Allfirst deposits shifting to rivals

Local bankers see surging activity as fallout from scandal

February 14, 2002|By Bill Atkinson and William Patalon III | Bill Atkinson and William Patalon III,SUN STAFF

In the week since Allfirst Financial Inc. disclosed a massive loss on errant currency trades, tens of millions of dollars have been withdrawn and deposited with local rivals.

Wachovia Corp., Mercantile Bankshares Corp., First Mariner Bancorp, as well as some of the area's small community banks, have seen a jump in deposits.

Although specific figures were not available yesterday, local bankers put the range at $35 million to $65 million.

"We have seen a lot of deposit flow," said J. William Knott, regional president of Wachovia Corp. in Baltimore. "Our deposits are up, month over month, and year over year. Do I believe some of it is coming from Allfirst? Absolutely."

FOR THE RECORD - A Page 1A article yesterday presented incorrect information about Allfirst Financial Inc.'s credit rating. Moody's Investors Service actually affirmed the credit ratings of Allfirst Bank and Allfirst Financial Center, while cutting the financial strength ratings of those entities from C+ to D+.
The Sun regrets the error.

With Allfirst at the center of an international financial scandal, it's no surprise some customers are running for the protective cover of rival banks, analysts said.

"There's really no reason for any concern," said Todd Deavenport, a banking analyst with SNL Financial in Charlottesville, Va. "But there's a perception that, if these people can lose $750 million, do I really want to trust them with my money?"

Also yesterday, Moody's Investors Service said Allfirst is likely to be "more materially damaged" by the trading scandal and downgraded its credit rating from C+ to D+.

But it affirmed the credit rating of parent Allied Irish.

Federal banking regulators and examiners are sorting through records and trying to decide who will review what records when and how long they will spend with them, according to a source.

There are enough forensic document experts to "stampede the city of Dublin," the source said.

Allfirst alleged last Wednesday that currency trader John M. Rusnak ran up $750 million in losses with bad bets in the foreign currency market and used phony transactions to keep the losses secret.

But even as Allfirst announced the loss, bank officials stridently maintained that customer deposits and accounts had suffered no losses and were completely safe. The bank's finances remained strong, officials said, especially because it was backed by a large, healthy parent: Dublin-based Allied Irish Banks PLC.

Allfirst account representatives contacted nearly all the bank's commercial customers to keep them calm, and consumers who visited the branches have been repeatedly told there is no reason to worry.

Allfirst executives, who have adopted almost a bunker mentality in the past several days, declined to comment for this article.

"Allfirst is a good, sound bank, with a good, strong financial base," said Bert Ely, a veteran banking consultant based in Alexandria, Va. "There is no reason for people to become concerned. But some people still get worried" and transfer money to another local bank.

The defections are a setback for Allfirst, which Chief Executive Susan C. Keating said last week had been making solid inroads in its key markets. Those target markets - local consumers and growing regional businesses - are the hard-fought battlegrounds where it competes against the very banks that are now taking the customers Allfirst is losing.

At least in the near term, that's certain to cause Allfirst some pain.

"It hurts the bank because the deposits they are losing are the kind of deposits they want to keep," said Deavenport, the SNL analyst. "Core deposit growth is definitely the catch phrase everyone is using now."

A Baltimore money manager said several of his clients who were commercial customers of Allfirst have alone transferred between $2 million and $3 million out of that bank due to a lack of confidence in its management.

Though painful, such defections aren't fatal, analysts said. With reported deposits of $11.7 billion as of Sept. 30, even an outflow of $200 million would reduce its deposit base only by an easily manageable 2 percent.

"This is a blip on the radar screen," Ely said.

But Allfirst's loss is a competitor's gain. Area banks such as Wachovia, First Mariner and Mercantile Bankshares are benefiting as Allfirst depositors find new homes for their greenbacks.

According to Wachovia's Knott, the inflows are noticeable, though too early to quantify.

"It's millions," he said. "I can't tell you today, is it 25 [million]? Is it 50 million? I don't know, yet."

At First Mariner, millions are coming in, said Edwin F. Hale Sr., the bank's chairman and CEO.

"We are probably under $10 million at this point," he said. "We just started noticing it. ... We are starting to track it as a `line item' where we can actually see it. It was not initially noticeable, but as days go by, more and more people are starting to think about it."

Mercantile, too, has landed deposits once held by Allfirst, local industry sources say.

Other banks have seen small increases in their deposits, but can't say for certain that Allfirst was the source.

County National Bank in Glen Burnie has seen a "big influx" of deposits since the end of January, but it has identified only five transfers from Allfirst among its three branches, said Jan W. Clark, the bank's president and CEO.

Other banks say they've experienced no benefit at all from the Allfirst scandal.

"We track account levels from day to day," said Richard C. Springer, a senior vice president and area executive for BB&T Corp. "I don't see anything that shows it's a result of that."

Vicky Cox, a spokeswoman for Provident Bankshares Corp., also said that bank had seen "nothing unusual in terms of new deposit activity."

Long term, Allfirst can look to its Irish parent, AIB, for the backing needed to restore confidence and regain some of the customers it lost, analysts say.

"It is extremely traumatic, but because the bank is extremely well capitalized ... it can absorb the loss," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a financial industry consulting firm in Washington. "There is no evidence that at this level Allied Irish can't" help Allfirst rebound.

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