EBS Building Society will be folded into AIB to create the “second pillar” in the Irish banking system.
Minister for Finance Michael Noonan said combining the two will “strengthen the franchises” of the banks.
The merged institution will be “a largely domestically focused bank” that will retain AIB’s Northern Ireland operations and deposit-funded business in the UK.
Mr Noonan said customers of AIB and EBS should continue to do business with their bank as before.
“Over time, the fuller services of AIB will become available to the customers of the EBS, who will obviously retain the protection of the State guarantee for their deposits.”
In a statement, EBS welcomed the Minister’s decision. “The society understands and accepts the Government’s need to reconfigure the banking system to support the economy and will play its part in rebuilding the sector,” EBS said.
The Government called off the proposed sale of EBS to the private equity consortium Cardinal yesterday because its bid was “not sufficiently commercial attractive to the State”.
The planned “second pillar” formed by the merged AIB and EBS will exist alongside the “first pillar”, Bank of Ireland. The merger is subject to State aid and regulatory approval.
EBS requires a capital injection of €1.5 billion, while AIB needs €13.3 billion, the Central Bank announced today in the results of its stress test exercise.
In the case of EBS, this breaks down into €1.2 billion of required capital, a further €100 million that will act as an additional capital “buffer” and another €200 million in the form of contingent capital.
Under deleveraging plans agreed with the Central Bank, the EBS balance sheet will shrink from €16.4 billion to €11.5 billion by the end of 2013.
It is planned that AIB’s assets will shrink from €86.9 billion to €67.5 billion over the same period. This deleveraging will involve the gradual run-off and disposal of non-core assets.
Responding to the Minister’s announcement, the Central Bank’s director for consumer protection, Bernard Sheridan, reiterated there would not be any immediate change in how the two banks deal with their customers’ accounts.
