The trend towards consolidation in the financial services sector is relentless. For this reason, First Active, the former building society, which floated on the market in 1998, was unlikely to remain as an independent player in the longer term.
Just weeks after the bank emerged from a period of protection, which effectively blocked a takeover until five years after flotation, Royal Bank of Scotland has stepped in to offer €887 million, or €6.20 per share. First Active's board is supporting the bid, despite recent comments from its chief executive that it saw a strong future as an independent player.
Royal Bank of Scotland already owns Ulster Bank and combining its branch network and business customer base with First Active's strength in the mortgage market will make it a considerable force in Ireland. While Ulster Bank and First Active are to continue to operate under their own names, the combined group will have 173 branches in the Republic and around 800,000 customers. Their parent plans to save money through merging central functions and achieving savings in areas such as technology and funding. Also, there will be considerable scope for Ulster Bank to sell First Active products to its customers and vice versa. Some job losses are expected; employment levels are already under pressure in the retail banking industry and this looks set to continue.
The proposed takeover still has some way to go, requiring shareholder and regulatory approval. It is possible, though unlikely, given the support of the First Active board, that another bidder will emerge. If it does go ahead, the deal demonstrates a strong commitment from the Royal Bank of Scotland to becoming actively involved in the market here. In turn this should create extra competition and - it is to be hoped - a better deal for consumers. Competition was lacking for many years in the financial sector and the entry of foreign players - including the other main Scottish bank, the Bank of Scotland - has gone a long way to address this.
First Active's investors have suffered some difficult times since the flotation and will welcome the opportunity to realise some gains. The price offered was a 33 per cent premium to that quoted last Friday and - taking into account a capital distribution last year - is well ahead of the flotation level. Yesterday's rise in the share price to almost the level of the bid indicates a view that the takeover will succeed. It thus seems likely that the Scottish invasion of the Irish banking market will take another step forward. It is a development that will be looked at closely by the two main Irish banking groups, which have themselves had a mixed record in diversifying overseas and must realise that they now face new challenges in the highly-profitable home market.