AIB had begun merger talks before the $691.2 million (€673.5 million) fraud at Allfirst was announced in February 2002 and expects the merger to be completed by the end of March 2003.

M&T, the US bank into which AIB's Allfirst subsidiary will be merged, has reported a strong performance in the fourth quarter of 2002. Announcing its results yesterday, the bank said it was awaiting regulatory approval for the Allfirst deal, which has been sanctioned by both banks' shareholders, and hoped to complete it shortly.

M&T, based in Buffalo, Upstate New York, reported an 8 per cent increase in earnings per share from $1.30 to $1.40, broadly in line with market expectations. The headline earnings growth figure was reduced from a potential rise of up to 26 per cent forecast by analysts because of recent changes in the calculation of this figure introduced for US companies. The primary change relates to how companies account for goodwill within the business.

According to the figures, after-tax profits rose 24 per cent in the last quarter of 2002 to $125.8 million, in what the bank said was an extremely challenging year.

M&T chief financial officer Mr Michael Pinto said this was due to continued weakness in general economic conditions, which may continue in the current year. "We look forward to meeting 2003's challenges, including the successful merger and integration of Allfirst into M&T."

Under the terms of the deal, AIB will receive a 22.5 per cent shareholding in M&T plus $886 million in cash. The deal has a total value of $3.1 billion.

M&T suggested to analysts yesterday that the deal would include merger costs of $5 million after tax this year and would have a neutral to slightly positive impact on earnings in 2003. It has estimated that, excluding the Allfirst transaction, M&T's diluted earnings per share would be in the $5.25 to $5.35 range.

Mr Pinto said the bank would be reviewing its earnings prospects closer to the conclusion of the Allfirst deal.

The bank's net interest income, which is earned on its lending and deposit-taking businesses, rose by 7 per cent to $1.26 billion with the bank reporting a wider profit margin on these activities.

The average loans outstanding at the end of 2002 were up 4 per cent to $25.5 billion. Consumer loans rose 21 per cent to $1.2 billion, which it said was partially offset by lower levels of residential real estate and commercial loans.

M&T has made larger provisions for credit losses for the year rising to $122 million from $104 million. It reported non-performing loans of $215 million, representing less than one percentage point of its total loan book.