Ireland’s growth rates attract the Danes

JUST think how the market would react to either of Ireland’s top two Irish banks — AIB and Bank of Ireland — announcing a €1billion plus take-over of a Danish bank?

Reverse the exercise and you have an idea what the Danes are thinking about the €1.4bn purchase by Denmark’s Danske Bank of the Northern Bank and National Irish Bank from National Australia Bank.

So what’s bringing them here? It’s the economy, stupid. Ireland’s forecasted growth rates are the highest in Europe.

Danske’s Chief Executive Peter Straarup told Reuters that Ireland was one of Europe’s fastest growing economies, making it an attractive market for retail banking.

“There is high growth in the banking sector, it is a market which is currently enjoying net immigration. So it’s an attractive banking structure we’ve acquired through these buys,” Mr Straarup said.

Danske Bank, like its Irish counterparts, is cash rich and has been keeping shareholders happy with massive share buyback programmes and bulky dividends.

The Danes are no fools. They are well aware of the massive margins Irish banks are making in comparison to European banks and have obviously decided they will have a bit of that.

Shortly after the announcement, Danske shares fell 4.2%, as investors took fright at the size and location of the acquisitions and were upset when Danske reduced its generous share buy-backs.

West LB analyst Kim Bergoe said: “The market reaction is understandable especially as Danske’s shareholders have been somewhat spoilt in the past with generous dividend pay-outs and share buy-backs, so it’s not what they’re used to.”

Looking at Ireland must be like looking at a mirror for Danske Bank which faces limited growth in Denmark, a country of 5.4 million people, where it already controls about 40% of the market.

Mr Straarup projected growth in the new banks could match that of the bank’s successful Swedish unit. In 1997, Danske bought a small regional bank, Ostgota Enskilda Banken, which since 2000 has doubled its market share to 8% and the number of branches to 47.