FIRST Maryland Bancorp, AIB's US subsidiary, has started a process which could raise up to $350 million (£236 million) in subordinated debt securities on the US market.

The fund raising is partly related to the $1.4 billion acquisition of Dauphin Deposit Corporation, which is expected to be completed within 45 days, and is partly liquidity planning in order to raise funds at a future date, bank sources said.

First Maryland yesterday filed a "shelf registration" with the Securities and Exchange Commission in New York seeking permission to sell debt notes of up to $350 million. According to the filing details, the net proceeds raised will be used for general corporate purposes, principally to fund investment in, or extensions of credit to, the company's banking and nonbanking subsidiaries, including to allow its subsidiaries to repay borrowings.

Bank sources explained that some debt will need to be raised to fund the cash element of the Dauphin acquisition. Dauphin share holders have been offered stock or cash options in payment for their shares. When the number of shareholders who opt for cash payments is finalised, FMB would determine the cash cost.

Cash payments would be funded through the debt issue. FMB would issue the debt stock to cover the cash payments and pass the funds raised to its parent, AIB. The balance of the purchase price will be paid in new stock issued by AIB.

Putting the registration in place allows the bank the financial flexibility to issue debt when market conditions are right, an FMB source said. FMB plans to keep the shelf registration in place for the next year or so in order to tap the market if funds are required.

The cost of the funds would be decided when they are raised. US banks with similar credit ratings to FMB are currently raising funds at 0.69 of a percentage point over the 10 year treasury bond rate, according to bank sources.