Abbey gives Irish the brush-off

BANK of Ireland reacted angrily to Abbey National's rejection of its takeover approach today, accusing the UK bank of not giving it the chance to explain its plans. 'We're very disappointed,' BoI spokesman David Holden said. 'We weren't given the formal meeting that we requested. We're disappointed by the fact that they haven't engaged.'

Although BoI governor Laurence Crowley met Abbey chairman Lord Burns, there was no follow-up meeting to flesh out his ideas for the combined operation.

Abbey shares climbed 18 1/2p to 554p as bid hopes were kept alive by reports that National Australia Bank could replace BoI as a potential suitor.

Abbey said its board unanimously rejected the BoI approach after careful consideration and was pressing ahead with operating and structural reforms announced in July. These were 'the most effective means of restoring value' to Abbey's two million shareholders, it said. 'The board has therefore determined that the BoI's approach is not in the best interests of shareholders.'

Abbey declined to comment on speculation that NAB, which owns the Clydesdale and Yorkshire banks in the UK, was prepared to offer more generous terms than BoI, which was looking for a nil-premium merger.

However, NAB, which has suffered serious setbacks in its North American operations, faces huge obstacles in any deal with Abbey, including the need for a dual listing. Shareholders are unlikely to consider seriously any offer with Abbey's shares languishing at current levels, analysts said. They would also ideally want a cash element in any bid.

NAB has been a perennial suitor for British banks, including Alliance & Leicester and Bradford & Bingley, but has never made it to the altar. With a market capitalisation of A$52bn (£18.3bn), it has the firepower to swallow a substantial UK bank. Its share price has improved by 26% this year, reflecting the view that investors have forgiven its disastrous foray in US mortgage lending, which cost it A$4.4bn in write-downs. The marginal strengthening in the Australian dollar would also help in any bid. Earlier talks with Abbey foundered because of 'cultural differences', it is thought.

Key facts on NAB

Australia's largest bank with A$375bn in assets (£131bn).

Market capitalisation A$52.1bn (£18.2bn).

UK assets include Yorkshire Bank, Clydesdale Bank, and Northern Bank in Belfast.

Also owns National Irish Bank in Dublin and Bank of New Zealand.

Cash-rich from sales of its American operations.

Previous Abbey talks said to have broken down over 'cultural differences'