Shares in Irish Permanent and Irish Life surged by more than 15 per cent yesterday as the stock market gave its approval to news that the two companies were holding merger talks.
Irish Permanent soared to £10.20 in early trading, within sight of this year's all-time high of £10.40, before slipping back to close at 995p, a gain of 135p on the day. Meanwhile, Irish Life ended 80p higher at 600p as the market welcomed the possibility of a deal between the two groups.
News of the merger talks helped drive the Irish stock market ahead and it closed nearly 4 per cent higher despite a lacklustre performance from many of the leading industrial stocks. Not surprisingly, financial shares were the main beneficiaries of the merger story which triggered speculation about further consolidation in the Irish banking sector. The index of financial shares soared by 6.95 per cent as the two big banks along with some of the smaller financial stocks gained ground.
If Irish Permanent and Irish Life agree a merger - and it should be clear within weeks whether they have grounds to go ahead - it will raise serious questions for other financial services providers such as Ulster Bank, National Irish Bank, Anglo Irish, Hibernian and the recently-floated First Active.
A merger between Irish Life and Irish Permanent would create the third largest financial institution in the state after AIB and Bank of Ireland. With a market share of more than 25 per cent in residential mortgage lending, pensions, life assurance and savings, it would provide the two big banks with serious competition in the area of personal financial services.
It would also put increased pressure on the smaller players and could lead to a wave of mergers or acquisitions as institutions seek to safeguard their positions by establishing economies of scale.
Analysts welcomed the prospect of a merger as positive for both groups and their shareholders. Mr Shane Nolan, financial analyst at NCB Stockbrokers, said there was a "compelling logic" for a merger and repeated his buy recommendation on both stocks. "In market share terms, the merged company would be the dominant bank/assurer in the domestic economy," he said.
Some analysts believe there could be even further upside for shareholders as a merged entity could prove an attractive take-over target for European predators looking to consolidate their position in the post-euro market.
