AIB shares were helped by investors switching into the stock from Bank of Ireland on the basis that the gap in the ratings between the two banks after the sharp fall in AIB shares will eventually close.
Bargain-hunters and investors betting on a possible takeover bid somewhere down the line produced a strong recovery in AIB shares yesterday.
The stock, however, is still well below its level before Wednesday morning's revelations of a €864 million fraud at AIB's Allfirst subsidiary in the United States.
At session-end in Dublin, AIB had regained 40 cents to €11.75, some way short of the €12.78 it hit earlier in the session. The switching out of the stock into AIB meant that Bank of Ireland fell 31 cents to €10.85.
Trading levels were also well down on the record 51 million shares traded in Dublin and London on Wednesday, and dealers said the sharp fall in turnover to just over 12 million shares in Dublin and London reflected the comparative absence of short-sellers and index funds from yesterday's trading.
While yesterday's modest recovery is no doubt welcome news to AIB's beleaguered shareholders, dealers warned the share was unlikely to make much further progress until the situation regarding the fraud and the bank's financial risk controls is made clearer.
While dealers said a fall in the share price of the scale suffered by AIB inevitably generated takeover speculation, it was unlikely any predator would make a move for the Irish bank until the financial situation was absolutely clear.
"Royal Bank of Scotland, Lloyds TSB and Barclays are undoubtedly keeping a close eye on what's happening but I'd be very surprised if any of them made a move," said one dealer.
He added that a bid at anything remotely close to the current share price would undoubtedly be rejected out of hand by the AIB board.
After Wednesday's 17 per cent fall and yesterday's partial recovery, AIB shares are the cheapest of any major European bank on a prospective price/earnings multiple of 10.4, based on forecasts from Davy and a price of 2.3 times book value.
The main British clearing banks - seen as the most likely bidders for AIB - are currently trading on a average prospective p/e of 12.5 and almost 2.9 times book value.
