Shares in AIB rebounded from yesterday’s heavy losses following news of an alleged fraud at its US subsidiary Allfirst Financial.
Takeover speculation also resurfaced today as AIB’S growth strategy as an independent bank is now uncertain, dealers said.
At 1.30 p.m. AIB shares were 44 cent higher at 11.79 as the markets grappled to assess the full impact of the $750 million loss on the company’s accounts.
Yesterday almost €2 billion was wiped of the value of AIB after the bank said it had lost $750 million in an alleged foreign exchange fraud at its US subsidiary, Allfirst Financial.
While the group said it is confident it has identified the scale of the problem at Allfirst, the market remains sceptical and such doubts will remain until a full investigation of the affair is completed, dealers in Dublin said today.
AIB disclosed a €596 million once-off reduction in its 2001 profits from the suspected fraud. But this assumes that there will be no knock-on effects on the AIB’s other divisions.
AIB had built up a large cash pile in recent years to fund further acquisitions in the US but this strategy is now in doubt, analysts said.
On a fundamental valuation AIB is now trading at 10 times 2001 earnings, a considerable discount to other mid-sized European banks.
Until yesterday’s revelations AIB had been trading at a 12-month high. The company’s return on equity was a healthy 20 per cent and earnings growth of 8 per cent was also above the sector average.
As the bank now looks relatively cheap and its core businesses are performing well, talk of a takeover is inevitable. Some of the larger British banks keen to gain a foothold in the Irish banking market seem the most likely suitors.
AIB’s ability to raise funds on the capital markets may also be curtailed if credit rating agencies like Moody’s and Standard & Poors downgrade the group.
Moody’s said it has no plans to downgrade AIB as it is confident the losses have been contained and will have no material impact on the rest of the group.