AIB surges as S&P lifts downgrade threat

Shares in Allied Irish Banks rose sharply on the Dublin and London markets yesterday after ratings agency Standard & Poor's lifted a threat to downgrade the bank's debt ratings. AIB shares gained 45 cents in Dublin to close on €12.20 (£9.61).

Some time ago, S&P had put a "negative outlook" on AIB's ratings - shorthand for a warning that the ratings would be downgraded unless action was taken or the bank's situation improved. That threat has now been lifted.

In its report, S&P said its decision to retain its stable outlook for AIB ratings was due to a number of factors, one of which was AIB's decision to withdraw from its investment in a Malaysian bank, Keppel Tatlee. AIB had an option to acquire a 24.9 per cent stake in Keppel Tatlee but has since withdrawn its interest. "S&P welcomes AIB's exit from this relationship because it terminated potential expansion into riskier markets and facilitates greater focus on existing operations," the agency said.

The rating also reflected AIB's strong position in the domestic market, its strong balance sheet and also the performance of the Allfirst operations in the US.

In the case of Allfirst, S&P said its asset quality was holding up well in the face of the US economic slowdown. Although S&P expressed some concern about weaker conditions in AIB's key markets - Ireland, Poland, the US and Britain - "the stable outlook reflects the expectation that AIB will manage the impact of the downturn in a controlled manner". But the agency warned the rating could come under pressure if the downturn was sharper than expected.