Irish banks in Australian sights

AIB Bank and Bank of Ireland may become takeover targets for National Australia Bank when a former Barclays’ Bank deputy chief executive takes over NAB’s European operations in August.

Ernst & Young International partner and its retail banking head Philip Middleton says former Barclays man John Stewart, 54, has moved for a reason.

“Stewart is a serious heavy hitter in retail banking. I very much doubt he would have joined simply to mind the fire,” he said.

Mr Middleton says possible takeover targets include AIB, Bank of Ireland, Abbey National, Alliance & Leicester Plc and Bradford & Bingley Plc. Mr Stewart is on holidays until he takes up his new appointment in August and was unavailable for comment.

Having exited direct involvement in the US banking market and with no discernible plans to grow by acquisition as they burn reserves pursuing vigorous share buyback programmes, a bid for either AIB or Bank of Ireland by NAB could well tempt investors to cash in.

National Australia has a market capitalisation of US$34.6 billion, ranking it 18th among the world’s banks and making it more valuable than ABN Amro Holding NV and FleetBoston Financial Corp at today’s stock prices. It is more than capable of coming up with the money to buy any Irish bank.

NAB already owns National Irish Bank and Northern Bank in Ireland, Clydesdale Bank in Scotland and Yorkshire Bank in northern England. Most observers believes NAB managing director Frank Cicutto sought out Mr Stewart with the intention of making a major acquisition.

Like Bank of Ireland, NAB is a failed suitor for Abbey National Plc, Britain’s second biggest mortgage lender. Some analysts say an acquisition could cause another drop in NAB’s shares.

“NAB still has a major credibility issue following HomeSide,” says Brian Johnson, a Sydney-based analyst at JP Morgan Chase & Co. “What happened increases the execution risk of an acquisition next time.”

NAB sees growth in Europe as essential. With 3.5m European customers and 2.5% of the British market, its units are dwarfed by five big British banks: Barclays Plc, HBOS Plc, HSBC Holdings Plc, Lloyds TSB Group Plc and Royal Bank of Scotland Group Plc.

NAB has to look outside its home base for major growth as in 1981, the Australian government decreed that none of the big four - NAB, Commonwealth Bank of Australia, Westpac Banking Corp and Australia & New Zealand Banking Group Ltd - could acquire a major rival. The government has reiterated its so-called four pillars banking policy quashing any hopes NAB could lift market share through a takeover on its home turf.

Additional reporting from Bloomberg.