AIB offloads scandal-hit Allfirst for £2.1bn

Allied Irish Banks yesterday announced a deal to sell its scandal-hit Allfirst business in the US to another American bank in a $3.1bn (£2.1bn) deal.

The buyer is M&T Bank, whose biggest shareholder is the investment guru Warren Buffett. The deal will give AIB a 22.5 per cent stake in M&T plus $886m in cash.

The announcement, plus news that AIB would spend $450m of the cash buying back its own shares, sent the Irish bank's shares soaring.

AIB has been under pressure to unwind its involvement in Baltimore-based Allfirst after it revealed in February it had fallen victim to one of the biggest banking scandals since Nick Leeson brought down Barings in 1995.

The foreign exchange dealer John Rusnak racked up almost $700m in trading losses at the US subsidiary. In July Susan Keating, Allfirst's president and chief executive who initially survived the scandal, quit after disagreeing over its future with Eugene Sheehy, installed as chairman in April.

AIB stressed the deal did not mean it lost interest in the US market. Under the deal, Michael Buckley, chief executive of AIB, Mr Sheehy and two other AIB executives will join the M&T board, and Robert Wilmers, head of M&T, will join the Irish bank's board.

Mr Buckley said the deal with M&T was an ideal opportunity to reposition and bolster the bank's US involvement. "I'm very happy to be part of this partnership. I look forward to many, many years of profitable development of the enlarged entity," he said.

AIB said it expected cost savings of $100m from the deal with M&T, which will be earnings enhancing for both partners, with $60m to flow next year.

Analysts broadly supported the deal, saying it made the best of a difficult situation for AIB. Mark Thomas, analyst at Fox Pitt-Kelton, said: "The $2.3bn price tag is a little below our expectations but the proceeds would still be sufficient."

Buffalo-based M&T, which operates in New York, Pennsylvania, Maryland and Virginia, has assets of $31bn and a market value of $6.9bn.

Adding Allfirst creates the 20th largest bank in the US and will lift the combined entity's assets to almost $50bn and extend its footprint along the east coast of the US. Allfirst operates in Maryland, Pennsylvania, Washington, Virginia and Delaware and has around $12bn of deposits.