Royal Bank move for Allied Irish on cards

Published on Monday 25 February 2002 00:00

SPECULATION continued today that Royal Bank of Scotland is poised to bid for the troubled Allied Irish Banks.

Despite official denials from head office on St Andrews Square, the owner of NatWest which already owns Ulster Bank has become clear favourite to take over AIB, the victim of a suspected trading fraud within its United States subsidiary Allfirst that has cost it 493 million.

At the start of a busy reporting week for the banking sector in which the Royal is expected to reveal profits growth of 25 per cent of between 5.5 billion and 5.7bn, other names being thrown into the hat as possible bidders are Lloyds TSB and Barclays.

But market analysts suggested today that the Royal, headed by acquisition-hungry chief executive Fred Goodwin, would have a clear advantage as it already has operations throughout Ireland, and the US where it owns Citizens Financial.

A Royal Bank spokesman said the bank had a policy of not commenting on such rumours.

Royal Bank has been busy integrating NatWest, which it bought in 2000, but has already made a fresh acquisition since then, buying the retail arm of Mellon bank in the US last summer. There was strong speculation last week that the Royal is ready to do another deal. When AIB’s troubles surfaced earlier this month, the Royal was tipped as a possible buyer because of its links with Ulster Bank.

According to reports over the weekend, Royal Bank’s advisers, investment banks UBS Warburg and Merrill Lynch, are busy studying proposals to offer Allied Irish’s shareholders 14.50 euros a share, which would value the bank at almost 360m.

The merger would deliver cost savings of at least 358m, they said.

Market experts also said today the Royal was considering the possibility of buying Allfirst outright, which would add to the Edinburgh-based bank's interests on the US east coast.

However, industry commentators suggest the Royal will not formalise its strategy until the damaged Irish bank publishes its review on the suspected fraud next month.

Mr Goodwin has a well-known hunger for taking over struggling firms - he has made clear his appetite for acquisitions by talking about "mercy killings" - and there was also speculation last week he might be interested in looking at mortgage banks Alliance & Leicester and Bradford & Bingley, after they reported unspectacular results.

Mr Goodwin will meet with analysts on Thursday at the Royal’s offices in Waterhouse Square in London when he will deliver those full-year results and the topic of his next targets is bound to dominate.

AIB, meanwhile, has insisted that its major shareholders have no desire for Michael Buckley, its chief executive, to resign as a result of losses in the currency trading operations of Allfirst.

An AIB spokeswoman was quoted today as suggesting: "The very strong feedback is there is absolutely no question mark over Michael."

AIB faced further embarrassment last week when it transpired that losses in the Allfirst foreign exchange trading activities dated back to 1997 and not to early 2001 as previously indicated when they were first disclosed on February 6.