Aib Group Plc · EURONEXT:A5G

Aib — Allied Irish Banks, p.l.c. — FY2008 Earnings Presentation

54 slides from Aib's earnings presentation, February 2009

  1. Slide 1: Preliminary Results 2008

    Preliminary Results 200P For the year ended 31 December 2008 Allied Irish Banks, p.1.c.

  2. 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

  3. Slide 3: Eugene Sheehy, Group Chief Executive

    Eugene Sheehy Group Chief Executive

  4. Slide 4: 2008 overview - an extraordinary year

    2008 overview - an extraordinary year  Global economic downturn deepened as the year progressed  Banking crisis has caused severe disruption to funding and credit markets  Slump in asset valuations  Public confidence and sentiment seriously undermined  Ethical and governance standards under scr

  5. Slide 5: AIB in 2008

    AIB in 2008  A year in which we clearly underperformed  Significant deterioration in asset quality  Product concentration exacerbated market downturn effects  Major deployment of resources and expertise  Implementing case / portfolio strategy to minimise loss  Good operating performance  Focu

  6. Slide 6: Financial highlights

    Financial highlights Basic earnings per share 82.9 c - basic adjusted * 66.5 c  68% ** Positive income / cost gap 11% Cost / income ratio  5.3% Impaired loans 2.3% Loan / deposit ratio 140% Core tier 1 capital ratio 5.8% Pro forma core tier 1 capital ratio # 8.4% Tier 1 capital ratio 7.4% * Basic

  7. Slide 7: Diverse business mix

    Diverse business mix  Strong pre-provision operating performance, €2,711m  18% Pre-provision operating profit AIB Bank RoI €1,181m - Capital Markets €766m  52% AIB Bank UK £323m - Poland Pln 1,268m  25% M&T * US$ 1,152m - *AIB owns 24.2% @ Dec ’08 7

  8. Slide 8: Income

    Income  Total income  6%  Strong growth in interest income  16% ( 12% excluding $ / € funding effect)  Other income  19% ( 8% excluding $ / € funding effect)  Continued market dislocation has affected trading income, asset valuations and asset management activities  Loans  8%; deposits 

  9. Slide 9: Costs

    Costs  5 % Dec Underlying  Operations and technology €m 2008 yoy change % one unified structure Staff costs 1,412 (11)  Cost Management and efficiency gains Other costs 775 3  Centralisation and streamlining Depreciation & amortìsation 170 17 back office operations Operating expenses 2,357 (5) 

  10. Slide 10: Cost / income ratio – historic low

    Cost / income ratio – historic low 60.4 56.3 51.8 48.0 Dec 07 46.5 45.9 47.1 Dec 08 44.1 44.1 % 33.9 Group AIB Bank RoI Capital AIB Bank UK CEE Division* Markets * Poland only 10

  11. Slide 11: Significant increase in criticised loans

    Significant increase in criticised loans Total criticised by value €m 15,465 16000 14000 Watch Impaired 11,930 12000 10,221 10000 8,207 8000 6,782 6000 4000 2000 0 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 As % of Group loans 5.3% 6.3% 7.6% 8.7% 11.7% 11

  12. Slide 12: Criticised loans by division

    Criticised loans by division Watch Watch Impaired Impaired Total Criticised Total Criticised €m as at Dec '08 as at Dec '07 as at Dec '08 as at Dec '07 as at Dec '08 as at Dec '07 AIB Bank ROI 9,271 3,864 1,862 511 11,133 4,375 AIB Bank UK 2,490 1,576 522 274 3,012 1,850 Capital Markets 331 189 338

  13. Slide 13: Credit provisions

    Credit provisions  The divisional break-out of the Group charge (P&L) and resulting balance sheet provisions is as follows: Year End December 2008 Balance Sheet P&L Specific IBNR % of Total % of Specific IBNR Total Division Impaired % of Provision Provision Earning Provision Impaired Provision % of

  14. Slide 14: Diverse funding sources

    Diverse funding sources % 100 9% 9%  Solid funding base with significant customer 8% 6% 4% resources and diversified debt programmes 80 4% 13% 12%  Customer deposit growth exceeded loan 10% growth by c. €8bn in 2008 60 13% 5%  Strong growth in corporate deposit franchise 5%  Improved loan / depo

  15. Slide 15: Solid capital position

    Solid capital position Tier 1 capital ratio  Tier 1 capital ratio 7.4% / 10.0%* 22%  Core tier 1 ratio 5.8% / 8.4%* Core Non core  Total capital ratio 10.5% / 13.1%* 78%  Solid balance sheet; current capital ratios well above regulatory requirements  €3.5bn perpetual core tier 1 non cumulative

  16. Slide 16: Tough economic conditions

    Tough economic conditions GDP 2008 - 2010 % volume 2008(e) 2009(f) 2010(f) Ireland -1.5 -5.5 -1.5 UK 0.7 -3.0 0.5 Poland 4.8 0.5 1.5 Eurozone 0.7 -2.5 0.7 US 1.3 -2.5 1.0 World 3.4 0.5 3.0 Source: IMF; AIB ERU Forecasts Ireland  Undergoing a difficult and painful adjustment  Sharp correction in pr

  17. Slide 17: AIB Bank Republic of Ireland - PBT

    AIB Bank Republic of Ireland - PBT (€52m)  Operating profit before provisions maintained at 2007 levels against a difficult economic backdrop  Supporting credit growth in key segments – growing share in Home Mortgage, SME and Personal Lending markets  Loans 5%, customer funds 1% (deposits 9%, cre

  18. Slide 18: Capital Markets – PBT €585m

    Capital Markets – PBT €585m  Operating profit before provisions 52%  Corporate Banking PBT €335m 13%  Pre-provision operating profit 33%  Loans 9% ; deposits 89%  Strong performance in Global Treasury; PBT €213m (2007 breakeven)  Well positioned in volatile markets  Customer activity down due

  19. Slide 19: AIB Bank United Kingdom – PBT £152m

    AIB Bank United Kingdom – PBT £152m  Operating profit before provisions in line “Jaws” Trends 20 with 2007 15  Great Britain 5%, First Trust Bank 6% 13 13 10  Strong volume growth and active margin 9 8 management offset higher funding costs 5 0 0 0 Loans Deposits Jun 07 Dec 07 Dec08 Great Brita

  20. Slide 20: Central & Eastern European (CEE) Division – PBT €174m

    Central & Eastern European (CEE) Division – PBT €174m Poland  Operating profit before provisions Pln 1,268m  25%  Growth across all business lines “Jaws” Trends*  Loans  42%; deposits  41% 25 22 20 20  Strong growth in daily banking fees and dividends; 21 13 offset by continued reduction from

  21. Slide 21: M&T – US$138m

    M&T – US$138m  Operating profit before provisions in line with 2007  Solidly profitable through difficult economic period  Net income $556m 15% ($654m in 2007)  Commercial loans 15%; deposits 11%  Flight to quality by depositors; 5th consecutive quarter of growth in core deposits  Careful and

  22. Slide 22: AIB well placed to withstand current turmoil

    AIB well placed to withstand current turmoil High quality, geographically diverse franchises Significant productivity gains Strong level of endowment income Intense focus on risk management as bad debts rise Resilient balance sheet 22

  23. Slide 23: John O'Donnell, Group Finance Director

    John O‟Donnell Group Finance Director

  24. Slide 24: Performance snapshot

    Performance snapshot Dec Dec ccy change 2007 €m 2008 % 4,868 Total operating income 5,068 6 2,521 Total operating expenses 2,357 -5 Group operating profit 2,347 before provisions 2,711 18 99 Total provisions 1,849 2,248 Group operating profit 862 2,508 Group profit before tax 1,029 218.0c EPS – basi

  25. Slide 25: Adjusted basic EPS

    Adjusted basic EPS vs Dec 2007 Euro c % Basic earnings per share 82.9 -62 Profit on disposal / development of property (1.4) Profit on disposal of business (12.0) Hedge volatility (3.0) Adjusted basic EPS 66.5 -68 25

  26. Slide 26: 2008 Loan and risk weighted asset growth

    2008 Loan and risk weighted asset growth 43 33 Loan Growth RWA Growth 9 9 10 8 7 6 5 % -3 Group AIB Bank Capital AIB Bank CEE RoI Markets UK Division 26

  27. Slide 27: 2008 Deposit growth

    2008 Deposit growth 68 41 22 22 % 1 Group AIB Bank Capital AIB Bank CEE RoI Markets UK Division 27

  28. Slide 28: Net Interest Margin

    Net Interest Margin Dec 2007 Dec 2008 change 2.14% 2.21% + 7 bps  Underlying N.I.M. -1 bp  Treasury funding ($ funding, benefit unwound in other income) €150m, +8 bps  Key factors  Increased cost of wholesale funding €192m, -11 bps  Treasury positioning in interest rate markets €138m, +8 bps 

  29. Slide 29: Loan portfolios by sector

    Loan portfolios by sector % of Group loan portfolio 36% 36% Dec-07 Dec-08 24% 23% 12% 12% 11% 11% 8% 7% 5% 5% 3% 3% 2% 2% Agriculture Construction & Residential Manufacturing Personal Services Transport & Other Property Mortgages Distribution 29

  30. Slide 30: Property & construction – sub sector diversity

    Property & construction – sub sector diversity * €m ROI UK ** CM Poland Group Commercial Investment 10,528 3,098 5,060 1,271 19,957 Residential Investment 2,104 1,016 443 27 3,590 Commercial Development 6,016 781 442 691 7,930 Residential Development 10,829 2,868 380 635 14,712 Contractors 601 448 -

  31. Slide 31: Key concentrations – property building, construction

    Key concentrations – property building, construction  Property building & construction – criticised loans Watch Watch Impaired as at Impaired as at Total Property Total Property €m As at Dec „08 as at Dec „07 Dec '08 Dec '07 Criticised as at Criticised as at Dec '08 Dec '07 AIB Bank ROI 4,846 1,055

  32. Slide 32: Republic of Ireland property & construction

    Republic of Ireland property & construction Commercial investment: June 2008 Dec 2008 (€10.1bn) (€10.5bn) Watch loans €m 435 872 % 4.3 8.5 Impaired Loans €m 35 51 % 0.3 0.5 Occupancy levels % c. 90 c. 84 Typical interest cover c. 1.2x c. 1.3x  Assets generating income from independent 3rd parties 

  33. Slide 33: Republic of Ireland property & construction

    Republic of Ireland property & construction Residential investment: June 2008 Dec 2008 (€2.3bn) (€2.3bn) Watch loans €m 258 428 % 12.2 18.6 Impaired loans €m 9 27 % 0.4 1.2  Wide tenant spread, small bite sizes; location, occupancy, repayment capacity all key factors 33

  34. Slide 34: Republic of Ireland property & construction

    Republic of Ireland property & construction Residential development June 2008 Dec 2008 (€10.4bn) (€10.8bn) Watch loans €m 1,564 2,743 % 14.5 25.4 Impaired loans €m 179 913 % 1.7 8.5  Virtually all construction activity now ceased; other than against contracted sales  Exposures comprise mix of unde

  35. Slide 35: Republic of Ireland property & construction

    Republic of Ireland property & construction Commercial development June 2008 Dec 2008 (€6.2bn) (€6.1bn) Watch loans €m 390 853 % 6.4 14.0 Impaired loans €m 34 138 % 0.5 2.3  Strong emphasis on pre-sales / pre-lets / recourse to independent cash flows  Exposures comprise mix of undeveloped land and

  36. Slide 36: Republic of Ireland – Home mortgages

    Republic of Ireland – Home mortgages bps Arrears > 30 days Stock December 2008 170 148 150 Buy to let 130 29% 110 90 70 53 47 50 35 34 36 30 71% 10 2003 2004 2005 2006 2007 2008 Owner occupier / holiday home  Impaired loans €146m remain very low, though up from €75m at June 2008  Bad debt charge 1

  37. Slide 37: UK property & construction

    UK property & construction (Stg £7.8 bn)  Contractors represent 5% of book; working capital facilities, significant level of public sector contracts, long standing relationships, low risk exposure  UK property book c. £7.4bn comprises  c. £3.9bn (53%) commercial & residential investment  Underpi

  38. Slide 38: International property & construction

    International property & construction Capital Markets  Principally investment property (c. 87% of total), well underpinned by quality and wide mix of covenants, tenants and sectors Poland  Property market activity falling as economy slows  Low though increasing level of impaired loans €61m, incre

  39. Slide 39: Update on asset portfolios

    Update on asset portfolios Treasury assets  Trading portfolio €0.4bn, €6.1bn reclassified to AFS  AFS portfolio €29bn (includes reclassified amount)  Mark to market adjustments of €31m (trading portfolio prior to reclassification) to income and €465m (AFS) through equity account due to interest r

  40. Slide 40: Bad debt provision charges 2008

    Bad debt provision charges 2008* PLN m Stg £m €m bps AIB Bank RoI 1299 174 - residential development 839 827 - commercial development 127 193 - investment 89 75 - property & construction 1055 370 - other business 123 104 - residential mortgages 40 16 - other personal 80 109 AIB Bank UK 204 256 111 -

  41. Slide 41: Credit provisions – key assumptions

    Credit provisions – key assumptions Base Case 2009 / 2010 Stress Scenario 2009 / 2010 IRELAND % % GDP (5.5) / (1.5) (7.0) / (2.0) Unemployment (annual average) 11.0 / 13.6 11.6 / 14.3 Fall in asset values (peak to trough) - Residential property 20 - 40 50 - Zoned land 25 - 55 70 - Unzoned land 30 -

  42. Slide 42: Bad debt provision charges - base case

    Bad debt provision charges - base case* 2009 (f) 2010 (f) Pln m Stg £m €m bps Pln m Stg £m €m bps AIB Bank RoI 2063/2362 266/305 1250 161 - residential development 889/997 791/888 538 479 - commercial development 294/331 440/495 178 266 - investment 361/404 277/310 219 168 - property & construction

  43. Slide 43: Bad debt provision charges - stress test

    Bad debt provision charges - stress test* 2009 (stress) 2010 (stress) PLN m Stg £m €m bps PLN m STG £m €m bps AIB Bank RoI 3095 399 1898 245 - residential development 1302 1159 798 711 - commercial development 431 645 265 396 - investment 528 405 324 248 - property & construction 2261 730 1387 448 -

  44. Slide 44: Capital stress test

    Capital stress test € bn 2009 2010 Operating profit pre provisions (€2.7bn in 2008 x 80%) 2,160 2,160 Retained profit - 2,075 - 803 Bad debt charge 300 bps 200 bps Provisions (as per bad debt stress scenario) - 4,004 - 2,653 Average Loans 133,484 132,090 Core tier 1 capital 9,152 8,349 Tier 1 capita

  45. Slide 45: Asset quality trend – Basel II effect

    Asset quality trend – Basel II effect  Basel II Internal Ratings Based (IRB) since January 2008  Procyclicality a potentially significant change from Basel I  Marginal effect on standardised loan portfolios (c. 41% of risk weighted assets)  Predominantly applies to IRB loan portfolios (c. 59% of

  46. Slide 46: Capital – AIB in a strong position

    Capital – AIB in a strong position % Tangible Equity / Tangible Assets Total RWAs / Total Assets AIB 4.2 74 Royal Bank of Scotland 1.5 26 Danske 2.1 27 HBOS 2.5 49 KBC Group 2.9 40 Deutsche 1.2 14 Commerzbank 2.9 33 Credit Agricole 1.1 22 Source: Information is based on latest disclosed data from co

  47. Slide 47: Summary

    Summary  2008 a very tough year  Operating 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 47

  48. Slide 48: Gc

    Gc

  49. Slide 49: AIB Bank RoI profit statement

    AIB Bank RoI profit statement Dec Dec Change 2007 €m 2008 % 1,777 Net interest income 1,705 (4) 490 Other income 478 (2) 2,267 Total operating income 2,183 (3) 1,088 Total operating expenses 1,002 (7) 1,179 Operating profit before provisions 1,181 - 104 Total provisions 1, 302 1,144 1,075 Operating

  50. Slide 50: Capital Markets profit statement

    Capital Markets profit statement Dec Dec Change 2007 €m 2008 % 586 Net interest income 1,064 87 389 Other income 94 (76) 975 Total operating income 1,158 21 460 Total operating expenses 392 (13) 515 Operating profit before provisions 766 52 (15) Total Provisions 181 - 530 Operating profit 585 13 2 P

  51. Slide 51: AIB Bank UK profit statement

    AIB Bank UK profit statement Dec Dec Change 2007 Stg£m 2008 % 470 Net interest income 471 - 107 Other income 107 1 577 Total operating income 578 - 255 Total operating expenses 255 - 322 Operating profit before provisions 323 - 12 Total Provisions 204 1,559 310 Operating profit 119 (62) - Associated

  52. Slide 52: CEE Division profit statement

    CEE Division profit statement* Dec Dec Change 2007 PLN m 2008 % 1,167 Net interest income 1,542 32 1,400 Other income 1,362 (3) 2,567 Total operating income 2,904 13 1,549 Total operating expenses 1,636 6 1,018 Operating profit before provisions 1,268 25 4 Total Provisions 351 8,680 1,014 Operating

  53. Slide 53: Group profit statement

    Group profit statement Dec Dec 2007 €m 2008 62 Net interest income 70 44 Other income 104 106 Total operating income 174 192 Total operating expenses 150 (9) Total provisions - (77) Operating loss 24 120 Share of results of associates – M&T 94 64 Profit on disposal/development of property 2 55 Const

  54. Slide 54: 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

Allied Irish Banks, p.l.c. — FY2008 Earnings Presentation on 6ix