Senior executives of ACC Bank and TSB Bank are meeting this week to exchange information about their operations. The meetings involve a preliminary examination of the feasibility of a merger and are part of the process to decide the future of the State-owned banks. At the same time, ACC, with its advisers Dresdner Kleinworth Benson, is having discussions with other potential bidders or partners as it moves towards preparing proposals for its future. These proposals have to be presented to the Minister for Finance at the end of September.

With a decision by Mr McCreevy on the future of ACC delayed because of a stand-off between management and unions on the preferred options, a internal management/union committee has been set up to "consider the criteria to be used in respect of any change of ownership". Management at ACC favours the sale of a stake in the bank to a strong EU-based financial institution, with French bank Credit Agricole favoured as a front-runner. The ACC unions want a merger with TSB with the floatation of the merged operation on the stock market.

The current round of meetings between ACC and TSB follows a preliminary meeting between the chief executives of the banks, Mr Harry Lorton of TSB and Mr John McCloskey of ACC. TSB said the current talks were aimed at giving each side an understanding of the business of the other. While there was no set timescale, the talks conducted through senior executives and heads of functions are expected to go on for about five to six weeks. When they are completed, each side will have to assimilate and assess the information and consider whether a merger would work, according to the TSB spokesman. Serious discussions on a merger could then begin if a deal made business sense, he added.

Executives at both banks accept that as high cost operations, cutbacks would be a necessary to achieve a successful merger. TSB has 80 branches while ACC has 50. About 38 branches are in overlapping locations and some of these would be expected to be surplus to the requirements of a merged operation. Both banks have high cost/income ratios - over 60 per cent.

But some senior executive at both banks feel that at least some cost savings could be achieved through natural wastage and voluntary redundancies.