The credibility of Allied Irish Bank’s management and internal controls was once again placed under serious doubt after admitting the fraudulent activities at its US unit Allfirst Financials had been going on for five years.
Although the final losses arising from the fraud were $691 million - lower than the $750 million AIB initially thought - confidence in the company remains unsettled by concerns why the massive bogus transaction were undetected for a long time.
"It's a bit surprising," Mr Piers Brown of Commerzbank said, given the group has been boasting it has an effective risk control network.
"I imagine changes in management (as a result of this discovery). But it's too early to say. It all depends on what's the outcome of the probe. We'll have to wait and see," Mr Brown said.
AIB this morning reported full-year pre tax profit to €612 million, down 47 per cent year-on-year. Before the one-off item from the fraud, profit were €1.4 billion, in line with what it previously estimated.
Results of an independent investigation, headed by Mr Eugene Ludwig - who served as the US Treasury department's comptroller of the currency during the Clinton administration - will be released on March 9th.
Analysts believe the group's 2001 results have somehow comforted investors who were reassured that AIB's underlying business remains solid despite the huge forex losses at Allfirst.
Mr John Paul Crutchley of Merill Lynch said he is considering raising his estimates for the current year after the 2001 results. He kept a 'buy' recommendation on the stock.
Schroder Salomon, in a note, recommended a "neutral" rating on the stock. In accordance with Irish accounting rules, AIB is accounting for the fraud losses and related costs, which after tax amount to €513 million, in the 2001 accounts.
But Irish stockbrokers Dolmen Butler Briscoe are recommending clients to sell AIB as reduced US growth prospects and increased cost of equity from the FX trading loss are not yet fully reflected in the current share price.
As a result, Dolmen expects AIB to continue to underperform the Irish bank sector for some time to come.