Allfirst put on credit watch

Moves by S&P, Fitch called precaution over $750 million loss

Bank is viewed as sound

February 15, 2002|By William Patalon III | William Patalon III,SUN STAFF

In view of Allfirst Financial Inc.'s $750 million trading loss, two rating agencies have put the bank on credit watch, a warning that Allfirst's credit rating might be downgraded.

A third rating agency declared Wednesday that it was keeping the bank's current good credit rating.

Allfirst is still viewed as a strong bank, analysts said, and is likely to keep its good credit rating.

But being placed on credit watch is a signal that debt holders should be vigilant, analysts said.

"It's a warning that things may develop, and that you had better stay alert," said Richard O'Brien, a bond specialist and senior vice president for Folger Nolan Fleming Douglas, a Hunt Valley brokerage. "It says to, `Stay alert, we're not sure what's to come, if something does, we will downgrade.' "

The rating agencies have come under fire recently for not reacting fast enough before the collapse of Enron Corp. In most cases, O'Brien said, professional investors are already well aware of the problem and watching carefully when rating reviews are announced.

Standard & Poor's Inc. and Fitch Inc. have placed Allfirst on credit watch for a possible downgrade.

On Wednesday, Moody's Investors Service kept the bank's good credit rating but reduced its financial strength rating, which measures the institution's ability to operate apart from its corporate parent.

Ken Ritz, a spokesman for Fitch, said Allfirst was placed under credit review because the agency didn't "have complete and full evaluation of what happened here."

Without that information, Fitch analysts had to ask whether "the weak risk controls that allowed this to happen are prevalent through other areas," Ritz said. "Without knowing that specifically, we still would want to have" the rating under review.

`A good bank'

Fitch did not take the step of actually downgrading Allfirst's credit rating. "It's a good bank," Ritz said. "Absent this situation [the $750 million loss] - which is why it's under a negative watch - it was viewed as a very solid bank. Unless [other problems emerge], they are probably not likely to have detrimental results" from the Fitch credit review.

The rating agencies weighed in after last week's accusation that Allfirst currency trader John M. Rusnak piled up $750 million in losses.

The FBI and the U.S. attorney are investigating, while Allied Irish Banks is conducting its own probe led by Eugene A. Ludwig, who was comptroller of the currency in the Clinton administration.

Rusnak's lawyer, David B. Irwin, says that his client took no money, and that the bank is overstating the losses it has ascribed to the currency trades.

A company's credit rating is key because it can help determine the interest rates it pays on borrowed money for doing business. The debt rating can influence the market value of a firm's bonds as they trade, since it's a measure of how likely it is the company will default on that debt.

The financial-strength rating is a measure of how viable Allfirst is without factoring in any assistance from its parent firm - in this case Allied Irish Banks PLC of Dublin - said David Fanger, a senior vice president of Moody's in New York.

Stand-alone strength

"It measures the strength of Allfirst Financial ... without any parental company help," Fanger said.

AIB officials have made it clear the local bank can expect the full support of its parent company.

O'Brien, the Folger Nolan bond specialist, said he is confident Allfirst will keep its current credit ratings and bounce back from this scandal.

"I view this institution as very strong financially," O'Brien said. "I think it's something they'll get over. I sincerely believe this."

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