Abbey shares rise after merger proposal

Shares in struggling mortgage bank Abbey National today rose after it had been approached by Bank of Ireland on a possible merger.

In a statement to the London Stock Exchange, Bank of Ireland said it had made a "preliminary approach" to Abbey in relation to a possible combination of their businesses.

The bank said: "The combination proposed by Bank of Ireland would involve the establishment of a unified corporate structure with a primary listing on the London stock exchange, the retention of a listing on the Irish stock exchange and with its head office in Dublin."

But the offer left key investors in Abbey cold. "We wouldn't be happy with this as things stand, but it's very early days," David Lis, UK fund manager at Morley Fund Management, told Reuters. Morley, one of Abbey's top five shareholders, owns 2% of Abbey.

Abbey emerged as a takeover candidate after stumbling badly this year. Britain's sixth largest bank forced out its chief executive, Ian Hartley, two months ago after a series of profit warnings that shook the City. In June Abbey said it would miss its profits targets because of bad loans in its wholesale banking division after an ill-timed foray into company lending. Last Friday, shares in Abbey sank to a seven-year low.

Converted from a building society more than 10 years ago, Abbey has been at the centre of several failed merger attempts. The competition commission last year blocked a merger with Lloyds TSB after Lloyds scuppered a deal between Abbey and Bank of Scotland with its own bid.

A merger between Abbey and Bank of Ireland, one of Ireland's top two banks with Allied Irish Banks, would create a group with a stock market value of around ?19bn, but analysts are sceptical on about Bank of Ireland's efforts to snare Abbey.

"I wouldn't give this deal a high chance of progressing beyond the initial discussion phase," said Teather & Greenwood banking analyst Martin Cross. Lloyds made a higher offer for Abbey last year.

Abbey shares closed up 30p, or 5.9%, at 535 1/2p.