There is a growing belief in financial markets that the days when the Irish market could support two major Irish-owned banking groups are numbered. Speculation that a major international bank could move on either AIB or Bank of Ireland is not new; the move to EU monetary union was, after all, meant to spark a wave of cross-border consolidation in the banking market, although so far progress across Europe has been slower than predicted.
The revelation last month that fraud at its US subsidiary had cost AIB $691 million has led to a fresh round of speculation about the future of the two main Irish banks. Mr Michael Buckley, the AIB chief executive, has made it clear that AIB wants to remain independent. However it is AIB's investors - its owners - who now hold the key position and the revelations in the report by Mr Eugene Ludwig of the shambles at Allfirst have left many unsettled. Some of the major international banks will certainly be running the slide-rule over Ireland's biggest bank.
The most likely suitor is considered to be Royal Bank of Scotland, which already owns Ulster Bank, but has yet to show its hand. The possibility of a bid by the Scottish bank, or another foreign bank, was the context in which Mr Michael Soden, chief executive of Bank of Ireland recently mooted a merger between the two Irish banks.
The Minister for Finance has let it be known that he would not raise any serious objections. Not so the Tβnaiste, Ms Harney, who has come out against it on the basis that it would limit competition. The extent to which the holder of either office can block a merger or takeover of one of the large banks is far from clear. Banks are exempt from the requirement to seek merger approval from the Tβnaiste's Department, but still need the approval of the Minister for Finance. However, the size of AIB and BOI's non-bank businesses - such as insurance and stockbroking - means the exemption may not apply, or only in part. There is also the very real prospect that the deal would be blocked by the European Commission, which would supersede any domestic approval.
It is uncharted territory, but foreign ownership of AIB - or BOI for that matter - has a better chance of clearing the regulatory hurdles than a merged entity with close to 80 per cent dominance in some sectors of the market. In the interest of competition, such a scale of market dominance would not be welcome. AIB and Bank of Ireland should look to other ways of growing and developing their business and bury the merger proposal.