Shares in AIB suffer heavy fall

Shares in Allied Irish Banks have fallen heavily for the second successive day on fears that the bank may be excluded from the Dow Jones Eurostoxx-50 index when the composition of the index is restructured at the end of next month.

After falling 41 cents on Monday, AIB fell a further 63 cents - or the equivalent of £425 million - yesterday to €12.47. Yesterday's close compares with AIB's high for the year of €18.20 and is well off its end-1998 level of €15.27.

Stoxx, the Dow Jones company which operates the index, has said that under a new method of selection, stocks will be selected largely on the basis of market capitalisation rather than the current country-by-country system. AIB is currently ranked at 57th among the shares that Stoxx is considering for inclusion in the revised index, indicating that it will find it difficult to retain its position in the Eurostoxx-50.

AIB is the only Irish stock currently listed and its inclusion since the beginning of the year has meant that the stock has been in strong demand from index-based and tracker investment funds who use the Eurostoxx-50 as a basis for their asset allocation.

The heavy selling of AIB shares is based on a view that exclusion from the index will trigger a flood of selling by those index and tracker funds that have built up positions in AIB since the introduction of the euro. It will also make AIB a significantly less attractive investment prospect for institutions which operate on a pan-European rather than a country-by-country basis.

AIB is not the only large European company to suffer from the proposed restructuring of the Eurostoxx-50. Others include the German airline, Lufthansa, whose shares have also fallen sharply in the past couple of days.

AIB's head of investor relations, Mr Maurice Crowley, said that the bank had not been informed of its removal from the Eurostoxx-50 and all that has happened is that Stoxx has proposed changes in the way the index is compiled.

Mr Crowley said that inclusion in the index had been responsible for buying of the shares by European investors. He accepted that some of those who had bought on the basis of Eurostoxx-50 inclusion might now sell. "If we fall off, it will be unfortunate," he said.