US-based M&T Bank, in which AIB has a stake of almost 25 per cent, yesterday reported a 13 per cent decline in first-quarter net income, a drop the group attributed to well-flagged problems in the sub-prime mortgage market.

Net income fell to $176 million (€130 million) in the three months to the end of March, from $202.9 million in the year-earlier period. Diluted earnings per share fell 11 per cent, to $1.57.

The decline had been well flagged by the company, which earlier this month issued a warning that first-quarter earnings would be lower than expected as a result of difficulties in the sub-prime mortgage market in the US.

At the time, the Buffalo-based bank reduced its earnings per share forecast to $1.50 - $1.60, compared with an earlier market consensus of $1.83.

As a result, analysts were prepared for yesterday's results. In a note to investors, Davy said the results contained no surprises, though was quick to highlight the fact that, at $273 million, non-performing loans were almost double the level seen at the end of last year.

The broker said the key for the future would be the group's net interest margin, which is currently towards the top of the recently guided range of 3.6 - 3.65 per cent.

Still, it said any change would have little effect on AIB's own forecast as M&T accounts for less than 10 per cent of its profits.

Prior to yesterday's results, the consensus full-year earnings per share forecast for M&T was $7.13, according to Davy.

Last year, M&T made an after-tax contribution of €141 million to AIB, which represented 7 per cent of the Irish bank's overall earnings.