AIB undertakes charm offensive to assuage nervous investors

AIB is waging an intensive campaign to reassure investors about the company's strength and to gauge the long-term effect of the…

AIB is waging an intensive campaign to reassure investors about the company's strength and to gauge the long-term effect of the $691 million (€789 million) fraud on Ireland's biggest bank. What the bank is told by investors will have a strong bearing on the make-up of the future management team running AIB.

The bank normally meets investors, analysts and the media when announcing its results but has been forced to intensify contacts with major shareholders in the wake of the problems at its US subsidiary, Allfirst.

Goodbody Stockbrokers, which is part of AIB and is also the bank's stockbroker, has been meeting fund managers at the large investment institutions since news of the fraud was revealed. In London, Merrill Lynch, which acts as its broker in that market, has been meeting AIB's institutional shareholders.

The bank has also informally asked Salomon Smith Barney stockbrokers to canvass independently the views of these shareholders to improve their understanding of how the bank's troubles are being viewed.

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AIB has been stressing the bank's robust performance, particularly in the Irish market, and has secured some positive results on the back of these briefings, with some analysts taking a slightly more optimistic view of the bank's long-term earnings potential.

A key concern for the bank is to assess the level of confidence fund managers now have in its top management team. Institutions will have been pleased with the bank's underlying performance but shocked by the extent of the loss at Allfirst, both in terms of its financial impact and the length it went undetected.

The institutions are primarily concerned with how quickly AIB can recover from the activities of its Baltimore-based foreign exchange trader, Mr John Rusnak. The fund managers who have invested millions of their clients' pensions and other funds in the bank will assess how soon the bank can return to strong earnings growth. Primarily, this will be determined by the strength of its management team.

Fund managers and analysts contacted by The Irish Times, varied in their view of that management team and of which personnel should take responsiblity for the five-year fraud that cost AIB 47 per cent of its profits in 2001.

Mr Jeremy Batstone, head of research at NatWest Stockbrokers, reflected one view that believes people should not rush to target individuals. "It doesn't look good for the senior executives but it is always better to act prudently, when all information is known, than to act in haste and repent," he said.

Referring to a report in the Financial Times this week which suggested that AIB chief executive, Mr Michael Buckley's position was now being questioned, Mr Bastone said it would be "very difficult" for the bank to get over his removal. "This is a time when AIB needs a pretty firm hand on the tiller. It needs to hold off from any knee jerk reaction," he said.

A couple of fund managers said the revelation that the Allfirst fraud extended back to 1997 made them more worried about the future of the bank and its management team. "That showed it is no longer something that can be isolated and confined to its US operations. This goes to the heart of controls at group level," said one fund manager who did not wish to be identified. "Perhaps the damage in terms of the people in the firing line could have remained in the US but the latest revelations have now triggered a contagion effect in Dublin."

Others remain concerned about what has happened but point to the high standing in which Mr Buckley is held and state that he should be given time to lead the bank out of its current difficulties. "Getting rid of the chief executive would not do any good for shareholders apart from exacting revenge but it is hard not to see some board members going," said another fund manager.