Why is the EBS being merged with AIB?

I don't see the logic of this at all. Has it been explained?

I agree fully with selling off Irish Life from Irish Life and Permanent. There would be a danger of the problems in PTSB damaging Irish Life. There would be no further advantage in keeping these two separate businesses in the one entity.

I also agree with the decision not to sell it off at below market value to Cardinal.

But AIB is in trouble and the EBS is in trouble. Merging them doesn't resolve that trouble in any way as far as I can see.

I can't see how it gives additional confidence to EBS's depositors.

There might be some small saving through rationalisation, but it would be minimal.

I would think that a more logical strategy would be as follows:

Leave the EBS as a standalone mortgage lender and deposit taker.
Stop it from providing new mortgage loans until further notice except for top ups to existing mortgage holders.
Over the coming years, as people repay their mortgages, the capital requirement will reduce.
If possible, sell off some of their mortgages to speed up the deleveraging.

After 5 or 10 years, we would have a state owned mortgage lender and deposit taker which is adequately capitalized and which has deposits to match its mortgages.

This could then start lending again.
And it would be in a healthier position to be sold at that stage.

We might be glad to have an active specialist mortgage lender in the Irish market.

Brendan

Does Ireland need AIB?

Patrick Honohan stated last Thursday that the foreign banks in Ireland would provide the competition for the 2 pillars.

I always thought pillars were solid structures but there you go - what would I know. More than half of the entire bailout of 24bn is going into AIB - 13.5 bn.

Do we need to have 2 Irish banks? Would it be so disastrous if we only had one solid bank left and a number of foreign banks to keep it focussed and to provide the competition as mentioned above?

Marion

You have to remember that for a foreign bank, Ireland is very small - there's probably more business available in Manchester or Birmingham than in all of Republic and it's all within 50km of centre of the city.

Stopping EBS lending will put every branch out of business. Branches are effectively franchises operating as tied agents. Revenue is based on commission. Without lending there is no commission hence no business.

You could also argue there is a need for some mutuals in our system. Although that may be a bit hard for those who zealously campaigned against them.

mmclo said:

Although that may be a bit hard for those who zealously campaigned against them.

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Hi MM

I don't think I ever heard anyone campaigning against them? Although I suppose those who argued for the demutualisation of EBS and First Active campaigned against the idea of mutuality. I campaigned against the demutualisation of Irish Permanent, but I don't recall anyone campaigning in favour of it, zealously or otherwise.

Brendan