Allied Irish not likely to sell Allfirst

Parent values bank for foothold and chance of expansion in U.S.

`Relatively happy with it'

February 07, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Despite a staggering $750 million currency trading loss and a lackluster performance in recent years, Allfirst Financial Inc. will not likely be sold by its parent, Allied Irish Banks PLC, analysts said yesterday.

The Allfirst franchise gives the Dublin-based banking company a U.S. presence too valuable to give up, and its performance has picked up despite a number of disappointing years, said analysts.

"I think ... they [AIB] are committed," John Tyce, a banking analyst at SG Securities in London, said yesterday after Allied Irish revealed the huge currency loss.

"AIB hasn't really been looking for excuses to get rid of this operation," said Jonathan Pierce, a banking analyst at HSBC Securities in London. "Despite what has happened today, they are relatively happy with it."

Allfirst executives, however, moved swiftly yesterday in reaction to the trading loss. Top management immediately suspended five employees: the company's treasurer, senior vice president for treasury funds management, senior vice president for investment operations and two staff members.

Among the suspended was staffer John Michael Rusnak, the trader in Baltimore who is believed to be responsible for the $750 million loss.

Rusnak, who was described as a model employee with the company since 1993, did not report to work Monday after being questioned by Allfirst officials Sunday. He will be fired if he returns to work, said Susan C. Keating, Allfirst's president and chief executive.

The three executives and the other staff member will remain suspended until the company's investigation is concluded.

Industry experts were unsure whether the fallout will engulf Keating and Frank P. Bramble, Allfirst's chairman and chief executive of Allied Irish Bank's USA operations, and force their resignations.

"When you have a loss of that magnitude, you do have to look in part to top management," said Jeffrey R. Springer, a retired Baltimore banker and executive-in-residence specializing in banking at the University of Baltimore. "It is a mind-boggling amount. On the other hand, [top managers] can't be expected to track every transaction that has taken place."

James Record, director of bank research at SNL Financial in Charlottesville, Va., said top management could become the "scapegoat."

However, he added, "My experience is that it is hard to ax senior management."

During a news conference at Allfirst's downtown Baltimore headquarters yesterday, Pat Ryan, group treasurer of Allied Irish Bank, didn't so much back Bramble and Keating as voice continued support for the company's investment in Allfirst. Ryan flew in from Dublin for the news conference.

"We stand behind Allfirst, we are committed to Allfirst," Ryan told a room jammed with reporters, some from Ireland.

Bramble sidestepped the question of his future, saying that he and Keating need to "aggressively bring this investigation to a conclusion."

"We need to manage this organization. Our entire focus is to continue to run this successful business," Bramble added.

He also said that Allfirst is "critically important" to Allied Irish.

"We have full support of AIB," Bramble said. "AIB's and Allfirst's future is as strong today as it was Monday morning last week."

Bramble and Keating have been highly regarded at Allied Irish, and both sit on the board of directors of the parent company.

Bramble joined Allfirst, then known as First Maryland Bancorp, in April 1994, as chief executive, after helping rescue troubled, Baltimore-based MNC Financial Inc.

In 1993, MNC was acquired by NationsBank Corp., now known as Bank of America Corp.

Keating is one of the highest-ranking women bankers in Maryland. A former English teacher, she joined MNC Financial in 1988 and had a meteoric rise.

She became executive vice president in 1992, overseeing the day-to-day operations of MNC's general bank and thousands of employees.

After NationsBank acquired MNC, Keating was named president of NationsBank Maryland. But in August 1995, she left abruptly after clashing with R. Eugene Taylor, president of NationsBank's mid-Atlantic banking group, over "differences in management philosophy."

She was hired by Bramble in January 1996 as an executive vice president at Allfirst. Four years later, she was named chief executive of the company.

Analysts were shocked by Allfirst's revelation.

"Very surprising, particularly given that the [trading] business generated annual income of less than $10 million annually," said Pierce of HSBC Securities. "This was a tiny business. It was a low-risk, low-return business."

But analysts noted that Allfirst has stumbled before and performance has been an issue.

In 1998, Allfirst made a profit but revealed that it lost $29 million in its portfolio of loans in foreign shipping. The loss cost executives their bonuses for the year.

The company has also lagged behind other higher-performing banks in its return on equity and assets - two key measurements of a bank's profitability.

Allfirst's "record is not startling. I think it is more of the same," said Tyce, the SG Securities analyst.

But recently the company's earnings and the quality of its loan portfolio have improved. During the first nine months of last year, Allfirst made $149 million, up 7.5 percent from a year earlier, despite a bad banking climate. Troubled loans also fell 18 percent to $87.9 million in the period from a year earlier.

Analysts regularly have asked Allied Irish's managers if they will sell the company.

But Allied Irish has remained steadfast to Allfirst because it provides a presence and a possibility of expansion in the vast U.S. market.

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