Anglo Irish bank set for merger with First Active

Ireland's fourth-largest traded bank and its fifth-biggest mortgage lender are on the brink of a merger that will consolidate the Irish market and stave off competition from foreign banks, it emerged yesterday.

Anglo Irish Bank, which primarily lends to corporate customers, and the mortgage provider First Active are likely to announce the deal within the next couple of days, possibly at First Active's annual meeting today. It will spark questions about the future of First Active's fast-growing UK arm, First Active Financial.

First Active Financial makes up nearly 40 per cent of the First Active group after doubling its profits to 15.7m euros (£9.42m) last year. In contrast the group performed sluggishly, raising profit by 4.5 per cent to 48.6m euros. An insider said: "First Active Financial is meant to be a wholly-owned subsidiary of First Active, but now it is more of an equal partner."

One option for the new group would be to spin off First Active Financial, which specialises in flexible mortgages, raising well in excess of £100m. The money could be used to fund the group's strategy of further consolidation in the Irish market. This would leave only a small UK presence as a commercial lender.

But a source at Anglo Irish last night signalled that First Active Financial could become a core part of the new company's strategy. "It has a developed internet presence which would be a platform to take the group forward in a new market," he said.

Anglo Irish, capitalised at 719m euros, is thought to have seen First Active as a bargain. The company, with a market value of 345m euros, has not performed well since its flotation in 1998. Shareholders will call for the resignation of three directors at the AGM today.

The merger reflects the strategy of other players in Ireland's financial services industry which are seeking to increase market share and cut costs in the face of overseas competition from rivals such as Bank of Scotland and UK-based Northern Rock.