Allied Irish sells Allfirst to N.Y. bank

THE BALTIMORE SUN

Seven months after being embroiled in one of the banking industry's biggest scandals, Allfirst Financial Inc. was sold yesterday to a Buffalo, N.Y., banking company for $3.1 billion.

The acquirer was M&T; Bank Corp., a highly regarded banking organization, which negotiated the sale with Allfirst's parent, Allied Irish Banks PLC.

In a single stroke, M&T; would become the country's 18th-largest banking company, with $49 billion in assets and more than 700 branches in six Northeastern states and Washington.

Allied Irish, of Dublin, Ireland, would have a 22.5 percent stake in M&T.;

The deal was finalized Wednesday night after Robert G. Wilmers, M&T;'s chairman and chief executive, placed a telephone call to investment guru Warren Buffett, the company's largest shareholder, who gave his approval.

Buffett "was 100 percent supportive," Wilmers said yesterday.

The acquisition is subject to regulatory and shareholder approvals, but bank executives said they anticipate closure on the deal during the first quarter of next year.

A number of changes would come after the deal closes. The Allfirst name, a sharp reminder of the currency trading scandal that rocked the bank in February with a $691.2 million loss, would disappear. Allfirst Bank would become Manufacturers and Traders Trust Co., which is M&T;'s lead bank.

Some employees would lose jobs, but executives couldn't say how many yesterday. Allfirst's downtown headquarters on Charles Street might also be in jeopardy.

"We are not here to slash and burn," Wilmers said. He said the number of people who would be let go is "not a large number."

Analysts praised the deal, saying both companies would benefit. The two top executives were equally upbeat.

"I think we will be a real force going forward together," said Michael Buckley, chief executive of Allied Irish. "This management team and M&T; will really make the business hum."

'Dynamic partnership'

Wilmers called the acquisition a "dynamic partnership" that would propel the bank into the larger and more lucrative Baltimore-Washington market.

"Allfirst is in growing markets," Wilmers said. "They have strong market share and business strengths that will enhance our own operating mix."

The acquisition caps a tumultuous and embarrassing seven months for Allied Irish and Baltimore-based Allfirst. The two companies have struggled to recover since Allfirst uncovered the huge losses in bad currency trades.

Trading scandal

Bank executives have blamed the debacle on John M. Rusnak, a former Allfirst foreign exchange currency trader, who they allege 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.

Rusnak was fired along with six employees, some executives. Eugene C. Sheehy, an Allied Irish executive, was brought in as chairman this April to run Allfirst.

Sheehy replaced Frank P. Bramble, who said he would retire early about a month after the scandal was revealed. He bumped up his departure date by six weeks and left the bank April 19. Susan C. Keating, Allfirst's president and chief executive, stepped down in July after philosophical differences with Sheehy, who took on her responsibilities.

Buckley and Wilmers said the deal was not forced because of the Rusnak scandal. The executives said the banks began talking in October, about four months before the currency trading problems were uncovered.

The decision to sell

Before the scandal, Buckley was considering whether to continue to run Allfirst or sell it and take a stake in a larger bank, he said.

"We carried out an assessment of where we could get earnings momentum," Buckley said. "The result was sort of a knockout for the M&T; option. It is a win-win for us."

Buckley said the trading losses "didn't push us farther or faster" to sell Allfirst. If anything, the scandal slowed the talks because Buckley was spending a lot of time dealing with the problem, he said.

Wilmers called the scandal an "isolated incident."

"As far as I am concerned," he said, "Rusnak is totally and completely irrelevant."

Positive reactions

Analysts applauded the deal, as did the stock market. Banks that make acquisitions typically see their shares fall, but M&T;'s vaulted $5.43 a share to $80.11 yesterday. Allied Irish's shares jumped $1.50 to $24.20.

"The general reaction here was positive," said Keith Baird, a banking analyst at Prudential-Bache in London "They [Allied Irish] get 22 percent of a much bigger, more valuable bank than they had with 100 percent of Allfirst. From an AIB point of view, people generally welcomed it."

'It meshes very well'

M&T; Bank is among the country's strongest and most highly regarded regional banks. It was founded more than 140 years ago in Western New York and grew rapidly by making acquisitions, even buying troubled savings and loan associations.

"It is a gem of a bank ... a wonderfully managed bank," said Robert J. Lacoursiere, a banking analyst at Lehman Brothers in New York. The acquisition of Allfirst "propels them into a higher growth market. It meshes very well."

M&T; has $31.7 billion in assets and about 470 branches in New York, Pennsylvania, Maryland and West Virginia. Allfirst is smaller with $17.3 billion in assets and about 250 branches in Maryland, Pennsylvania, Washington, Northern Virginia and Delaware.

The banks complement each other in several ways, Lacoursiere said. Allfirst has a large wealth-management business that offers mutual funds and other services, while M&T;'s is much smaller. Allfirst also generates about 40 percent of its revenue from service fees charged to customers, compared with 28 percent at M&T;, Lacoursiere said.

M&T;, on the other hand, is a top retail bank, a careful lender known for its top-notch management team. It has made 10 acquisitions in the past 11 years while increasing profits.

"We know how to run a great regional bank," Wilmers said. "We have a track record that speaks for itself."

Changes in store

Under the agreement, Sheehy, who runs Allfirst, would become chairman and chief executive of M&T;'s Maryland and Pennsylvania division. He would also join M&T;'s executive management committee and would be named to the corporation's board.

Buckley would join M&T;'s board, and Wilmers would become a director of Allied Irish.

The company expects to save $100 million in costs -- $60 million of that next year.

Arnold G. Danielson, chairman of Danielson Associates Inc., a Rockville-based bank consulting firm, said he expects consolidation in the backroom operations and in the headquarters, which could hurt Baltimore. "In the long run, you are not going to have two headquarters; you will have a regional headquarters," Danielson said. "Now it is just a matter of time before there are a bunch of M&T; signs floating around."

'Wisdom was to sell'

Industry experts said that Allied Irish didn't have to sell but that it was the best decision because the company was tainted by the scandal. Allfirst's performance, even during the nation's biggest economic expansion, was lackluster compared with competitors, analysts said.

Allfirst's 1997 acquisition of Harrisburg, Pa.-based Dauphin Deposit Corp. never resulted in the growth anticipated, analysts said.

"It didn't have to be sold, but they have been struggling all along. And then the Rusnak thing. There comes a point where you can't take any more," Danielson said. "They sold it because ... there is so much fixing to do. To try to right the ship in this market was not easy. It reached the point where wisdom was to sell."

Jonathan Gollins, a banking analyst at Banc of America Securities in London, believes Allied felt pressure to sell Allfirst after the trading losses.

"I think it may have been seen as too high-risk," Gollins said. "Apart from the Rusnak episode, the recent performance of Allfirst hasn't been inspired."

Baird, the Prudential-Bache analyst, said Allied Irish investors are relieved by the deal.

"Allfirst, as it stood, was regarded as being damaged goods and was slow growth and was generally regarded ... as a drag on the group," Baird said.

Buckley doesn't believe the sale of Allfirst marks failure for Allied Irish. "We have achieved a return on our original investment ... of about 12 percent so far," Buckley said. "I am talking about improving that ... and not cashing out my chips."

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