After all the hoo-ha over AIB's $750 million black hole in Maryland and the possibility that AIB might become a bid target, First Active's impressive results last week ended up being given short shrift by the market.

That was a pity, as First Active - after its trials and tribulations in recent years - has re-emerged as an impressive operator under its new management. It is also far more likely that First Active will become a bid target than a beached whale like AIB.

The big recovery in profits was largely based on the bank's successful cost-cutting programme, which has seen the group move into a single office building in Sandyford, bringing together functions that were previously spread out over four sites in Dublin and that are thought to have been 28 per cent more expensive.

Overall First Active has realised annual cost savings in the order of €10 million and this is reflected in a six-point fall in its cost-income ratio to under 59 per cent.

Ordinarily, its new slimline operation, its low-risk profile and its strength in the mortgage market would make First Active an attractive investment. But for investors, there is also the prospect of the loss of First Active's takeover protection in October 2003. After that date, it is reasonable to assume that a relatively small but profitable operator like First Active will attract potential buyers.

October 2003 is still a long time away so it's probably premature to be talking about valuations for First Active, but if we take the 1.8 times book value that Irish Life & Permanent paid for TSB and one assumes Davy's book value forecast for 2003 of €2.79 a share, then 1.8 times First Active's book value comes out at €5.02 a share, 33 per cent ahead of the current price in the market.