More than a storm in a teacup for Soden

EARLIER this year, Bank of Ireland’s top management had every reason to feel a little smug.

Their great Irish rival was struggling to contain the fallout from the catastrophe at Allfirst.

In March, the new Bank of Ireland CEO, Michael Soden, took over from Maurice Keane at the helm. His hiring, six months previously, was seen as a coup for the bank's Court of directors and in particular, for its Governor, Laurence Crowley.

Soden came, trailing a big reputation behind him, as the number two man at National Australia Bank, heading up that group's global retail operations. Soon after assuming office, he hosted a celebration dinner for business journalists at the historic Parliament building in Dame Street. As he moved around the table, it was clear that he had a message. It was time for Bank of Ireland and AIB to merge as otherwise both banks faced being taken over by overseas institutions.

The man was hitting the ground running, thinking big. Soden's proposal, aired in the following weeks, sent shock waves through the Irish banking industry and beyond. The AIB reaction was dusty. The Irish Bank Officials Association reacted with horror, talking of a prospect of 5,000 job losses if the deal went through. The politicians baulked the idea appeared to wither on the vine.

Undaunted, Soden pressed ahead with a plan developed in conjunction with AIB to merge the group's IT operations. This was seen as a dry run for full merger. Alarm bells began to ring over at the Competition Authority and in Brussels. The Commission examined the idea and referred it to the Government and on to the Competition Authority which said that a large study would be required.

The idea was dropped not before Bank of Ireland had severed its relations with its existing IT partner, the US company founded by the Presidential candidate, Ross Perot. However, Soden decided to don his safari suit and go hunting for bigger game in his quest for size. In July, the CEO of Abbey National, Ian Harley, walked the plank after the former building society had issued a profit warning. A number of analysts suggested that Abbey and Bank of Ireland would make a good fit. The matter appeared to lapse.

But not for long. Ten days ago, news of a planned bid from Bank of Ireland was leaked to the media. Back in 1999, news of another Bank of Ireland bid for another British institution, the Alliance & Leicester also emerged prematurely and the Bank was ultimately sent packing. The reputation of Bank of Ireland's management was seriously dented. Bank of Ireland had lost face.

Now, it seems, we may have a repeat performance, a bad case of deja vu. Over the past week, Bank of Ireland's share price has plummeted only to recover somewhat in the past couple of days when the markets decided that the bid was off. Elements of the British media was particularly uncomplimentary about the bid, with the Daily Telegraph, not above the occasional bout of Paddy bashing, making some witty references to Riverdance.

But the reaction closer to home was hardly comforting. The CEO has come in for some sustained criticism Says one leading fund manager: "There is a feeling that he (Soden) came in with the feeling that he had to do something big. He has cheesed people off by being condescending about Irish banks. The view of the market is that he wants to get bigger at any cost."

"The savings from this deal are calculated at 200 million which is not very significant, there is no major fit between the two."

And if the deal collapses? "I would not be surprised if he (Soden) were not to step down. He would be a lame duck and he does not need that sort of hassle." Shades of Mick McCarthy, perhaps.

Dan O'Donovan of Setanta Asset Management is also highly sceptical.

"I can't see the logic of this deal. It would represent a dilution of an excellent franchise for a very uncertain return. If they are making an awful lot of money, why don't they use some of it to increase the dividend? Why merge with a struggling British mortgage entity? "It does raise question marks. There is an uncertainty now in shareholders' minds about the bank's game plan."

Some investors, it seems, fear that Bank of Ireland may not be quite the risk free play they thought it was, given Bank of Ireland's apparent determination to expand by acquisition 'at all costs', in the opinion of some people.

Abbey National's exposure to the troubled US corporate sector and to the struggling life and pensions business through Scottish Mutual has aroused particular concern.

Says one analyst: "Bank of Ireland management are so far out of touch with their shareholders that they are now vulnerable to takeover themselves. I cannot see Soden walking away from this Scot free."

Closer to home, relations with the IBOA are also strained.

The merger plans involving AIB caught the union on the hop and its General Secretary, Larry Broderick says that applications from IT employees to join the union have increased significantly as a result of growing uncertainty about the future. Mike Soden is trying to set a cost cutting agenda and a symbolic plan to get rid of managerial company cars is currently encountering serious resistance. Generally, he is regarded by observers as a competent, steady as he goes, boss, who is implementing a restructuring/cost saving plan hatched by his predecessor.

However, the bank is certainly behind Mike Soden in terms of perceptions.

Senior Bank of Ireland sources insist that their side of the story will get a proper airing when they unveil the details of the bid, early next week.

"In July, quite a number of analysts suggested that Abbey National represented an obvious opportunity."

As for the latest negative sentiment: "The market reacted in exactly the same way when Royal Bank launched its (ultimately successful) bid for NatWest and the same happened with Bank of Scotland.

"In the early stages of a bid, the market is starved of information and they tend to take things negatively."

These sources reject suggestions that Bank of Ireland was effectively offering nil premium over the current Abbey National share price, thereby provoking the sharp rejection from the Abbey board.

Nor is the bank rushing blindly into disaster in the event of a bid succeeding. "The deal is subject to a due diligence. It is not as if it won't have to be subject to shareholder approval."

"Just remember Bank of Ireland's track record. We are among the top twenty performers among European Plcs in terms of return to shareholders over the past five years. The game is not over by any means."

Next week, Mike Soden will reveal his hand. It will be a big week for him just as it will be for Ireland Manager Mick McCarthy. We will soon now whether he has a decent prayer when it comes to getting up the altar for the long awaited marriage, or whether he will is destined to be remembered as just another awkward mover, who couldn't manage to pick up one of the wall flowers in British banking's Ballroom of Romance.

Down the road, in Ballsbridge, it is hard to believe that AIB boss, Michael Buckley, who now understands just what it is like to feel real pressure, is not smiling quietly to himself.