Northern Ireland

North keeps wary eye on southern banks

AIB sign
Image caption The Irish Government is on the verge of nationalising Allied Irish

The Irish government is set to take a majority stake in a second major bank, the Bank of Ireland.

It is already on the verge of the complete nationalisation of Allied Irish. So what's the likely outcome across the Republic's land border in Northern Ireland?

The fallout from the Irish banking crisis is being watched carefully from Northern Ireland where the southern banks have a large footprint.

Irish Taoiseach Brian Cowan has already stated that Irish banks will in the future be significantly smaller than in the past.

It's how that down-sizing takes place that will be the key to the impact on the banking system north of the border.

Both the major Irish banks have significant operations in Northern Ireland.

Between them the two southern-owned banks, the Bank of Ireland and the First Trust - which is owned by the Allied Irish - control about a third of the banking market.

The First Trust employs 1,300 people in 48 branches. Under the £85bn bail-out from the IMF, it is expected to to be fully nationalised.

The Bank of Ireland has 44 branches and 1400 staff north in Northern Ireland and faces the prospect of majority Irish state control.

One senior banking source said: " Ostensibly the two banks will be run independently on a commercial basis.

"But the Irish Government will have objectives the banks will be expected to live up to, especially outside Ireland, and the main focus will be the health of the Irish economy."

That health check will include a detailed look at operations in the north.

Staff at both banks are looking over their shoulders to Dublin in anticipation of the next instalment in the banking saga.

No doubt they will be mindful that when banks run into difficulties, they tend to concentrate on their core home markets - such as the Republic - and reduce international exposure.

If this is the case, their activities north of the border will form an important part of that equation.

So far, the southern banks have adopted different strategies in relation to their activities in the north.

The AIB tried to off-load the First Trust but a buyer could not be found.

The Bank of Ireland took a different tack.

It went for the "restructuring" option that saw 230 staff laid off when it announced it was consolidating some activities back to its Dublin centre.

A banking source said: " No matter what happens, the centre (Dublin) will want to take costs out where-ever possible, and that will mean close scrutiny to ensure there is no duplication of services."

While that may be the short-term option, sale may be a longer term objective if an appropriate buyer can be found.

In the words of the head of the Irish Central Bank, Patrick Honohan: " As far as I'm concerned, they are for sale."

While not wanting to comment on ownership, the Banks on Wednesday addressed what many will see as the most important issue of all - the safety of their deposits.

Both banks re-assured depositors that accounts held on the northern side of the border are regulated by the UK financial authorities and fall under the terms of the UK deposit guarantee scheme.