Allied Irish Banks PLC will see profit growth in the mid-single digits this year - down from about 12 percent last year - with problems at its scandal-ridden Allfirst Financial Inc. unit offsetting strong performance in other markets, including Ireland.
The profit forecast was contained in a "trading update" report issued yesterday by the Dublin-based Allied Irish. Plans call for the Baltimore-based Allfirst Financial to be merged into M&T; Bank Corp. of Buffalo, N.Y., sometime during the first quarter of 2003.
The sale of Allfirst is one step in Allied Irish's attempt to regain the confidence of both customers and investors after the parent company was stung by a $691 million currency-trading loss at the local subsidiary.
John M. Rusnak, the currency trader responsible for the loss, pleaded guilty in October to one count of bank fraud as part of a plea-bargain agreement that will result in a 7 1/2 year prison sentence.
This year "has been a difficult year for Allfirst," Allied Irish said in a statement yesterday. "We are now managing the transition of the business into the proposed merger with M&T.;"
Although deposits have remained stable at Allfirst, and the bank is seeing loan growth in its retail loan business, commercial and corporate loan volumes are down, according to Allied Irish.
When other loan problems are factored in, the net impact is a decline of 4 percent to 5 percent in Allfirst's overall loan volumes, Allied Irish said.
"The credit-worthiness of some of the corporates is not as strong as it used to be," said Declan McSweeney, Allied Irish's chief financial officer.
Allied Irish officials could not be reached for further comment yesterday.
Allfirst reported in November that its third-quarter net income of $20.9 million was down by nearly 75 percent from the prior year.
The decline was attributed to restructuring costs related to worker buyouts and a big increase in the provision for bad loans.
To date, about $35 million has been set aside to meet restructuring costs at Allfirst, Allied Irish said yesterday.
M&T; agreed in September to buy Allfirst for $3.1 billion in a deal that will give Allied Irish a 22.5 percent stake in the new entity.
After the merger, M&T; will be the nation's 18th-largest U.S. banking company, with $49 billion in assets and more than 700 branches in East Coast markets.
The deal gives Allied Irish something it has always sought - a strong presence in the all-important U.S. market - while allowing it to concentrate on its home markets, where it is truly strong.
For all of 2002, the bank said, it expects a 17 percent to 18 percent increase in loan volume in Britain and Northern Ireland, with deposits increasing by 13 percent to 15 percent.
Allied Irish's fiscal year ends Dec. 31. It expects to report its 2002 financial results Feb. 19.