ACCBANK is expected to have to initiate a redundancy plan following the scrapping of the plans to merge the bank with TSB Bank.
With the Minister for Finance Mr McCreevy adamant that a change in ownership structure is "vitally important to secure the long term interests of each bank" in an increasingly competitive environment, it is now expected that the bank will have to be prepared for sale. This will require serious cost cutting at an operation where labour is the largest cost element.
ACC has about 600 employees and a relatively high cost income ratio while TSB has about 1,100 employees. For ACC employees, the collapse of the proposed merger means a significant turnaround in their financial prospects. Under the planned merger and simultaneous flotation of the merged ACC/TSB, the ACC employees were due to get shares in the bank. Union sources said the initial expectations were that each member would get shares worth about £40,000. Plans for an employee share option plan were well advanced and the unions had appointed consultants Farrell Grant Sparks to advise on a suitable scheme. Describing the scrapping of the merger as "significantly more serious for ACC", one union source said it was not a shock.
"One wheel came off this vehicle before Christmas when we found out that the flotation part of the deal would have to be delayed. At that stage the shares part of the deal became worthless. "Now the vehicle has lost all its wheels and there are bits all over the road. It will take a few days before we know what will happen next. But it is fairly obvious that there will have to be cost cutting and that means jobs will go."
One ACC source expressed fears that the collapse will mean "redundancies and yellow packs". The collapse is serious for TSB but the union sources suggested that the bank could take more time to find another partner. But this source was adamant that in a rapidly changing financial services market with new low cost entrants pushing down margins, TSB will not be able to stand alone as a small bank for too long. Some union sources stressed that TSB was imminently more saleable than ACC. "ACC management lost control some time ago and then there were the financial scandals with the non-payment of DIRT. Its costs are high so in its present condition some people are arguing that it may not be saleable," one source warned.
The merger proposal was abandoned following a unanimous recommendation from the joint management team set up to plan and implement it by the Minister for Finance. Following a board meeting yesterday, Newbank blamed changed market conditions for the collapse. "Market sentiment militates against a successful flotation in the foreseeable future. The climate of uncertainty that has been created could, if not addressed, have a detrimental effect on customer relations and on the morale of staff who have contributed constructively to the process," it stated.
Mr McCreevy said he had reluctantly accepted the board's recommendation and was disappointed at the outcome. The Minister also stressed that the status quo of both organisations cannot continue. Mr McCreevy has asked each of the banks to urgently review its position.
The merger and flotation of both banks was accepted by the Minister in February 1999 on the basis of a joint recommendation from the boards of ACC and TSB Bank.
