Allied Irish denies Allfirst will be sold


A top executive with Allied Irish Banks PLC denied yesterday a report that Allfirst Financial Inc., its Baltimore subsidiary, which lost $691.2 million in a currency trading scandal, will be sold before the end of the year.

The weakened banking company is conducting a "strategic review" of its options, and officials confirmed yesterday that it plans to cut more than 300 employees by December.

The executive, who requested anonymity, said no decisions have been made regarding the future of Allfirst, which has 6,000 employees and is the largest bank in the state with headquarters in Maryland.

The Irish Times quoted unidentified bank sources yesterday as saying the company is likely to sell Allfirst before the end of the year.

"Any suggestion that we have reached a decision is entirely speculation, because we haven't," said the executive, who works in Ireland. "We are looking at a whole range of options. When we do make a decision, when the review is complete, we will be making an announcement."

Bank sources confirmed that employees were recently given early-retirement packages and have until early next month to accept or reject them.

Catherine Burke, an Allied Irish spokeswoman, confirmed that "voluntary early-retirement packages" have been distributed to some Allfirst employees, but she said she didn't know how many people will leave.

"They will have rid themselves of the more-expensive people, and they will pare it [the bank] through involuntary separations," a source at Allfirst said.

Allied Irish and Allfirst have struggled to recover since the stunning currency trading losses were revealed in February.

Bank executives have blamed the losses on John M. Rusnak, a foreign exchange currency trader, who they claim hid millions of dollars in losses over five years.

Rusnak was indicted in June on federal bank fraud charges in what prosecutors called a "complex and sophisticated" scheme.

If convicted, he could be sentenced to 30 years in prison and a $1 million fine. He was not charged with stealing money, but prosecutors said he reaped nearly $550,000 in bonuses as his fake trades falsely inflated bank profits.

The scandal rocked the company, which launched an internal investigation led by Eugene A. Ludwig, a former U.S. comptroller of the currency, who concluded in March that Allfirst's oversight and controls were lax, riddled with problems and that Rusnak's trading wasn't carefully scrutinized.

In May, Allied Irish executives said at the company's annual meeting that it would decide by the end of the year whether to begin a withdrawal from U.S. banking. A number of analysts agree that a sale might be the company's best option.

The revelations also prompted a major housecleaning at Allfirst.

Rusnak was fired along with six co-workers and supervisors who failed to detect the losses. Those employees were: David M. Cronin, executive vice president and treasurer; Robert F. Ray, senior vice president of treasury funds management; Jan N. Palmer, senior vice president of investment operations; Larry Smith, a clerk in the operations unit; Michael Husich, head of internal audit; and Lou Slifker, also with internal audit.

The bank has not suggested wrongdoing on their part.

In April, Allied Irish named one of its executives, Eugene C. Sheehy, chairman of Allfirst, replacing Frank P. Bramble, who retired April 30. Bramble has since joined credit card giant, MBNA Corp.

Susan C. Keating, Allfirst's president and chief executive, stepped down in July.

Rumors in early 2002

Rumors of Allfirst's impending sale have died down since early in the year when the scandal was fresh.

Burke, the Allied Irish spokeswoman, declined to comment yesterday on The Irish Times report. The article said Allied is looking to merge Allfirst with a larger U.S. bank and retain a 25 percent stake in the operation. It offered Citizens Financial Group Inc. as a possible buyer.

"We never comment on speculation as a matter of corporate policy," Burke said.

Many analysts say Allfirst would fit well with Citizens, which is based in Providence, R.I., and is one of the largest banks in New England.

In 1988, Citizens became a wholly owned subsidiary of the Royal Bank of Scotland Group, based in Edinburgh, Scotland. With assets of nearly $600 billion, "The Royal" is one of the largest banks in the world, largely as a result of its $32 billion takeover in 2000 of National Westminster Bank, or NatWest. It was the largest takeover in British banking history.

Even without solid evidence that a deal was afoot, some analysts said the prospect would be far from surprising.

"In fact, I think it would be reckless of management if they just kept going in the same direction and didn't consider what other options might be available," said Alan Reid, a senior vice president of Moody's Investors Service.

Allfirst remains a fundamentally sound bank with a healthy business and market share, but the trading fraud has probably prompted Allied Irish officials to consider whether their U.S. subsidiary is worth the trouble.

'A great franchise'

"Allfirst is a great franchise," Reid said. "It has a strong market share, a strong share of deposits and a very good adjusted profitability. But its position has been weakened because of the fraud."

Reid said that working out a deal to sell Allfirst might prove difficult.

"Historically, Allfirst had been an acquirer. But now, after the fraud, what are banks going to think when Allfirst comes to them with an offer?" Reid said. "Imagine trying to sell that to your shareholders."

Other analysts don't see how Allied Irish could sell Allfirst, which gives the company a foothold in the biggest economy in the world. Allfirst has $17 billion in assets and about 250 bank branches in Maryland, Pennsylvania, Washington, Northern Virginia and Delaware.

"The logic of AIB selling Allfirst doesn't appear evident to me," said Bert Ely, a banking consultant in Alexandria, Va. "It wouldn't appear evident to me until there is a clear idea of what they will do with the money, and they don't have a lot of options. I don't think they would have much in way of expansion in Ireland. "

With rumors swirling, the mood at the company is sour, a source at Allfirst said.

"It is just very, very down," the source said.

Some employees who received early-retirement packages were happy, another source said.

"I know some people who are doing backflips over it," he said. "'Just get me out.'"

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