AIB's subsidiary in the US, First Maryland Bancorp, is raising 150 million on the US market. Meanwhile, debt rating agency Moody's is reassessing its ratings for AIB and its subsidiaries with a view to upgrading them.

The fund raising which will be completed next Tuesday will help maintain the banks capital strength during the $1.36 billion (£840 million) acquisition of Dauphin Deposit Bank and Trust in neighbouring Pennsylvania.

FMB raised $150 million on the market last December bringing its year end Tier 1 capital ratio - a measure of the strength of a bank's long term funding - to 14 per cent. The latest fund raising increases FMB's Tier 1 ratio to about 15 per cent. If AIB achieves its preferred payment structure for the Dauphin deal - 70 per cent shares and 30 per cent cash - the US bank is expected to have to raise an additional $100 million to $150 million.

FMB will pay 0.85 per cent over the three month interbank US interest rate for the funds. The interest charge will be tax deductible and the trust preferred capital securities will be issued at price of $98.878 per $100 of 30 year stock.

Moody's announced yesterday that it is reviewing its ratings on Allied Irish Banks, its subsidiaries and proposed US acquisition, with a view to possible upgrades.

AIB's fundamental performance has improved consistently over recent years, according to Moody's analyst Alan Reid. He cited as an example the improvement in the return on average assets from 0.64 per cent in 1991 to 1.1 per cent in 1995.

This improving trend as well as a gradual strengthening of capital ratios and the strength of the banks domes, the franchise are positive factors in any review, he said. AIB has about 15 per cent of the Irish mortgage market and 25 per cent of the corporate market, he estimated. This strong domestic franchise gives the bank strong recurring earnings power, said Mr Reid.

The proposed acquisition of Dauphin Deposit Bank and Trust will add critical mass in the US and fits well with AIB's regional strategy, according to Mr Reid. But he said he would have "to look very closely" at the financial structure of the deal.

The impact of the deal on the capital ratios at AIB and First Maryland Bancorp will have to be assessed, he said. AIB's Tier 1 ratio is healthy and will remain healthy after the deal but it will be reduced, he said. It is a question of satisfying bondholders as well as shareholders, he added. "I do not see too many negatives from the transaction," he said.

AIB's senior debt and bank deposits are currently rated A1 while long term bank deposits at both, First Maryland and Dauphin have an A2 rating.