Why bid for EBS?

Along with many others, I was confused at the fascination with EBS as a takeover target. You see, EBS’s best year recorded a profit of less than €50 million. Which given the size of its operation and loan book is rather unimpressive. The company is also heavily staffed by union members meaning it would be difficult for present management to wade in and cut the numbers in a meaningful manner.

So what is the obsession with private equity and EBS? And what about PTsb?

For a start, PTsb are not currently my lead favourite as a bidder, there are two reasons, one is that the bank rescue plans are being looked at from a competition aspect in Europe, and if PTsb were to take over EBS it would reduce competitive forces, secondly, PTsb may not be in condition to do a takeover. They have their stress-test due out in September and for now we have no idea of how that will look, EBS would add a large chunk to their loan book but deposits in the society are only c. €1bn and that may not aid in creating the loan/deposit balance that banks are looking for, especially given that PTsb are still firmly over the 200% mark. Lastly is a political consideration, every person working in EBS has a significant other in PTsb, if they were to take over it would make great sense from a costing perspective because you could literally fire almost everybody. However, the government are not likely to be in favour of that given the fall out that would result. If private equity took over EBS might (hypothetically) go from 1,000 workers to 700, but if PTsb took over it would go down to more like 200.

Which leaves private equity in the front line, for two reasons, they will bring some of their own capital (who ever wins the bid will be doing it with implicit state support included), and they will help to maintain competition while not reducing staff numbers as heavily as the first option.

Why would private equity be interested? Most of the distribution in EBS is via an agency network which is basically like having a lot of tied brokers?

The agency network does something brokerage in other institutions fail to do, namely raising funding. EBS have made good headway in that respect, bringing in €750m in 2008, €670m in 2009 and on target to do the same in 2010, but the real attraction is a relatively robust loan book with pricing opportunity.

The big banks have a loan book that roughly looks like this

Fixed Rates 20% (much of which may revert to tracker)
SVR’s           20%
Trackers      60%

EBS on the other hand has the inverse

Fixed Rates 20% (most of which revert to SVR)
SVR’s           60%
Trackers      20%

Which quickly explains the fascination, whoever takes over EBS has the ability to increase rates across the loan book in a manner which will have magnified results, much of the mature loan book will shoulder this quite well and ultimately create a profitable organization.

The three key factors will be to reprice the loan book, to lower deposit rates, and to find operational efficiency via staff numbers. A new owner will find it relatively easy to perform all three and to go on and sell the bank in a few years, that is the reason for the level of interest in EBS, they had low profits in the past because they were a mutual, but take the membership agenda out of the equation and you have a bank that is primed for making profit.


  1. Ronan B

    Karl, Re EBS I have a standard variable rate of 3.83% and considering fixing on a five year rate of 5.3%. Do you believe this is the right strategy or should I ride out the storm…..

    PS Very informative article

  2. Hi Ronan,

    I can’t give you advice based on rate alone because there are other factors to consider, other debts, what your mortgage balance/repayment is, if you plan to overpay it etc. If you have a financial advisor ask them, if not you can call our company and one of our brokers may be able to help.

    What I can say is that EBS offer new clients a better rate than that, by almost a full 1%! you might want to consider leaving them altogether and look for a fixed rate elsewhere so you get the promo offer, the cost of the move may be well offset by the difference.

  3. Liam Walsh

    Hi Karl

    I have a question which is not directly related to my mortgage with the EBS, but i hope you might help me with some advice. I have a mortgage and an investment fund with the EBS. If the EBS are taken over would the members get shares from the takeover company or a cash dividend if they new owner is not on the stock market?

    Many thanks for your time


  4. Hi Liam,

    I would wager odds of somewhere between 0-2% chance of that happening.

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