For months now, we have been hearing about "mega" banking mergers across Europe, as the industry consolidates after the arrival of the euro. In France, Italy, the Netherlands, Belgium and many of the other euro zone member-states, domestic banks have moved to merge to create the scale necessary to compete profitably at home and abroad.
Such has been the scale of activity that periodic - and unfounded - rumours have swept the markets from time to time that Irish banks, particularly AIB, were to be the target of an international takeover. In Ireland, consolidation of the sector has started too, with Irish Life and Irish Permanent merging and TSB, and ACC planning to do the same.
It was also hardly a secret that the big players, AIB and Bank of Ireland, were considering their future.
AIB is looking at a significant expansion in Poland, and Bank of Ireland has signalled that it was looking at adding to its Bristol & West subsidiary in Britain. This saw it being linked with the Portman Building Society, or even the Bradford & Bingley, which would have come with a price tag of some £2.5 billion sterling.
However, the Alliance & Leicester is a different proposition altogether. An institution almost as big as the Bank of Ireland, it is valued at around £6 billion on the market, compared to around £7.5 billion for Bank of Ireland itself. The Financial Times, which reports the story this morning, bills the link-up as a "merger" and it is hard to see it happening on any other terms.
It would be a highly significant move, representing a cross-border merger between two different jurisdictions. It would also be the first major merger between a euro zone bank and one from outside the euro area. The UK is expected to enter the euro, but not for at least another three to four years.
If one of Ireland's largest banks is to merge with a major UK institution, then, as the major partner, it will no doubt ensure that the new organisation is run from Dublin. It would also, however, be a major player in the UK market, combining Bank of Ireland's existing network of 150 branches - acquired through the purchase of Bristol & West - with the Alliance & Leicester network comprising more than 320 branches and a much wider regional spread.
Bank of Ireland also has a smaller existing business banking operation in Britain.
Late last night, a Bank of Ireland spokesman would make absolutely no comment on whether or not talks were under way between the bank and the British institution. It was the policy of the bank not to comment one way or the other on market speculation, he said, talking to The Irish Times.
For Bank of Ireland, the move would be hugely significant. At the moment, it remains heavily reliant on the Irish market. Some £253 million of last year's £659 million profit was earned from the Irish retail banking market, while £72 million came from its New Ireland life assurance subsidiary and £109 million from its Irish corporate and treasury operations.
Around £151 million came from Bristol & West. Alliance & Leicester made a pre-tax profit of £455 million sterling (€690 million) in 1998, up 15 per cent on 1997. This would mean - on last year's figures - that the merged operation would make more profits from the British market than from Ireland.
However, the rationale for the merger would be to create a major new player in the British market - offering much greater economies of scale and funds available for investment - and to diversify the Bank of Ireland away from its core Irish base.
From talking behind closed doors, the two players now face the glare of the spotlight and are likely to be asked by the Stock Exchanges in Dublin and London to clarify the position on their talks as early as Monday morning.
