Bank of Ireland gets upgrade after failed Abbey approach

Bank of Ireland has seen its shares upgraded in the aftermath of the withdrawal of its bid for British rival Abbey National. ABN-Amro yesterday raised the bank to Add from the Hold status it had allocated it during the failed approach to Abbey National.

However, it decided to stop short of restoring the more favourable Buy rating Bank of Ireland had enjoyed before its latest failed expansion plan because of questions over the bank's strategy.

The broker said there were likely to be questions from investors about whether Bank of Ireland's existing British operations at Bristol & West would be downsized in the aftermath of the bid or built up in some other way.

The questions about strategy emerge after the bank's second successive failure in its efforts to expand its operations in the British market. The ill-fated move for Abbey National by new chief executive Mr Michael Soden came shortly after talk of merger with Irish rival AIB and just over three years after his predecessor, Mr Maurice Keane, launched an unsuccessful bid for another former building society, Alliance & Leicester.

ABN said other options open to Bank of Ireland were a swift move to make an acquisition in its core areas or a move to return capital to shareholders.

Bank of Ireland's shares have recovered from the 15 per cent fall they suffered during the bid process as markets quickly showed their disapproval of a deal whose logic they found hard to fathom. Yesterday, the bank's shares were trading at €10.44, down from their post-bid collapse high of €10.55 last Friday but still ahead of the €10.22 at which they stood before news of the move for Abbey National.

ABN says the very reasons behind the failure of its bid for Abbey - the lack of substantial cost savings - should protect Bank of Ireland from takeover itself, with only two potential British suitors - HBOS and Royal Bank of Scotland - being large enough and having a presence in the Irish market. However, it said that as long as questions hang over Bank of Ireland's strategy, people seeking exposure to Irish banks may turn instead to AIB.