Bank of Ireland dominates the headlines today, both with the announcement that it is to shed over 2,000 jobs and the release of its pre-close trading statement for the six months ended March '05.

Naturally enough, the IBOA opposes the cuts - well, that's what unions are for.  But if you look at the trading statement, and naturally it's all rosy outlook, it's interesting to compare some of the figures to their main competitor, AIB.  BoI is quoting expected lending volumes growth of 23%, mortgage lending 26% and resources growth at 12% (the national average for 2004).  AIB came in at 30%, 29% and 16%, respectively - ahead of BoI in each case.  In any case, the big two seem to be doing very nicely, even with the increased level of competition over the past couple of years.

Not everyone is happy with the levels of competition and integration in European banking though - British-based think-tank CEPR has just released their Integration of European Banks: The Way Forward report.  From the press release:

"The authors document a variable level of integration in banking. It is high in wholesale banking and in certain areas of corporate finance, modest in relationship aspects of banking, low in retail banking, and patchy and heavily dependent on foreign financial institutions in the accession countries.

The authors argue that the increase in competition brought about by the introduction of the euro and more recent deregulation measures has been relatively small. To them the surprising feature of Europe's liberalization and deregulation in banking is not that the integration is incomplete. The surprise is that market integration in some areas falls so short of expectations."

The Economist comments that "What may be holding Europe back as much as anything is the lack of a centralised retail payments mechanism" ("Divided we fall", 19-25 March '05 issue), and goes on to suggest that EU internal market commissioner Charlie McCreevy may be loosing patience with the slow pace of bankers' attempts to develop a European payments area of their own.  There may be a much higher level of integration and competition coming down the tracks, whether the banks want it or not.

Things are getting shaken up a bit in the Irish banking market right now, with Bank of Scotland launching a bid to buy the ESB retail network and take over their consumer loan book.  When BoS entered the Irish market a few years ago, as a solely Internet-based mortgage provider, it had a huge impact on the incumbent lenders and their mortgage margins.  Whether BoS (Ireland) can do the same in the wider retail banking industry remains to be seen - the additional costs of a branch network is possibly going to hit their 35%-ish cost/income ration quite hard, but they seem to think that they can achieve much higher margins on traditionally unprofitable products such as current accounts and gain a competitive advantage from keeping those margins off maximum and passing the benefit to customers in interest payments.  They're not giving too much away at the moment though; their flagship products won't be available until Q4 2005.

Whether Bank of Ireland is panicking in its attempt to slash costs by laying off - sorry, outsourcing - 2,000 staff remains to be seen.  Given the trouble they had trying to outsource a lot of their IT support in the last year or so, it'll be interesting to see their rationale when they formally announce their plans (or not) tomorrow.

So the state of play at the moment is that the main competitors are - unless I'm forgetting someone - AIB (who weathered a horrible storm last year over some FX overcharging), Bank of Ireland (of the outsourcing problems), Ulsterbank (who bought up First Active early in 2004, and are themselves part of the larger Royal Bank of Scotland - not to be confused with BoS), Permanent TSB (the merged form of Irish Life & Permanent with TSB), and National Irish Bank (now part of the Danske Bank Group, who bought Northern Bank at the same time).

So what we've been seeing is a period of consolidation and acquisition in the Irish market, plus the entry of three large foreign banking groups.  Whether those three are aiming for a sizeable presence remains to be seen - the Irish economy is growing nicely these years and even small players can make good profits if they have the right product offerings, without any aggresive competition.

Watch this space.