AIB wants to buy a significant commercial bank with a good franchise in the Washington and/or south central Pennsylvania are in the US in order to reduce its dependence on the slowing Baltimore economy. Over $600 million (£384 million) will be spent to acquire assets of $5 billion to $7 billion.
Other immediate corporate targets for AIB's First Maryland Bancorp (FMB) subsidiary in the US involve increasing personal lending, including home mortgages and credit cards, and reducing the cost/income ratio.
AIB believes that FMB is still a long way from maximising its position. The bank reported profits after tax of $120 million for 1995 and brokers are forecasting profits of around $128 million for the current year. A "stretch" target of $ 150 million has been set for 1997, according to the chairman, Mr Jerry Casey.
Detailed operational targets have been set for 1996-1998 to address the areas where the bank's performance has been weak in recent years. These include increasing personal lending and trust fund management business and reducing a cost/income ratio,, which, at around 65 per cent, is considered too high.
FMB's loan portfolio is considered underweight in the personal lending sector, such as house mortgages, credit card and personal loans. The trust fund operation lost money in recent years, because it concentrated on low margin business.
Action is being taken to address these problems. A new management structure has been put in place over the past two years.
In the retail operation, the branch network is being reorganised to boost product sales and reduce costs. New delivery channels including self service banking by telephone inside and outside branches and banking by personal computer through the Internet are being developed to deliver services at lower cost.
The number of smaller, specialised supermarket branches will be increased from 16 to 50 by 1998. These branches operate at about one third of the cost of traditional branches. FMB aims to reduce its cost/income ratio to 60 per cent by the end of 1997, through cost reduction and income growth.
The retail operation is now the key focus of income growth plans for the next few years. FMB plans to increase total revenue by $169 million by the end of 1998. Growth in retail revenue is to provide about $137 million of this, with $20 million to come from corporate business and $ 12 million from trust and asset management.
The co-branding agreement on credit card lending with Bell Atlantic, as well as a promotion of the barks' own credit card business, are expected to result in a strong rise in credit card lending this year.
FMB aims to increase its total personal lending portfolio from about. 40 per cent to 47 per cent of total loans. It aims to increase its loan portfolio by 14 per cent when Bell Atlantic credit card loans are included and 8 per cent when these loans are excluded.
FMB plans to develop its trust management business to generate income of about $32 million by 1998. It aims to ensure strong investment performance, take market share from competitors and acquire more asset management firms. The bank sees significant opportunities in this area, with wealth being transferred through inheritance as the baby boom generation ages.
In the corporate banking area where the bank has recorded strong performances, FMB aims to increase lending by 7 per cent a year compound. It is working to increase niche lending to communications, health care and, transportation companies by 12 per cent a year.
There is a 10 per cent annual growth target for loans to medium and small businesses, while the annual growth target for commercial property loans is 4 per cent.
Geographically, FMB wants to expand its commercial loan portfolio in the Washington DC area and south central Pennsylvania. The bank is examining how non lending services such as cash management and capital markets should be sold to corporate customers.
FMB has identified a number of dates in areas where its existing covers age of the market is uneven. Despite the acceleration of merger and take over activity in the US to huge super regional banks, AIB is determined to remain in the US market.
American banking will continue to deliver good earnings, according to AIB, which believes there is room for smaller banks with strong franchises in their local markets. However, recent mergers in its regional market have reduced FMB's position and decreased its opportunities for expansion by acquisition.
FMB wants to expand by acquisition into the wealthy and first growing Washington DC and south/central Pennsylvania region. While economic, growth is slowing in both Baltimore's and in these areas, the Washington DC metropolitan is growing twice as fast as the Baltimore metropolitan area.
FMB plans to add assets of more than $5 billion over the next few years by acquisition. In January, the bank spent $84 million to buy a savings and loan bank in northern Virginia with, assets of $800 million.
FMB wants to reduce its dependence on Baltimore and extend its geographic base in the faster growing areas. By the end of the decade,, AIB aims to have a US operation with assets of between $18 billion and $20 billion compared with $ 11 billion now.
The ideal acquisition would be a commercial bank with a strong retail,, franchise and assets of about, $3 billion in the Washington DC area or in south central Pennsylvania Opportunities have been identified, but the banks involved are not yet interested in being taken over, according to Mr Casey.
To achieve the required scale, FMB would be required to do a number of smaller acquisitions, he said. However, he stressed that FMB was not under any pressure to make an acquisition and would not move unless the acquisition would meet its detailed criteria. An acquisition should be, earnings enhancing in its second year, he said.
