AIB to sell Allfirst subsidiary

AIB is planning to divest itself of its US subsidiary, Allfirst, in Baltimore, Maryland, probably before the end of the year, according to bank sources.

AIB is likely to seek to merge Allfirst with a larger American bank and to retain a minority shareholding, probably in the region of 25 per cent.

This plan of action is believed to have been approved at an AIB board meeting in Dublin yesterday. Last night a spokeswoman would not comment on what was discussed at the meeting.

The prospect of a merger with Allfirst would be appealing to Citizens' Bank, which is part of the Royal Bank of Scotland, and has been expanding in the US, according to bank analysts.

Royal Bank of Scotland, the UK's second biggest bank, has made no secret of its ambitions to expand in the US. In June it announced an agreement to buy Medford Bancorp, a New England regional bank, for $273 million (€274 million).

Citizens, is based in Providence, Rhode Island, and operates more than 710 branches and 1,500 ATMs in New England and the mid-Atlantic states.

The price of banking assets is now cheaper in the US than in Europe, where the UK banks have been slow to make acquisitions.

Sources in Baltimore said that Allfirst was planning to reduce its 6,000 member staff by several hundred through early retirements.

The AIB spokeswoman confirmed the voluntary scheme had been announced up to four weeks ago to Allfirst staff.

The bank does not know how many staff will avail of this early retirement option, according to the spokeswoman.

This would make its cost base more attractive to a prospective buyer of a majority shareholding, with potential savings of up to $40 million a year.

Many AIB senior figures have become disillusioned with the bank's US acquisition, especially since the loss of $691.2 million through fraudulent trading by foreign exchange dealer Mr John Rusnik.

An internal inquiry into the fraud by US bank investigator, Mr Eugene Ludwig, found that Allfirst's Treasury Department lacked proper controls. There have been 10 firings or resignations at Allfirst since Mr Ludwig issued his report in March. Mr Rusnik is facing trial in January on fraud charges.

The chairman of Allfirst, Mr Frank Bramble, and chief executive, Ms Susan Keating, both resigned.

AIB sent Mr Eugene Sheehy, head of retail banking in the Republic, to take control of Allfirst. He has since assumed the titles of chairman, president and chief executive.

The Allfirst brand has been damaged by the fraud and confidence in the bank has been dented.

AIB began its purchase of Allfirst - then called First National Bank of Maryland - in 1983 and completed its acquisition of the bank in 1989.

AIB's original plans that Allfirst would expand in the mid-Atlantic region did not work out, though it made one major purchase - that of Dauphin Deposit Bank in Pennsylvania in 1997. Since then the bank has under-performed.