Aib Group Plc · EURONEXT:A5G
Aib — Allied Irish Banks, p.l.c. — H1 2008 Earnings Presentation
53 slides from Aib's earnings presentation, Jun 30, 2008
Slide 1: Half-Yearly Financial Report 2008
talf- Yearly Financial Report 200° For the half-year ended 30 June 2008, Allied Irish Banks, p.1.c.
Slide 2: Forward looking statements
Forward looking statements A number of statements we will be making in our presentation and in the accompanying slides will not be based on historical fact, but will be “forward- looking” statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Actual resu
Slide 3: Eugene Sheehy, Group Chief Executive
Eugene Sheehy Group Chief Executive
Slide 4: Presentation outline
Presentation outline H1 2008 overview including key financial trends and business unit review Outlook in a challenging environment 4
Slide 5: H1 2008 - features
H1 2008 - features Performance driven by high quality, diverse franchises operating in a difficult environment Resilience in key areas of market focus Strong operating performance; actively managing costs as income growth slows Vigilant management of deteriorating asset quality Solid capit
Slide 6: Financial highlights
Financial highlights Basic earnings per share 114.0 c - basic adjusted * 104.9 c 4 % ** Positive income / cost gap 5% Cost / income ratio 2% Impaired loans 1.1% Dividend 10% Return on equity 21.9% Tier 1 capital ratio 7.7% * Basic earnings per share less profit on disposal / development of pro
Slide 7: Diverse business mix
Diverse business mix Strong pre-provision operating performance; more difficult credit environment Pre-provision operating profit Operating Profit AIB Bank RoI €591m 3% €502m 5% Capital Markets €313m 4% €295m 7% AIB Bank UK £169m 10% £150m - Poland Pln 635m 11% Pln 615m 3% M&T * US$
Slide 8: Income up 3%
Income 3% Loans 6%; deposits 9% (6 months to June 2008) Lower customer demand for loan products & services Growth fully funded by customer deposits Net interest margin 2.21%, 1 bp Exceptional growth in Global Treasury interest income Increased funding costs are persisting Conti
Slide 9: Costs up 2%
Costs 2% Jun Underlying €m 2008 yoy change % Transformation of operations including new core banking Staff costs 761 (4) and common operating Other costs 369 1 systems Depreciation & amortìsation 74 4 People redeployment to more productive roles Operating expenses 1,204 (2) More efficient pr
Slide 10: Cost / income ratio
Cost / income ratio 56.6 55.1 51.2 49.2 48.0 Jun 07 46.7 45.0 Jun 08 42.2 41.6 % 40.0 Group AIB Bank Capital AIB Bank Poland RoI Markets UK 10
Slide 11: Asset quality – deteriorating trends
Asset quality – deteriorating trends Dec 2007 % June 2008 0.8 Impaired loans (ILs) 1.1 5.3 Criticised loans / total loans 7.6 0.45 Gross new ILs 0.93 71 Total provisions / ILs 57 9 Bad debt charge bps 21 11
Slide 12: Solid capital position
Solid capital position Tier 1 capital ratio 7.7% Core Tier 1 ratio 6.2% 20% Core Non core 80% Total capital ratio 10.6% No requirement for recourse to shareholders Continuing progressive dividend policy 12
Slide 13: Strong and diverse funding sources
Strong and diverse funding sources % Steady improvement in key funding 100 9% % 9% 9% measurements 8% 7% 91% of customer loans funded by 80 4% 4% customer deposits & funding maturing 13% 14% beyond Dec „08 Incremental loan growth fully funded by 60 13% 11% €5.7bn increase in customer deposits
Slide 14: Maintaining a realistic assessment of economic conditions
Maintaining a realistic assessment of economic conditions No economic growth expected in Ireland in 2008; UK and USA expected to grow by c. 1% Poland a strong outperformer; 2008 growth forecast c.5% Ireland Return to “trend” growth likely to be delayed until 2010 Low level of housing activ
Slide 15: AIB Bank Republic of Ireland
AIB Bank Republic of Ireland Lower volume growth reflects economic downturn Loans 4%, deposits flat Maintaining market shares Broadly stable product margins Strong focus on productivity Income flat, costs 2% 20 16 “Jaws” Trends 15 13 10 12 Revenue Growth 5 9 Cost Growth 0 0 -2 -5 Jun 07
Slide 16: Capital Markets
Capital Markets €34m income write downs absorbed in dislocated markets Corporate Banking 13% Pre-provision operating profit 4%; increased provisions following exceptionally benign 2007 Loans 8%; lower customer demand, improving margins Deposits 25%; well spread domestic & international gro
Slide 17: AIB Bank United Kingdom
AIB Bank United Kingdom High quality performance underpinned by a clear focus ● Mid corporate sectors and niches in Great Britain; profit 3% ● Improving efficiency in Northern Ireland franchise; profit 2% Productivity continuing to improve ● Income 3%, costs 5% 20 “Jaws” Trends 15 13 13 10
Slide 18: Poland
Poland Buoyant volume growth driven by customer demand Loans 20%, deposits 15% Market conditions adversely affecting asset management and brokerage income Banking fees, commissions and dividend income all buoyant Substantial investment continues People, branches, corporate centres
Slide 19: M&T Contribution
M&T Contribution 11% Satisfactory performance in a highly challenging environment Net income $362m ($390m H1 2007) 7% 3rd best performer amongst top 21 US banks* Average loans / leases 12%, deposits 6% Net interest margin stable (Q2 v Q1 2008) Efficiency ratio 52.4% (50.2% Q2 2007) I
Slide 20: AIB today
AIB today Resilient business model founded on customer revenues Diverse premium positions in chosen markets / niches Proactive, disciplined cost management Common, consistent and effective operating systems / platforms Intense focus on risk management Strong capital and funding positions 20
Slide 21: John O'Donnell, Group Finance Director
John O’Donnell Group Finance Director
Slide 22: Performance snapshot
Performance snapshot Jun Jun ccy change 2007 €m 2008 % 2,417 Total operating income 2,445 3 1,237 Total operating expenses 1,204 -2 Group operating profit 1,180 before provisions 1,241 8 30 Total provisions 138 346 1,150 Group operating profit 1,103 -1 1,318 Group profit before tax 1,279 -1 * 114.7c
Slide 23: Adjusted basic EPS
Adjusted basic EPS % vs June 2007 Basic earnings per share 114.0c -1 Profit on disposal/development of property (0.6c) Profit on disposal of business (12.0c) Hedge volatility 3.5c Adjusted basic EPS 104.9c -4 23
Slide 24: Loan and risk weighted asset growth
Loan and risk weighted asset growth 6 months to June 2008 20 14 Loan growth 8 RWA growth % 6 6 5 5 5 4 4 Group AIB Bank Capital AIB Bank Poland RoI Markets UK Targeting loan growth of c.10% in 2008 24
Slide 25: Deposit growth
Deposit growth 6 months to June 2008 25 15 10 9 % 0 Group AIB Bank Capital AIB Bank Poland RoI Markets UK Targeting low teens % growth in 2008 25
Slide 26: Net Interest Margin
Net Interest Margin Jun 2007 Jun 2008 change 2.20% 2.21% +1 bp Key factors Est. Loans growing faster than deposits -4 bps Increased cost of wholesale funding -8 bps Treasury funding 12 bps Re-investment of customer account funds; neutral effect 1 bp Full year 2008 guidance: (5-10) bps *
Slide 27: Loan portfolios by sector
Loan portfolios by sector % of Group loan portfolio 37% 36% Dec-07 Jun-08 23% 23% 12% 12% 11% 11% 8% 7% 5% 5% 3% 3% 2% 2% Agriculture Construction & Residential Manufacturing Personal Services Transport & Other Property Mortgages Distribution 27
Slide 28: Property & construction
Property & construction Loan book diversified by geography 3% 3% 5% 26% Republic of Ireland USA Northern Ireland Poland 56% Great Britain Other 8% 28
Slide 29: Property & construction – sub sector diversity
Property & construction – sub sector diversity % ROI UK* CM Poland* Group Commercial Investment 34 34 78 43 41 Residential Investment 8 16 4 1 8 Commercial Development 21 13 9 24 18 Residential Development 35 30 8 27 30 Contractors 2 7 1 5 3 Total 100 100 100 100 100 Balances €m 29,663 9,824 7,130 2
Slide 30: Republic of Ireland property & construction
Republic of Ireland property & construction Overview Trends are deteriorating in all sub-sectors and the book is being very closely managed Many borrowers are involved in more than one sub-sector Each sub-sector carries different risk characteristics and loss potential Structuring, recourse
Slide 31: Republic of Ireland property & construction
Republic of Ireland property & construction Commercial investment: (€10.1bn) Spread by sector, tenant & covenant Retail 35%, mixed 26%, office 31%, industrial 8% 45% of total loans to top 40 customers C. 90% occupancy levels Current reappraised average LTV c. 70% Typical interest cover 1
Slide 32: Republic of Ireland property & construction
Republic of Ireland property & construction Residential investment (€2.3 bn) Wide tenant spread, highly granular / small bite sizes, conservative approach to location, occupancy, repayment capacity and LTV (current average c.75%) Bank risk overview Assets generating income from independent 3rd p
Slide 33: Republic of Ireland property & construction
Republic of Ireland property & construction Residential development (€10.4 bn) Difficult market conditions continue, no near term improvement Exposures comprise mix of undeveloped land and work in progress, ratio c. 65:35 Current reappraised average LTV c. 77% Duration prior to recovery of hou
Slide 34: Republic of Ireland property & construction
Republic of Ireland property & construction Commercial development (€6.2 bn) Strong emphasis on pre-sales / pre-lets / recourse to independent cash flows Low exposure to speculative development Exposures comprise mix of undeveloped land and work in progress, ratio c. 40:60, Current reappraised
Slide 35: RoI – Home mortgages
RoI – Home mortgages New Business bps Arrears > 30 days 65 LTVs 2005 2006 2007 H1 08 60 63 55 53 (% no’s of drawdowns) 50 47 45 < 75% 70 63 66 70 40 35 34 36 35 > 75% < 90% 17 22 20 18 30 2003 2004 2005 2006 2007 H1 > 90% 13 15 14 12 2008 Total 100 100 100 100 Borrower Profile Very solid, resilien
Slide 36: UK property & construction
UK property & construction Proactive in risk mitigation actions since early 2007 Minimal new lending in vulnerable locations / sectors Early mover in maintaining risk profile while market liquidity was strong Commercial and residential investment (50% of property and construction portfolio)
Slide 37: International property & construction
International property & construction Capital Markets Principally investment property (c. 82% of total), well underpinned by quality and wide mix of covenants, tenants and sectors No material case due for repayment or refinance in 2008 and 2009 that is a significant cause for concern Poland Bu
Slide 38: Update on other topical asset portfolios
Update on other topical asset portfolios Treasury assets Trading portfolio, credit assets €5.9bn (€7.2bn end 2007) AFS portfolio, credit assets €8.5bn* Held for liquidity management purposes No deterioration, premium quality, average life 2.5 years Mark to market adjustments of €20m (€8m n
Slide 39: Update on other topical asset portfolios – CLOs / CDOs
Update on other topical asset portfolios – CLOs / CDOs €576m portfolio (€550m Dec 2007) All held to maturity in Corporate Banking, performing in line with original expectations c.97% investment grade, no negative rating actions, no sub- prime Income write down of €2m on this portfolio due to
Slide 40: Update on other topical asset portfolios – US Sub-prime
Update on other topical asset portfolios – US Sub-prime ABS portfolio c.€150m equivalent (net of writedowns) c.€5m writedown to income in H1 26 transactions all held to maturity in Corporate Banking, overall performance remains above market average Monthly monitoring, forward looking stresse
Slide 41: Impaired loans by division
Impaired loans by division As at 31 December, 2007 As at 30 June, 2008 ILs/ Total ILs/ Total Actual Provisions/ Actual Provisions/ ILs Advances ILs ILs Advances ILs €m % % €m % % 511 0.7 72 AIB Bank ROI 773 1.0 56 77 0.3 96 Capital Markets 124 0.5 58 274 1.1 51 AIB Bank UK 337 1.4 42 187 2.8 87 Pola
Slide 42: Bad debt provisions by division
Bad debt provisions by division Jun Average Jun Average 2007 Loans % €m 2008 Loans % 46 0.15 AIB Bank ROI 89 0.24 (22) (0.19) Capital Markets 20 0.15 7 0.06 AIB Bank UK 25 0.21 (6) (0.24) Poland 3 0.07 25 0.04 Total 137 0.21 42
Slide 43: Asset quality trend – implication for bad debt charges
Asset quality trend – implication for bad debt charges Full year 2008 forecast bad debt charge c. 35 bps of average loans Deterioration in Irish property development sub-sector the key catalyst; Moderate deterioration expected in other portfolios, primarily reflecting slowing economies IFRS
Slide 44: Asset quality trend – Basel II effect
Asset quality trend – Basel II effect Basel II Internal Ratings Based (IRB) since January 2008 IRB portfolio coverage c.65%, based on exposure at default Procyclicality a potentially significant change from Basel I Little potential effect on standardised portfolios (c.€58bn, 47% of risk weig
Slide 45: Capital stress test – extreme scenario
Capital stress test – extreme scenario Scenario A Scenario B Credit downgrade per qtr to 12/2010 9% 9% Credit grade deterioration by Loan growth % (yoy) 2008 9 9 1 grade of 9% exposures 2009 5 0 each quarter between Jun 2010 5 0 „08 and Dec „10. Effect is to downgrade all IRB by 1 2011 5 0 credit
Slide 46: Summary & outlook
Summary & outlook H1 performance underlines quality & diversity of our business Active cost control aligned to slowing revenue growth Intense focus on credit portfolios in a deteriorating environment Strong and resilient capital and funding bases Targeting 2008 EPS in a 185c – 190c range (
Slide 47: Slide 47
Slide 48: AIB Bank RoI profit statement
AIB Bank RoI profit statement Jun Jun Change 2007 €m 2008 % 868 Net interest income 870 - 238 Other income 239 1 1,106 Total operating income 1,109 - 531 Total operating expenses 518 (2) 575 Operating profit before provisions 591 3 48 Total provisions 89 86 527 Operating profit 502 (5) 7 Associated
Slide 49: Capital Markets profit statement
Capital Markets profit statement Jun Jun Change 2007 €m 2008 % 285 Net interest income 421 55 254 Other income 101 (60) 539 Total operating income 522 - 227 Total operating expenses 209 (6) 312 Operating profit before provisions 313 4 (19) Total Provisions 18 - 331 Operating profit 295 (7) 2 Profit
Slide 50: AIB Bank UK profit statement
AIB Bank UK profit statement Jun Jun Change 2007 Stg£m 2008 % 229 Net interest income 238 4 52 Other income 51 (1) 281 Total operating income 289 3 127 Total operating expenses 120 (5) 154 Operating profit before provisions 169 10 4 Total Provisions 19 347 150 Operating profit 150 - - Associated und
Slide 51: Poland profit statement
Poland profit statement Jun Jun Change 2007 PLN m 2008 % 533 Net interest income 718 35 738 Other income 745 1 1,271 Total operating income 1,463 15 699 Total operating expenses 828 18 572 Operating profit before provisions 635 11 (24) Total Provisions 20 - 596 Operating profit 615 3 - Profit on dis
Slide 52: Group profit statement
Group profit statement Jun Jun 2007 €m 2008 36 Net interest income 60 (12) Other income (40) 24 Total operating income 20 110 Total operating expenses 84 - Total provisions - (86) Operating loss (64) 74 Share of results of associates – M&T 58 85 Profit on disposal/development of property 6 73 Profit
Slide 53: Contacts
Contacts Our Group Investor Relations Department will be happy to facilitate your requests for any further information Alan Kelly alan.j.kelly@aib.ie +353-1-6412162 Rose O‟Donovan rose.m.o’donovan@aib.ie +353-1-6414191 Pat Clarke patricia.m.clarke@aib.ie +353-1-6412381 Maura Hodnett maura.n.ho
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