The US, where AIB has been dealing with the aftermath of the $691 million (€704 million)Rusnak fraud at Allfirst, proved the main drag in an otherwise healthy first-half performance from AIB.
Profits in the US slipped by 25 per cent to €128 million as they were hit by Allfirst's exposure to bankrupt telecoms group WorldCom.
Allfirst has taken a $25 million provision relating to its $50 million loan to WorldCom, the result of a banking relationship that goes back to 1988.
Profits at Allfirst were also knocked by two other one-off charges.
A provision of €15 million related to the impact of falling equity markets on mutual funds in which companies invest deferred compensation for executives while a €10 million provision reflected the erosion of residual values on auto leases.
If these one-off provisions are stripped out, underlying operating profit performance in the US was up by 6 per cent as average deposits at Allfirst rose by 1 per cent and average loans increased by 6 per cent.
"We focused pretty much exclusively on retaining customers, on defending the franchise," AIB group chief executive Mr Michael Buckley said.
AIB is examining how to take Allfirst forward under its new chairman and chief executive, Mr Eugene Sheehy. It is working on a restructuring plan that it hopes to have completed by the end of the third quarter.
"It is a franchise with some depth and some value to have sustained that kind of shock," Mr Buckley said, referring to the multimillion fraud uncovered in February.
But he admitted the restructuring plan might not be enough and said the bank was looking at whatever else it needed to do to deliver value to shareholders.
Between now and the fourth quarter, it plans to explore options to strengthen Allfirst's position and ways of tapping into the unrealised value in the bank's franchise.
Among the issues it is considering is reorganising the way it addresses the marketplace in the US, investing in more small business specialists and repositioning its branch network.
Mr Buckley said it was too early to say what kind of redundancies the recovery plan might entail but AIB was likely to take a restructuring charge in relation to Allfirst in the second half.
However, he said the bank would be looking for a short payback period for that charge.
