‘Third force’ would push IL&P up

By Geoff Percival

Tuesday, November 17, 2009

IRISH Life & Permanent (IL&P) could see its share value significantly increase, potentially up to €10 per share, if its banking arm Permanent TSB merges with EBS and the Irish Nationwide Building Society (INBS) next year.

This would form the much-mooted so-called third force in Irish banking.

That is the view of Davy Stockbrokers, which published a lengthy report supporting such a move yesterday.

Davy – which called the move "a logical next step in restructuring the Irish financial sector, delivering a viable banking force stronger than its individual parts" – said that Permanent TSB’s inclusion would enhance IL&P’s stock value.

"We believe that the market would begin to put a positive value on IL&P/IPM’s share in an enlarged, better capitalised and funded bank; in contrast to the PTSB discount that is currently being applied," Davy said.

"The establishment of NAMA is widely expected to lead to mergers, creating what has been dubbed a third force – the potential combination of a few smaller challenged Irish entities to provide a viable alternative to the two large banks, AIB and Bank of Ireland.

"The emergence of such an entity will, we believe, form a key element of the Government’s submission to the EU, making the case for state support to the banking system," Davy’s note continued.

It added that a third force would assuage European Commission concerns of competition distortion, saying it would benefit customers by challenging the dominant market positions of the big two banks.

IL&P – which issues a trading update today and whose share price dipped by 5.16%/24c to €4.41, yesterday – has said on a number of occasions in recent weeks and months that it is unlikely that anything will move on the third force merger issue until the second half of next year.

The group added that it will continue to "entertain discussions" with the Government on its plans regarding industry consolidation.

The group will also hold an extraordinary general meeting (EGM) on December 17 to allow shareholders to vote on the restructuring of the business which will make it easier for Permanent TSB to merge with other companies without negative effects to the Irish Life side of the business.

This story appeared in the printed version of the Irish Examiner Tuesday, November 17, 2009