Merger talks are underway in Ireland between Educational Building Society and Irish Nationwide in a bid to create a force to compete with the country’s big two lenders, Allied Irish Bank and Bank of Ireland.
The government is encouraging the deal with an offer of 2.4bn euros in funding which would give it a 40% to 60% stake in the new entity.
Irish Life and Permanent recently decided to change its corporate structure, freeing up banking arm Permanent TSB to seek to join the merged group later.
The capital injection into the lenders will follow the transfer of their toxic loans to new state rescue vehicle the National Assets Management Agency.
EBS will move around 800m euros of its 17bn euros loan book to NAMA and estimates that it will need some 400m euros in recapitalisation funds.
But its prospective partner Irish Nationwide is in a much weaker position as a result of reckless lending on property and commercial developments.
It will transfer 80% of its loan book – some 8.3bn euros in loans – to the state agency and will require about 2bn euros of taxpayers’ money to stay afloat.