AIB's seeming determination to get to grips with troubled US subsidiary Allfirst has reassured investors and prompted moves to re-rate the stock. Revising up its forecasts for this year and next by around 1 per cent, Davy said AIB was undervalued and suggested a fair value of at least €13.50 for the shares.

Aside from robust interim results produced by the bank, it was management's promise to tackle the US situation that prompted the broker to issue a buy recommendation. Uncertainty over Allfirst's fate has hung over the stock since AIB uncovered the $691 million (€704 million) fraud in the US operation last February.

But it was clear at the bank's press conference to announce its interim results on Wednesday that it is keen to hold onto Allfirst, provided it can be made to deliver for shareholders. "We're well aware in its totality that we have to develop a continuing and sustainable regional banking story and sell that to our shareholders," chief executive Mr Michael Buckley told shareholders.

In addition to a cost-cutting programme, AIB will explore ways of strengthening Allfirst's position in the US banking market.

Meanwhile, the hoped-for upturn in Poland, the other main source of concern in the AIB portfolio, has yet to emerge. Although the Polish operations contributed €31 million to the half-year figures, non-performing loans remain an issue as difficult local economic conditions persist.