M&T Bank, the US bank in which AIB has a 22.5 per cent stake, has posted a slightly disappointing performance in 2003. The slump in the dollar will also depress its contribution to the Irish bank's profits.

The upstate New York-based bank, which merged with AIB's US subsidiary, Allfirst, reported a 26 per cent rise in after-tax profits to $574 million (€449 million) in 2003.

The outturn equates to earnings per share of $4.95, up 4 per cent on $4.78 in the last year, but below some forecasts which had expected $5.32. M&T shares traded at $92.85 yesterday, down more than $2, after the figures were announced.

The value of AIB's investment in the bank has appreciated significantly since its $2 billion investment was announced in September 2002. At that time, the bank took 26.7 million M&T shares at a price of $74.68 as part of the Allfirst sale. At yesterday's levels, AIB's stake in M&T had appreciated by $382 million.

AIB will also share in 22.5 per cent of M&T's $574 million profit, although when adjusted to comply with the Irish bank's accounting practices, its share of the profits will differ. The sharp depreciation in the dollar will also reduce its earnings from its US investment.

AIB will announce its full-year results on February 24th which will include the M&T contribution. AIB sold Allfirst following a $691 million currency fraud there in 2002.

During last year, M&T merged AIB's former US subsidiary in Baltimore, Maryland, with its banking operations.

Announcing its full-year performance, M&T chairman, president and chief executive officer, Mr Robert Wilmers, said the Allfirst merger had been its most significant event in 2003.

"While the ultimate success of this merger will be measured over several years, we are very pleased with the results experienced to date, both financially and in the integration of Allfirst's operations with those of M&T," he said.

It said it had incurred merger- related expenses of $39 million which included professional services, travel and the integration of its data processing and other functions.

In the fourth quarter of 2003, the bank reported profits of $167 million, up 41 per cent on the same period in 2002. Some $2 million of the Allfirst merger costs were incurred during that quarter.

Looking ahead, Mr Michael Pinto, the bank's executive vice- president and chief financial officer, signalled that it was facing a challenging business environment this year.

"We expect that the economy and the overall business environment in 2004 will present many challenges for regional banks and other financial institutions. M&T will, of course, not be immune to these challenges," he said.

He remained confident, though, that it would meet its target earnings per share of between $5.90 and $6.10 over the next 12 months.