Of the many criticisms hurled at First Active, the most consistent is that its management team, lead by Mr John Smyth, have just been too cautious. While First Active has a substantial war chest, it has taken too long to diversify the group's business base.
First Active is now listed on the Dublin market as a fully fledged bank but it has singularly failed to branch out beyond operating as a building society.
It is still largely a mortgage lender looking for growth in earnings in a sector where profit margins are being squeezed. Some 14 months on, it has failed to show any ability to add on more lucrative lines of business such as car or personal loans or innovative savings products and it has suffered as a result. The role of the board of directors in overseeing such inertia must also be questioned. The board has convened crisis meetings over the past two weekends in the search for a more successful strategy for the future. But the length of its deliberations has done little to inspire investor confidence.
At this juncture the bank must seriously consider its options. Finding a potential partner is a priority but may also prove problematic.
The former building society is protected by law from a hostile bid until 2003 so any merger with another financial institution would have to be mutually agreed. Irish Permanent's technical takeover of Irish Life has already shown how to overcome such legislative restrictions and merits consideration. Unlike Irish Permanent though, First Active's shareholder base is much more fragmented, with much of the shares held by small shareholders. This makes it very difficult for any institution to build a significant stake in the bank and is something of which the board is mindful.
Despite the criticism, most of the Irish financial institutions will be keeping a close eye on developments at First Active, with groups such as TSB and Friends First or the EBS building society being mentioned as likely suitors. However, industry sources suggest anyone considering merging with First Active will take their time.
Another path open to the bank is to invest in the Internet and reposition itself as a specialist high service, high quality, mortgage provider. Such moves have proved popular and lucrative for small financial services groups in the US in recent years. Mr Oliver O'Shea, financial analyst at Goodbody Stockbrokers, believes First Active's products are very suitable for online delivery.
In the interim, however, the bank has undertaken to implement a substantial cost cutting plan amid strong opposition from its workforce. First Active is seeking 175 job losses and the closure of 25 of its 76 branches immediately and has warned that if it fails to achieve those job losses on a voluntary basis it will introduce a compulsory redundancy programme.
The cost cutting plan aims to trim €13 million off First Active's cost structure annually and should help to enhance its overall competitiveness. Staff have balloted in favour of industrial action if compulsory redundancies are sought.
First Active's board is facing some very difficult decisions.
