RBoS steps up Irish presence

Royal Bank of Scotland catapulted itself into second place in the Irish mortgage market yesterday by buying former building society First Active for €887m (£620m) in cash.

RBoS, which grabbed NatWest in a £21bn hostile takeover three years ago, intends to run First Active alongside its Ulster Bank operation to create an Irish banking powerhouse to take on the dominance of Bank of Ireland and Allied Irish Bank.

The merged mortgage business will lag behind only Irish Life & Permanent. It will have a 15% market share and be the number three savings bank with over 260 branches serving more than 1.3m personal and business customers on both sides of the border.

"The combined business will focus on customer service, income growth and efficiency," said RBoS chief executive Fred Goodwin. "I believe that it is capable of becoming the best bank in Ireland under each of these measures."

Analysts fretted, however, that the price paid for its Irish rival is too high. RBoS is offering a 33% premium to First Active's share price. RBoS shares closed down 10p at £16.20p.

Both the existing First Active and Ulster Bank businesses will retain their brands under the deal, operating in a similar fashion to the RBoS and NatWest brands in the UK. Savings will be achieved by reducing back office functions and cuttinghead office costs.

RBoS yesterday refused to put a figure on the possible size of any savings, but the merger is expected to cause the loss of several hundred jobs out of a combined workforce of 5,500.

The takeover is the fifth time that RBoS has reached for its chequebook so far this year. In June, the company bolstered its Direct Line insurance business with the acquisition of Churchill Insurance for £1.1bn to become Britain's third largest general insurer.

The company has funded its recent deals out of its own pocket and, with analysts estimating that this year it could generate up to £3bn, it has plenty of headroom for further moves. But in August Mr Goodwin made it plain that if another large deal came along he would not shy away from approaching investors for more cash. Analysts still expect the company to try to find a big target in the US and yesterday described the First Active move as filling a gap in the group's portfolio.