Royal Bank expands in Ireland with £617m deal

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The Independent Online

Royal Bank of Scotland, Britain's most acquisitive bank, yesterday revealed it was again in line to snap up a smaller rival, saying it has offered €887m (£617m) for Ireland's mortgage business First Active.

The deal will boost RBS's presence in Ireland, where it already owns Ulster bank. The two brands will make RBS Ireland's second biggest mortgage lender and number three in its savings market. The €6.20-a-share agreed cash offer represents a premium of 33 per cent to Friday's closing price of First Active and is 156 per cent higher than its float price in 1998. Yesterday, its shares moved up from 325p to 426.5p while RBS's shares ended 10p lower at 1,620p.

Fred Goodwin, the chief executive of RBS, nick-named Fred the Shred for his robust approach to slashing costs, refused to give details of the expected synergies, but admitted there would be job losses in the "low hundreds".

He added that there would be scope to cut costs and boost revenues by cross-selling Ulster Bank products in First Active branches. RBS's new business in Ireland will have a combined workforce of 5,500.

Mr Goodwin refuted suggestions that the timing was bad as Ireland's housing boom has shown signs of slowing down. "Businesses are a bit like puppies," he said. "You don't just buy them for Christmas. We believe in the long-term growth [of the industry]."

RBS's advance into the Irish market is likely to put pressure on the big two in Ireland, Bank of Ireland and Allied Irish Banks. Mr Goodwin said he had "made no secret" of his interest in boosting RBS's presence in the economy that is still more buoyant than many in Europe. He also admitted that his group had looked at possible deals with AIB and Bank of Ireland, but rejected them because both would have run into problems with the competition authorities.

The size of yesterday's deal is fairly insignificant for RBS shareholders and RBS made it clear that the deal did not mark the end of its aggrandising ambitions, which chiefly lie in the US. "Nothing has changed about our ambitions there," Mr Goodwin said.

Analysts have estimated that the bank will throw off up to £3bn a year of surplus capital by next year - once it has made a final £1.5bn payment to NatWest shareholders in December under the terms of the takeover, three years ago.

This cash could be used to fund a more substantial acquisition. In the summer, Mr Goodwin had said that, alternatively, the money could be returned to shareholders in the hope that they would be ready to reciprocate at a later date by supporting further buying sprees.

Last month, RBS spent $136m in the US on Thistle Group, owner of Roxborough Manayunk Bank, Pennsylvania, while in June it bought Churchill, a UK insurer, from Credit Suisse for £1.1bn. This year it has also bought Commonwealth Bancorp in Pennsylvania, Santander Direkt in Frankfurt, Community Bancorp and Port Financial, both in Massachusetts.

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