RBS buys Ireland's First Active

Royal Bank of Scotland, Britain's second-biggest bank by assets, stepped up its challenge to Ireland's banking establishment today by acquiring First Active for 887m euros (?617.5m).

By combining First Active with its Ulster Bank subsidiary, RBS is seeking to break the traditional stranglehold of Bank of Ireland and Allied Irish Banks on the Irish banking sector.

"The combination of First Active and The Royal Bank of Scotland's subsidiary Ulster Bank will create a highly effective challenger to the larger competitors in the Irish banking market," the company said in a statement.

Both First Active and Ulster Bank will retain their own brands and branch networks, with cost savings to come from combining funding, technology and other functions, RBS said.

The merger will seek bigger revenues by selling more mortgage and savings products to Ulster Bank's customers, and a broader range of banking products to First Active's customers.

"This multi-brand distribution strategy, with shared manufacturing, is consistent with the approach successfully implemented by The Royal Bank of Scotland in the United Kingdom following the acquisition of NatWest," RBS said.

RBS has a good track record of extracting cost savings from acquisitions, notably with the purchase in 2000 of NatWest, a much larger organisation than itself.

The new Irish group will be Ireland's second-biggest mortgage lender and third biggest savings bank.

Across the Republic of Ireland and Northern Ireland, the newly combined businesses will have around 1.3 million personal and business customers at a network of 263 branches.

Royal Bank's chief executive, Fred Goodwin, said job losses would be in the "small number of hundreds", but would come from back office staff and not from anyone dealing with customers. The combined business will employ about 5,500 people.

Mr Goodwin denied that RBS was buying into the Irish mortgage market at the peak of a housing boom.

"The general outlook for the housing market here is still pretty positive," he said.

He added that the deal would not distract RBS from its search for transactions in the US and continental Europe. RBS expected regulatory approval of the deal early next year and did not anticipate a rival offer for First Active.