M&T, the US bank in which AIB has a 23 per cent stake, has posted a 7 per cent increase in profits for the final quarter of last year.
The performance was better than most analysts had expected, with M&T drawing particular support from a fall in bad loans.
The Buffalo, New York-based bank said net profits in the fourth quarter were $205 million (€169 million), up from $192.2 million a year earlier.
This translated into earnings per share (EPS) of $1.78, which compared to $1.62 in the same months of 2004.
Analysts had expected EPS of about $1.75. Rene Jones, M&T's chief financial officer, said the "leading forces" behind the result had been improved credit quality, prudent underwriting standards and success in containing expenses.
"The implementation of several corporate initiatives, coupled with the hard work and dedication of our employees, have allowed us to enhance the efficiency of our operations," Mr Jones added.
M&T set aside $23 million for bad loans, or 18 per cent less than last year.
Revenues were up 3 per cent, while expenses trailed with growth of 2 per cent.
Lending income was 2 per cent higher at $454 million, but net interest margins fell from 3.82 per cent to 3.69 per cent.
On a conference call, Mr Jones said margin pressure should ease if the Federal Reserve is less active in raising interest rates this year.
He said credit trends should remain steady but highlighted the "more aggressive" competition M&T is facing for deposits.
"It would be great if those individuals [ banks] were more rational," said Mr Jones.
In a research note on the results, Davy said investors will now focus on how well M&T contains its bad debts and on further share buybacks that could "keep the bottom line growing at a decent pace".
The bank, which has more than 650 branches across the east of the US, has authorisation to buy back 4.3 per cent of outstanding stock.
Shares in M&T fell by 1.5 per cent after the results were released, having closed at a record high on Tuesday.
AIB closed at €18.13 after gaining 18 cent.
Davy noted that M&T's fourth-quarter performance accounts for less than 3 per cent of its AIB forecasts for 2005.
AIB has already issued guidance for the first nine months of last year, in which the bank flagged "good growth" at the US associate.
Separately, AIB yesterday appointed John O'Donnell to its board as group finance director. Mr O'Donnell was named as group finance director designate last year upon news of Gary Kennedy's planned departure from the bank.
Until taking up his new role, Mr O'Donnell was head of investment banking, at AIB Capital Markets. Aged 51, he worked at ICC Bank before joining AIB in 1989. - (Additional reporting, Reuters)
