UPDATE: Analysts Say M&T Sale Could Be On Cards For AIB

By Sarah Turner

LONDON (Dow Jones) -- Allied Irish Banks said Monday that it is working to shore up its capital position and analysts said one option for the bank could be to sell its stake in U.S. lender M&T.

Shares of Allied Irish Banks shot up 12.1% in Dublin on Monday after it said that it plans to raise a further 1.5 billion euros ($1.9 billion) of fresh capital on top of the 3.5 billion euros being injected by the Irish government.

"The announcement attempts to highlight that AIB can possibly keep government ownership to a minimum," noted analysts at Goodbody Stockbrokers.

Potential sources for the additional capital include the disposal of assets, the bank said, and analysts said it may now be mulling the sale of its stake in U.S. lender M&T (MTB).

"The considerations on the agenda presumably incorporate releasing capital from its associate stake in M&T," said the Goodbody analysts.

Analysts at Davy Stockbrokers, another Irish broker, added: "We estimate that a disposal of the M&T stake at market value would raise 660 million euros." That would be worth $856 million.

Allied Irish Banks has held a 22.5% stake in the Buffalo-headquartered lender since 2002 when it sold its U.S. unit Allfirst to M&T for $886 million in cash and 26.7 million shares, or $3.1 billion in total.

Both brokers noted that other options for AIB could also include the sale of its stake in Polish lender Bank Zachodni, as well as debt buybacks.

Bank Zachodni shares were down 0.2% in Warsaw on Monday.