Landsbanki eyes bid in Ireland

Landsbanki is shrugging off concerns about the credit markets and preparing to table a formal bid for Irish Nationwide in the next few weeks that would value the former Dublin building society at about £693m.

Officials close to the move said the Reykjavik-based bank had "done a huge amount of work on the deal" and had met Irish Nationwide's management. A deal could be announced by the end of the month, they said. It is not clear how Landsbanki might fund the move. Irish Nationwide is owned by its 120,000 or so members.

If it goes ahead, the deal would be Landsbanki's second acquisition in Ireland after buying 50 per cent of Merrion Capital, the stockbroker, in 2005. Hypo Real Estate, the German property lender, is also understood to have expressed an interest in the building society but is no longer believed to be in the race. A consortium of Quinlan Private, a local wealth management company, and Bank of Scotland (Ireland) has also had talks with the company. GE Capital has also been suggested as a possible bidder.

Landsbanki, Iceland's third-largest bank, has pursued a more conservative expansion strategy than its rivals Glitnir and Kaupthing, preferring to expand its piecemeal acquisitions organically.

Since its privatisation in 1998 it has acquired UK and Irish brokerages. This year it acquired Bridgewell for £60m. It plans to combine this with Teather and Greenwood, which it acquired in 2005 for £43m, under the Landsbanki Securities name.

In the UK, it also owns Heritable Bank, which specialises in residential development financing. "By combing Heritable Bank and Irish Nationwide, Landsbanki could have some interesting new options in the UK," said Gretar Axelsson, equities analyst at Glitnir in Reykjavik.

Iceland's oldest universal bank, which acted as the country's central bank until 1961, Landsbanki has a strong domestic franchise, with 31 per cent of deposits, making it less reliant than its rivals on wholesale funding markets. It also attracts British deposits through Icesave, its Guernsey-based retail operation.

Since Iceland's overheating scare in spring 2006, Landsbanki has continued to diversify, improving its long-term funding and liquidity position. That has put it in a better position to weather the current international credit squeeze.

"The funding of Iceland's banks is now better than many international banks," said Frosti Olafsson, chief economist at the Icelandic Chamber of Commerce. Landsbanki now draws more than half its revenues from outside Iceland. Deposits cover three-quarters of its loans, while its capital adequacy ratio was 12.5 per cent at the end of the first half.

Source: Financial Times
Date: 05.10.2007 [108]