them that they managed to expand their profits in a period when successive governments either had no idea what to do with them or simply could not agree around the Cabinet table. This week's announcement by the Minister for Finance, Mr McCreevy, that the ICC Bank is to be sold, suggests that the stasis will soon end.
While the three banks have performed credibly in recent years (aided greatly by the surge in the economy), there is limited scope for relatively small banks continuing in splendid isolation. Scale is of the essence. There is pressure on banks to merge and acquire so as to build up into a sufficient size which allows for greater cost-efficiency and effectiveness. ICC Bank specialises in lending to small businesses and some investment banking; it needs to grow into other areas. The ACC is principally a lender with the farming sector, accounting for over a quarter of the lending. The TSB, the biggest of the three, is a full retail bank with staff of over 1,100 and nearly 90 branches, but it is small by comparison with Bank of Ireland and AIB and doesn't have the critical mass to make the next big push.
More than four years ago, an offer for TSB was made by National Australia Bank, parent company of National Irish Bank. The TSB was in favour - important because under the 1989 Trustee Savings Bank Act, the TSB's trustees must approve any bid for it. However, the Government at the time was hung up on the deeply-flawed notion of creating a third banking force by merging the three State banks with portions of An Post. The proposal first surfaced in the 1992 Fianna Fail/ Labour Programme for Government and was carried on by the Fine Gael/Labour administration when it took office in 1994. Mr Ruairi Quinn eventually convinced his Labour Party colleagues that the idea was unworkable two years ago.
Mr McCreevy will sell ICC Bank, not necessarily to the highest bidder but to the suitor who has the best plan for growing the bank. The 310 staff will not object to the sale if employment protection is guaranteed (insofar as it can be) and they will be sweetened by promises of 14.9 per cent of the equity. ICC Bank needs the purchaser to have an extensive banking service already in existence. The purchaser may be foreign but the bank would be worth more to an Irish buyer.
What the Minister must do next is resolve the situation regarding the ACC and TSB. Neither of them can be floated on the stock market because they are too small. The ACC management would like it to be sold to a large European bank such as Credit Agricole which would give it muscle, whereas its staff would prefer a merger with the TSB - and the free shares that would go with it. A merged ACC and TSB would still be a relatively small bank and it would have branches overlapping which would necessitate closures. Mr McCreevy must go for the option which will maximise growth potential and offer the best protection from the rationalisation that is sweeping through financial services.