Talk of takeover played down as share price continues to decline

AIB says it does not expect to be gobbled up in the current round of consolidation in the banking industry.

Shares in the bank have fallen by 20% since hitting an all-time high in February and with the property market cooling down, AIB was singled out last week in a report by Merrill Lynch as a likely takeover target.

But chief executive Eugene Sheehy says the bank has justified its independence and said very few rivals could summon the resources to mount a takeover approach.

“We are totally committed to independence and we think we have delivered results over many years now that show that our shareholders can do very well by the bank remaining independent,” Mr Sheehy said.

He added that the bank can do little to improve the share price beyond delivering better results and trying to convince investors that the fears about the Irish economy, and in particular, the housing market, are unwarranted.

AIB says just 6% of profits are derived from the Irish property market and within its loan portfolio it has spread its exposure with lending to the commercial, retail, office and industrial areas.

The bank is expecting economic growth to slow to 3.3% next year but said this was still much better than the eurozone average.

“Our confidence on the economy is not being formed by sterile data… it is informed by our discussion we are having with our customers in every community and every business right across the country. We have a huge level of contact with frontline business… and we talk to them all the time about their views about what the future is and their level of optimism about the economy going forward and that is forming our level of confidence,” Mr Sheehy added.

AIB also moved yesterday to soothe any fears that it had a significant exposure to the collapse of the subprime mortgage market in the US. The bank said it had two subprime funds with a combined value of less than $400m and it saw no problems with either fund.

AIB said there were no plans to sell off its stake in M&T, the US bank in which it has a 24.2% holding. M&T profits in the half year grew by just 1% as the bank was forced to take a hefty write-down in the value of some of its mortgage-backed debt funds.

M&T packages together groups or mortgages it writes and sells them on in the debt markets. But with the US markets spooked earlier in the year, M&T was unable to achieve the value it sought from the mortgages.