2 Mar 2009 07:00
Allied Irish Banks, p.l.c. ("AIB") [NYSE:AIB] Part 1
KEY INFORMATION - AIB GROUP ANNUAL RESULTS 2008
Profitability(1)
Operating profit before provisions of € 2,711 million, up 18%
Profit for the period € 885 million
AIB Bank ROI loss of € 52 million in 2008; operating profit(2) in line with 2007
Capital Markets profit up 13%; operating profit(2) up 52%
AIB Bank UK profit down 61%; operating profit(2) in line with 2007
Poland profit down 9%; operating profit(2) up 25%
M&T US$ contribution down 17%
Efficiency
Income/cost growth rate gap +11%
Cost income ratio down 5.3% from 51.8% to 46.5%
Asset quality
Impaired loans at 2.3% of customer loans
Criticised loans at 11.7% of customer loans
Provision charge at 1.37% of average loans
IBNR provisions: 0.73% of average loans
| Earnings per share | ||
| Basic earnings per share less profit on disposal of businesses(3) less profit on disposal/development of property(4) adjust for hedge volatility(5) | EUR EUR EUR EUR | 82.9c (12.0c) (1.4c) (3.0c) |
| Adjusted basic earnings per share | EUR | 66.5c down 68%(6) |
Balance sheet funding
Customer funding 54% of our balance sheet requirement, up from 48% at 31 December 2007
Loan deposit ratio at 140%, down from 157% at 31 December 2007
| Proforma(7) | ||
| Capital ratios | 31/12/08 | 31/12/08 |
| Core tier 1 ratio | 5.8% | 8.4% |
| Tier 1 ratio | 7.4% | 10.0% |
| Total capital ratio | 10.5% | 13.1% |
(1) The percentage changes compared with 2007 are on an underlying basis excluding the impact of exchange rate movements on the translation of foreign locations' profit, the impact of interest rate hedge volatility (hedging ineffectiveness and derivative volatility) and profit on disposal of AIB's merchant acquiring businesses.
(2) Operating profit before provisions.
(3) Profit on disposal of 50.1% of AIB's merchant acquiring businesses (€ 106 million after taxation). Arising from this transaction, a merchant acquiring joint venture was formed with First Data Corporation.
(4) Construction contract income (€ 11 million after taxation) and sale of 2 branches in the Republic of Ireland (€ 1 million after taxation).
(5) The impact of interest rate hedge volatility (hedging ineffectiveness and derivative volatility) was an increase of € 27 million to profit before taxation in the year to December 2008 (€ 26 million after taxation).
(6) A 68% decrease compared with EUR 205.9c for the year to December 2007 (see note 15).
(7) Includes the € 3.5 billion of core tier 1 capital from the Irish Government as announced on 11 February 2009, subject to shareholder, regulatory and EU state aid approval.
Allied Irish Banks, p.l.c.
Dividend
No final dividend will be paid. The interim dividend, paid on 26 September 2008, was EUR 30.6c per share.
For further information please contact:
| John O'Donnell | Alan Kelly | Catherine Burke |
| Group Finance Director | General Manager, Group Finance | Head of Group Corporate Relations |
| Bankcentre | Bankcentre | Bankcentre |
| Dublin | Dublin | Dublin |
| 353-1-660-0311 | 353-1-660-0311 | 353-1-660-0311 |
| Ext. 14412 | Ext. 12162 | Ext. 13894 |
This results announcement and a detailed informative presentation can be viewed on our internet site at www.aibgroup.com/investorrelations
Forward-looking statements
This document contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the Group. In particular, among other statements, certain statements in the Management Report, with regard to management objectives, trends in results of operations, margins, risk management, competition and the impact of changes in International Financial Reporting Standards are forward-looking in nature. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe', or other words of similar meaning. Examples of forward-looking statements include among others, statements regarding the Group's future financial position, income growth, loan losses, business strategy, projected costs, capital ratios, estimates of capital expenditures, and plans and objectives for future operations. Because such statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking information. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the effects of continued volatility in credit markets, the effects of changes in valuation of credit market exposures, changes in valuation of issued notes, changes in economic conditions globally and in the regions in which the Group conducts its business, changes in fiscal or other policies adopted by various governments and regulatory authorities, the effects of competition in the geographic and business areas in which the Group conducts its operations, the ability to increase market share and control expenses, the effects of changes in taxation or accounting standards and practices, acquisitions, future exchange and interest rates and the success of the Group in managing these events. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made.
AIB cautions that the foregoing list of important factors is not exhaustive. Investors and others should carefully consider the foregoing factors and other uncertainties and events when making an investment decision based on any forward looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report may not occur. The Group does not undertake to release publicly any revision to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date hereof.
Group Chief Executive's Statement
Introduction
2008 was a very challenging year for AIB. Market and economic conditions were unprecedented and it was a year in which shareholder value was significantly diminished. It is disappointing for me as Group Chief Executive to report on a decrease in AIB's share price of close to 90% in 2008.While good growth in operating profit before provisions was achieved, net profit for the period and earnings per share were down compared with 2007.The decrease in profitability and erosion of shareholder value while largely influenced by market and economic conditions, is not all down to factors outside our control. Decisions made under our sole control, particularly in relation to our exposure to the property and construction sectors, negatively impacted on our business. I regret some of the lending decisions we made. I believe our business remains resilient when set in the context of the pace and extent of the economic downturn in Ireland and abroad. In these difficult conditions, in which there has been a material increase in bad debts, I believe that the depth and diversity of the customer franchises built by our people will continue to stand us in good stead.
Overview
The volatility and uncertainty in world financial markets and the rapid deterioration in global economic conditions made 2008 a very challenging year for the banking industry generally. Many large financial institutions incurred substantial losses and there was the Lehman Brothers bankruptcy, followed by several banks failing or being rescued in the second half of 2008.The year witnessed significant government intervention and action in many countries, bank funding and liquidity issues, and rising recessionary conditions globally. Both the Irish and UK economies entered recession during 2008.
Against the backdrop of these global economic and market conditions, AIB reported operating profit before provisions of € 2.7 billion, pre-tax profit of € 1 billion and adjusted earnings per share of EUR 66.5c, reflecting a resilient performance by the Group in 2008 in the prevailing environment.
There was a significant deterioration in asset quality, most notably in property portfolios, with the overall bad debt charge increasing to 137 basis points and criticised loans increasing to 11.7% of loans of which 2.3% were impaired. Loan growth was slower than previous periods at 8% with reduced customer demand and increased focus on maintaining a strong funding and liquidity position and reducing the loan to deposit ratio. Deposit growth at 22% was very strong and the loan to deposit ratio reduced from 157% at 31 December 2007 to 140% at 31 December 2008.
In this climate of slower revenue growth, swift action and aggressive management of our cost base yielded a 5% reduction in costs in 2008 generating a substantial income/cost growth rate gap of 11% and a reduction in the cost income ratio of 5.3% to a historic low of 46.5%.This positive income/cost growth position drove an 18% increase in operating profit to s 2.7 billion demonstrating AIB's efficiency, operating flexibility and recurring customer revenues.
The operating environment continues to be extremely difficult, with deteriorating economic conditions clearly evident in the markets in which we operate. Significant uncertainty remains in markets generally, with the Irish economy in a very challenging phase. AIB's funding comprises broadly based resilient customer deposits and a well spread debt maturity profile. The € 3.5 billion of core tier 1 capital from the Irish Government(1) underpins our strong capital position and should result in a proforma core tier 1 ratio of 8.4%, a proforma tier 1 ratio of 10.0% and a proforma total capital ratio of 13.1%.This strong capital position will support our business in the current environment and is a good platform for the support of our business into the future.
Outlook
We expect the operating environment to remain extremely difficult through 2009 with deteriorating economic conditions in the markets in which we operate.
- The Irish economy, together with other economies in which we operate, has entered a very challenging phase with uncertainty as to the depth of the slowdown in the global economy, interest rate environments, currency exchange rates, unemployment and the direction of the property and housing market.
- A prolonged economic downturn and dislocation of global credit markets could further reduce the recoverability and value of the Group's assets and require an increase in the Group's level of provision for impairment losses.
- Markets worldwide are experiencing severe tightening in the availability and duration of unsecured liquidity and term funding.
If these conditions continue, AIB's access to traditional sources of liquidity will be further constrained.
In these conditions, AIB is relatively well positioned through its high quality geographically diverse franchises, strong productivity and flow through of endowment income. We expect our balance sheet to remain resilient even in a stressed environment and we will maintain an intense focus on risk management as bad debts rise. These factors will support AIB's business through this difficult cycle.
(1) Announced on 11 February 2009, subject to shareholder, regulatory and EU state aid approval.
Management Report - Commentary on results
Earnings per share
The table below shows the basic earnings per share excluding profit on disposal of businesses(1), profit on disposal/development of property(2) and adjusting for interest rate hedge volatility(3).
| Earnings per share | Year 2008 | Year 2007 | % change 2008 v 2007 |
| Basic earnings per share | 82.9c | 218.0c | -62 |
| less profit on disposal of businesses(1) | (12.0c) | - | - |
| less profit on disposal/development of property(2) | (1.4c) | (12.1c) | - |
| adjust for interest rate hedge volatility(3) | (3.0c) | - | - |
| Adjusted basic earnings per share | 66.5c | 205.9c | -68 |
Rates of exchange
A significant proportion of the Group's earnings are denominated in currencies other than the euro. As a result, movements in exchange rates can have an impact on earnings growth. The average effective rates shown below include profits and losses on foreign exchange hedging activities. In the year to December 2008, the US dollar and sterling effective rates weakened relative to the euro by 11% and 9% respectively and Polish zloty strengthened relative to the euro by 7%, compared with the year to December 2007.The impact of the movement in the average exchange rates was a 4% adverse impact on adjusted earnings per share.
The following table shows the accounting rates and effective rates for both periods. The average effective rates include the impact of currency hedging activities.
| Average | Average | Average | Average | Period end | Period end | |
| accounting rates | accounting rates | effective rates | effective rates | rates | rates | |
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| US dollar | 1.47 | 1.37 | 1.49 | 1.32 | 1.39 | 1.47 |
| Sterling | 0.80 | 0.69 | 0.75 | 0.68 | 0.95 | 0.73 |
| Polish zloty | 3.51 | 3.78 | 3.62 | 3.88 | 4.15 | 3.59 |
Since 31 December 2008, the US dollar and sterling have strengthened and the Polish zloty has weakened, demonstrating the scale of foreign exchange volatility.
(1) Profit on disposal of 50.1% of AIB's merchant acquiring businesses (€ 106 million after taxation).Arising from this transaction, a merchant acquiring joint venture was formed with First Data Corporation.
(2) Includes construction contract income (€ 12 million before taxation, € 11 million after taxation) and profit on sale of 2 branches in the Republic of Ireland (€ 2 million profit before taxation, € 1 million after taxation) in the year to December 2008. Includes construction contract income (€ 55 million before taxation, € 48 million after taxation) and profit on sale of 22 branches in the Republic of Ireland (€ 64 million profit before taxation, € 58 million profit after taxation) in the year to December 2007.
(3) The impact of interest rate hedge volatility (hedging ineffectiveness and derivative volatility) was an increase of € 27 million to profit before taxation in the year to December 2008 (€ 26 million after taxation).The impact in the year to December 2007 was negligible.
Management Report - Commentary on results
Basis of presentation
During the second half of 2008, the Central & Eastern Europe (CEE) division was formed bringing together the Group's interests in Poland, Bulgaria and the Baltic region. In Poland, AIB has a 70.5% share in Bank Zachodni WBK ('BZWBK'), together with its subsidiaries and associates. BZWBK Wholesale Treasury and Capital Markets' share of certain Investment Banking subsidiaries results are reported in Capital Markets division. On 1 February 2008 AIB acquired AmCredit, a mortgage business operating in the Baltic region. AIB acquired, on 29 August 2008, a 49.99% shareholding in Bulgarian American Credit Bank ('BACB'), an SME lender operating in Bulgaria.
In October 2008, the International Accounting Standards Board approved certain amendments to IAS 39.These amendments permitted the reclassification of financial assets from the trading book to available for sale (AFS) in certain circumstances. AIB applied the amendment and the majority of assets held in the trading portfolio were reclassified as available for sale.
Underlying percentage change: The growth percentages are shown on an underlying basis, adjusted for the impact of exchange rate movements on the translation of foreign locations' profit and excluding profit on disposal of businesses, profit on disposal/development of Bankcentre and branches as part of the sale and leaseback programme and excluding interest rate hedge volatility (hedging ineffectiveness and derivative volatility).
Operating profit before provisions +18%
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| Summary income statement | € m | € m | 2008 v 2007 |
| Net interest income | 3,867 | 3,418 | 16 |
| Other income | 1,201 | 1,450 | -19 |
| Total operating income | 5,068 | 4,868 | 6 |
| Personnel expenses | 1,412 | 1,615 | -11 |
| General and administrative expenses | 775 | 761 | 3 |
| Depreciation (1) / amortisation | 170 | 145 | 17 |
| Total operating expenses | 2,357 | 2,521 | -5 |
| Operating profit before provisions | 2,711 | 2,347 | 18 |
| Provisions for impairment of loans and receivables | 1,822 | 106 | 1,603 |
| Provisions for liabilities and commitments | (2) | (8) | -76 |
| Amounts written off financial investments available for sale | 29 | 1 | 4,767 |
| Total provisions | 1,849 | 99 | 1,760 |
| Operating profit | 862 | 2,248 | -62 |
| Associated undertakings | 37 | 128 | -69 |
| Profit on disposal of property | 12 | 76 | -17 |
| Construction contract income | 12 | 55 | - |
| Profit on disposal of businesses | 106 | 1 | - |
| Profit before taxation | 1,029 | 2,508 | -62 |
| Year | Year | Underlying | ||
| 2008 | 2007 | % change | ||
| Divisional profit/(loss) before taxation | € m | € m | 2008 v 2007 | |
| AIB Bank Republic of Ireland | € | (52) | 1,094 | - |
| Capital Markets | € | 585 | 532 | 13 |
| AIB Bank UK | £ | 152 | 310 | -61 |
| € | 190 | 452 | ||
| CEE | € | 174 | 269 | -40(3) |
| Group | € | 132 | 161 | |
| AIB Group | € | 1,029 | 2,508 | -62 |
(1)Depreciation of property, plant and equipment.
(2)Impairment and amortisation of intangible assets.
(3)Excluding new acquisitions (AmCredit and BACB), the reduction for Poland was 9%.
Management Report - Commentary on results
| Year | Year | Underlying | |||
| Divisional operating profit/(loss) before provisions | 2008 € m | 2007 ¤ € m | % change 2008 v 2007 | ||
| AIB Bank Republic of Ireland | € | 1,181 | 1,179 | - | |
| Capital Markets | € | 766 | 515 | 52 | |
| AIB Bank UK | £ | 323 | 322 | - | |
| € | 405 | 470 | |||
| CEE | € | 335 | 269 | 15(1) | |
| Group | € | 24 | (86) | ||
| AIB Group | € | 2,711 | 2,347 | 18 | |
(1) Excluding new acquisitions (AmCredit and BACB), the increase for Poland was 25%.
Management Report - Commentary on results
Net interest margin increased by 7 b.p.
Net interest income
Net interest income increased by 16% to € 3,867 million in the year to December 2008. Loans to customers increased by 8% and customer accounts increased by 22% on a constant currency basis since 31 December 2007 (details of loan and deposit growth by division are contained on page 14).
| Year | Year | % | ||
| Average interest earning assets | 2008 € m | 2007 € m | change(1) 2008 v 2007 | |
| Average interest earning assets | 174,412 | 159,570 | 9 | |
(1) This particular analysis is not adjusted for the impact of exchange rate movements.
| Year | Year | Basis | |
| Net interest margin | 2008 % | 2007 % | point change |
| Group net interest margin | 2.21 | 2.14 | 7 |
The domestic and foreign margins for the year to December 2008 are reported on page 47.
AIB Group manages its business divisionally on a product margin basis with funding and groupwide interest exposure centralised and managed by Global Treasury. While a domestic and foreign margin is calculated for the purpose of statutory accounts, the analysis of net interest margin trends is best explained by analysing business factors as follows:
The Group net interest margin amounted to 2.21%, an increase of 7 basis points compared with the year to December 2007. The negative impact of higher funding costs was largely offset by a higher Treasury margin.
Higher funding costs reduced the net interest margin by 11 basis points.
The Treasury margin was higher principally arising from interest rate and liquidity management activities benefiting from lower US dollar interest rates compared with higher euro based lending rates. The net interest income benefit of borrowing in US dollars and converting to euro had approximately € 150 million or an 8 basis point positive impact on the net interest margin which was offset by the cross currency swap cost which is reported in trading income on the other income line in the income statement.
In addition, Treasury's positioning in interest rate markets had an 8 basis point positive impact on the net interest margin. In total, the higher Treasury margin had a 16 basis point positive impact on the Group net interest margin.
Excluding higher funding costs, the interest income benefit of borrowing in US dollars and converting to euro and positive Treasury income from positioning in interest rate markets, the Group net interest margin was 2 basis points higher than 2007.
Management Report - Commentary on results
Investment banking and asset management fees down 34%
Trading income continues to be affected by global market dislocation
Other income
Other income was down 19% to € 1,201 million compared with 2007.
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| Other income | € m | € m | 2008 v 2007 |
| Dividend income | 27 | 31 | -17 |
| Banking fees and commissions | 892 | 1,029 | -12 |
| Investment banking and asset management fees | 291 | 424 | -34 |
| Fee and commission income | 1,183 | 1,453 | -19 |
| Fee and commission expense | (142) | (197) | -29 |
| Trading income | (104) | 62 | - |
| Currency hedging profits | 4 | 12 | - |
| Interest rate hedge volatility | 27 | - | - |
| Net trading income (1) | (73) | 74 | - |
| Other operating income | 206 | 89 | 105 |
| Total other income | 1,201 | 1,450 | -19 |
Other income decreased by 19% in the year to December 2008 or decreased by 8% excluding the cost of cross currency swaps used to manage liquidity (cost of approximately € 150 million offset in net interest income - see previous page).The 8% decrease was mainly due to lower revenues from asset management and wealth management activities, the € 28 million cost of the Irish Government guarantee, which commenced in October 2008 and the disposal of 50.1% of AIB's merchant acquiring businesses.
Dividend income of € 27 million primarily reflects dividends from investments held by the Polish business.
Banking fees and commissions decreased by 12%, reflecting the disposal of 50.1% of AIB's merchant acquiring businesses.
Excluding the impact of the disposal, banking fees and commissions were down 1%.
Investment banking and asset management fees were down 34% in 2008.The decrease reflects lower asset management income as a result of lower managed funds and a lower level of stockbroking income.
Fee and commission expense in 2008 includes an amount of € 28 million in relation to the Irish Government deposit guarantee scheme. The decrease in fee and commission expense in 2008 was primarily due to the disposal of AIB's merchant acquiring businesses with a full year's commission expense recorded in 2007.
Trading income was a negative € 104 million due in part to the cost of cross currency swaps used to manage liquidity (offset in net interest income as stated on the previous page) and also reflecting the fair value impacts on bond assets in difficult trading conditions. Trading income excludes interest payable and receivable arising from hedging and the funding of trading activities, which are included in net interest income. Accordingly, the above trading income does not reflect the full extent of trading activities, which are mainly in Global Treasury. Other income in Global Treasury decreased significantly compared with 2007 offset by higher net interest income benefiting from lower US dollar borrowing costs. The trading income out-turn also included valuation charges in the structured securities portfolio (€ 36 million). In addition there was a charge to income of € 17 million in the Collateralised Debt Obligation ('CDO')/Collateralised Loan Obligation ('CLO') portfolio arising from the disposal of the only transaction that contained an element of subprime in this portfolio.
Other operating income of € 206 million in 2008 includes profit of € 71 million on available for sale debt securities and profit on available for sale equity shares of € 75 million, including profit on Visa and MasterCard shares. Other operating income of € 89 million in 2007 includes € 40 million profit on the sale of a trade investment in Investment Banking.
(1) Trading income includes foreign exchange contracts, debt securities and interest rate contracts, equity securities and index contracts (see note 7).
Management Report - Commentary on results
Tight cost control in difficult operating environment; down 5%
Cost income ratio down by 5.3% from 51.8% to 46.5%
Income/cost gap +11%
Flexible cost structure in lower demand environment
Total operating expenses
Operating expenses decreased by 5% since the year to December 2007.
| Operating expenses |
| Year 2008 € m | Year 2007 € m | Underlying % change 2008 v 2007 | |
| Personnel expenses | 1,412 | 1,615 | -11 | ||
| General and administrative expenses | 775 | 761 | 3 | ||
| Depreciation(1)/amortisation(2) | 170 | 145 | 17 | ||
| Total operating expenses | 2,357 | 2,521 | -5 | ||
Operating expenses decreased by 5% in the year to December 2008, reflecting a focus on cost management in a period of slower economic conditions and slower revenue generation. There was a significant decrease in variable compensation and other cost reductions were achieved across a number of expense categories reflecting the Group's ability to proactively respond to changing economic conditions.The decrease in costs was achieved notwithstanding the investment in branch network expansion in BZWBK (with 95 branches opened since 31 December 2007). Excluding Poland, costs decreased by 8%.
Personnel expenses decreased by 11% compared with 2007, reflecting a decrease in variable staff compensation costs and tight management of all expense categories. General and administrative expenses were 3% higher, mainly due to € 21 million
(Stg£ 17million) of UK Financial Services Compensation Scheme (FSCS) costs and business expansion in Poland. Excluding Poland, general and administrative expenses were up 1%.
Depreciation/amortisation increased by 17% compared with 2007 due to project and investment spend in recent years and an impairment charge of € 15 million in relation to the investment in AmCredit.
| Year | Year | |
| Efficiency measures | 2008 | 2007 |
| Cost income ratio | 46.5% | 51.8% |
| Income/cost growth rate gap | +11% | +3% |
There was a strong focus on cost management throughout the period and the cost income ratio decreased by 5.3% from 51.8% to 46.5%.
The 11% income/cost growth rate gap reflected income growth of 6% and a reduction of 5% in costs.
(1)Depreciation of property, plant and equipment
(2)Impairment and amortisation of intangible assets.
Management Report - Commentary on results
Provision charge at 137 basis points
Increase in impaired loans as a percentage of loans to 2.3%
Provisions
Total provisions were € 1,849 million in 2008 compared with € 99 million in 2007.
| 2008 | 2007 | ||
| Provisions | € m | € m | |
| Provisions for impairment of loans and receivables | 1,822 | 106 | |
| Provisions for liabilities and commitments | (2) | (8) | |
| Amounts written off financial investments available for sale | 29 | 1 | |
| Total provisions | 1,849 | 99 | |
The global economic downturn has contributed significantly to the substantial increase in the provision charge for loans and receivables for the year to December 2008.
The provision for impairment for loans and receivables of € 1,822 million or 1.37% of average customer loans compares with € 106 million or 0.09% of average customer loans in 2007 reflecting the serious deterioration in the property sector which impacted particularly on AIB Bank ROI and AIB Bank UK. The provision included € 848 million in specific provisions (0.64% of average loans) and € 974 million in IBNR provisions (0.73% of average loans) compared with € 73 million or 0.06% and € 33 million or 0.03% respectively in 2007. The increase in the IBNR charge acknowledges the heightened level of incurred loss in the performing book.
| 2008 | 2008 | 2007 | 2007 | ||
| Divisional impairment charges | € m | bps | € m | bps | |
| AIB Bank ROI | 1,298 | 174 | 104 | 16 | |
| Capital Markets | 160 | 60 | (18) | -8 | |
| AIB Bank UK | 257 | 111 | 18 | 8 | |
| CEE | 107 | 126 | 2 | 3 | |
| AIB Group | 1,822 | 137 | 106 | 9 | |
In AIB Bank Republic of Ireland the provision charge increased to 1.74% of average customer loans in 2008 from 0.16% in 2007 with provisions for loans in the property portfolio accounting for approximately 81% of the charge reflecting the very severe downturn in that sector. The IBNR charge in the year for property loans has increased by € 693 million resulting in a stock of IBNR provisions of € 713 million which provided 2.45% cover on performing property loans.
There was also a significant increase in the provision charge relating to the Finance & Leasing operation in ROI which increased to € 84 million from € 17 million in 2007 with the plant and transport financing sub-sectors being impacted by the fall off in activity in the construction sector.
In Capital Markets the provision charge was € 160 million or 0.60% of average customer loans compared with a net recovery of € 18 million in 2007. While the level of recoveries of provisions remained at relatively similar levels to 2007, the charge was influenced by a large case with the balance spread across a number of sectors and geographies.
In AIB Bank UK, the provision charge increased to € 257 million or 1.11% of average loans compared with € 18 million or 0.08% in 2007.This increase was again influenced by the weakened property market in both Northern Ireland and Britain with 62% of the provision charge related to this sector.
The provision charge in Poland increased to € 98 million or 1.16% of average customer loans from 0.03% in 2007 impacted by a large increase in provisions relating to personal loans and an increase in IBNR provisions for the property sector in Poland. The provision charge for AmCredit was € 9 million or 11.48% reflecting the deterioration in the mortgage market in the Baltics. The total provision charge for CEE was 1.26% of average customer loans.
Management Report - Commentary on results
| 31 December 2008 | As a % of | 31 December 2007 | As a % of | |
| impaired | loans at | impaired | loans at | |
| loans | 31 December | loans | 31 December | |
| Impaired loans by division | € m | 2008 | € m | 2007 |
| AIB Bank ROI | 1,862 | 2.4 | 511 | 0.7 |
| Capital Markets | 338 | 1.3 | 77 | 0.3 |
| AIB Bank UK | 522 | 2.6 | 274 | 1.1 |
| CEE | 269 | 3.1 | 187 | 2.8 |
| AIB Group | 2,991 | 2.3 | 1,049 | 0.8 |
Impaired loans as a percentage of total customer loans have increased to 2.3% at 31 December 2008 from 0.8% at 31 December 2007. This increase reflects the severe deterioration in the markets in which we operate and in particular the downturn in the property markets in ROI and UK.
Impaired loans in AIB Bank ROI increased to 2.4% of loans at 31 December 2008 from 0.7% at 31 December 2007 impacted by the downturn in the property sector. Loans to the property sector now account for 60% of divisional impaired loans compared with 24% at 31 December 2007, with the majority of the impaired loans relating to the land/development sub-sectors.
Impaired loans in Capital Markets increased to 1.3% of loans at 31 December 2008 from 0.3% at 31 December 2007 spread across a number of different geographies and in particular the manufacturing, energy, and property sectors.
In AIB Bank UK, impaired loans increased to 2.6% of loans compared with 1.1% at 31 December 2007.There were increases in a number of sectors particularly in the property, manufacturing and distribution sectors.
Impaired loans in Poland increased to 2.9% of loans up slightly from 2.8% at 31 December 2007. However, the underlying increase is masked by the very strong growth in loans of 42% in the year. Impaired loans in AmCredit were € 19 million or 16.8% of loans at 31 December 2008 impacted by the severe downturn in the residential property market. CEE impaired loans were 3.1% of loans at 31 December 2008.
| 31 December | 31 December | ||||
| 2008 | 2007 | ||||
| Ratings profiles - masterscale grade | € m | € m | |||
| 1 to 3 | 20,924 | 24,181 | |||
| 4 to 10 | 93,477 | 94,681 | |||
| 11 to 13 | 5,896 | 3,094 | |||
| 120,297 | 121,956 | ||||
| Past due but not impaired | 8,875 | 5,711 | |||
| Impaired | 2,991 | 1,049 | |||
| 132,163 | 128,716 | ||||
| Unearned income | (382) | (371) | |||
| Provisions | (2,292) | (742) | |||
| Loans and receivables to customers | 129,489 | 127,603 | |||
The Group's rating systems consist of a number of individual rating tools in use across the Group designed to assess the risk within particular portfolios. These ratings tools are calibrated to meet the needs of individual business units in managing their portfolios. The identification of loans for specific impairment assessment is driven by the Group's rating systems. In addition, the ratings profiles are one of the factors that are referenced in determining the appropriate level of IBNR (incurred but not reported) provisions. The Group uses a 13 point Group Ratings Masterscale to provide a common and consistent framework for aggregating, comparing and reporting exposures, on a consolidated basis, across all lending portfolios. The masterscale, which is not in itself a rating tool, is probability of default (PD) based, and is not used in provision methodologies. The masterscale consists of a series of Probability of Default ('PD') ranges between 0% and 100% (where 100% indicates a borrowing already in default) and facilitates the aggregation of borrowers for comparison and reporting that have been rated on any of the individual rating tools in use across the Group. A recalibration of a rating tool can result in a change in the PD attached to an individual grade and hence can result in a change to the Masterscale profile at a portfolio level.
Management Report - Commentary on results
Grade definitions:
Grade 1 - 3 would typically include strong corporate and commercial lending combined with elements of the retail portfolios and residential mortgages.
Grades 4 - 10 would typically include new business written and existing satisfactorily performing exposures across all portfolios. The lower end of this category (Grade 10) includes a portion of the Group's criticised loans (i.e. loans requiring additional management attention over and above that normally required for the loan type).
Grades 11 - 13 contains the remainder of the Groups criticised loans, excluding impaired loans, together with loans written at a high PD where there is a commensurate higher margin for the risk taken.
Impaired loans and those loans which are past due but not impaired have been excluded from the relevant grade profiles (1 - 13) and identified separately. The downward shift in Grades 1 - 3 evident in 2008 is largely due to a recalibration of the Internal Ratings Based approach ("IRB") mortgage models in ROI during the first half of 2008, which resulted in € 5.2 billion coming out of grades 1 - 3 and into grades 4 - 10 and 11 - 13 and does not reflect a change in the credit quality of the underlying borrowers. The Group's criticised loans of € 15.5 billion are distributed in the table on page 11 as follows: € 3.8 billion in grades 4 - 10, € 4.1 billion in grades 11 - 13, € 4.6 billion in past due but not impaired and all of the impaired loans of € 3.0 billion. Of the € 8.9 billion in the past due but not impaired loans, € 6.1 billion is in the 1 to 30 days past due category (€ 4.5 billion in December 2007) where a high percentage of loans do not migrate further but return to current status.
The Group's total criticised loans at 31 December 2008 were € 15.5 billion or 11.7% of loans and receivables to customers (€6.8 billion or 5.3% of loans at 31 December 2007).
| 31 December | 31 December | 31 December | 31 December | 31 December | 31 December | |
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| watch loans | watch loans | impaired loans | impaired loans | criticised loans | criticised loans | |
| Criticised loans by division € m | € m | € m | € m | € m | € m | |
| AIB Bank ROI | 9,271 | 3,864 | 1,862 | 511 | 11,133 | 4,375 |
| Capital Markets | 331 | 189 | 338 | 77 | 669 | 266 |
| AIB Bank UK | 2,490 | 1,576 | 522 | 274 | 3,012 | 1,850 |
| CEE | 382 | 104 | 269 | 187 | 651 | 291 |
| AIB Group | 12,474 | 5,733 | 2,991 | 1,049 | 15,465 | 6,782 |
While there were increases in watch loans across all divisions, AIB Bank ROI represents 80% of the increase, heavily influenced by the downgrade of cases in the property and construction sector, while AIB Bank UK accounts for 14% of the total increase, also influenced by downgrade migrations in the property and construction portfolio. 71% of the increase in criticised loans of o 6.8 billion in AIB Bank ROI related to property loans. In AIB Bank UK, 82% of the increase in criticised loans of o 1.2 billion related to property. The increase of € 0.4 billion in criticised loans in Capital Markets was spread across all geographies and sectors. In CEE, 41% of the increase in criticised loans related to the property portfolio in Poland with increases also evident in the retail portfolio (cash loans). During the period significant additional resources have been deployed to manage the increased level of criticised loans. These resources have been largely deployed to specialist workout units, who apply objective case assessment and work with borrowers to minimise losses.
Management Report - Commentary on results
Risk weighted assets up 6%
Effective tax rate at 14.0%
Associated undertakings
Income from associated undertakings in 2008 was € 37 million compared with € 128 million in 2007.
| 2008 | 2007 | |
| Associated undertakings | € m | € m |
| AIB Bank ROI | (5) | 7 |
| AIB Bank UK | 2 | - |
| CEE | (54) | 1 |
| Group (M&T) | 94 | 120 |
| AIB Group | 37 | 128 |
Associated undertakings include the income after taxation of AIB's 24.2% average share of M&T Bank Corporation, AIB's investment in BACB in Bulgaria and Hibernian Life Holdings Ltd, the joint venture in Life and Pensions with Hibernian. M&T's contribution of US$ 138 million (€ 94 million) was down 17% relative to the year to December 2007 contribution of US$ 166 million (€ 120 million).The performance of M&T in 2008 was affected by writedowns on shares held in Freddie Mac and Fannie Mae and by unprecedented turbulence in the financial markets. Separate to this, M&T experienced good growth in its commercial and property books and has successfully integrated Partners Trust Financial Group and First Horizon National Corporation branches into the M&T network. The contribution of M&T to AIB Group's 2008 performance in euro was also impacted by a weakening in the US dollar rate relative to the euro in 2008.The associate holding in BACB resulted in a loss of € 54 million in 2008 (excluding funding costs of € 2 million). Following the global economic downturn and the resultant impact on banking valuations generally, an impairment review resulted in a carrying value adjustment of € 57 million to AIB's investment in BACB, which is reflected in the associate income loss of € 54 million.
Income tax expense
The taxation charge for 2008 was € 144 million, compared with € 442 million in 2007. The effective tax rate was 14.0% compared with 17.6% in the year to December 2007. The reduction arose primarily due to the impact of the disposal of AIB's merchant acquiring businesses, which did not attract taxation charges, and prior year adjustments. The taxation charge excludes taxation on share of results of associated undertakings. Share of results of associated undertakings is reported net of taxation in the Group profit before taxation. The effective tax rate is influenced by the geographic mix of profits, which are taxed at the rates applicable in the jurisdictions where we operate.
Balance sheet
Total assets amounted to € 182 billion at 31 December 2008 compared to € 178 billion at 31 December 2007. Adjusting for the impact of currency, total assets were up 9% and loans to customers were up 8% since 31 December 2007 while customer accounts increased by 22%. Risk weighted assets excluding currency factors increased by 6% to € 134 billion. While total assets increased by 9% risk weighted assets increased by 6% due to a number of factors including growth in retail lending which attracted lower risk weightings, recalibration of some of our Internal Ratings Based ("IRB") models and the reclassification of trading portfolio financial assets to financial investments available for sale. The lower risk weighted asset growth rate, relative to growth in total assets, arising from these factors was partly offset by an increase in risk weighted assets due to credit migration.
Management Report - Commentary on results
Strong capital ratios - core tier 1 ratio 5.8%; proforma 8.4% including Government capital
| 31 December | 31 December | ||
| 2008 | 2007 | ||
| Risk weighted assets (calculated under Basel II) | € bn | € bn | % change(1) |
| AIB Bank Republic of Ireland | 63 | 58 | 9 |
| Capital Markets | 38 | 40 | -3 |
| AIB Bank UK | 21 | 25 | 10 |
| CEE | 10 | 9 | 33 |
| Group | 2 | 2 | -7 |
| AIB Group | 134 | 134 | 6 |
AIB Group risk weighted assets were 73% of total assets at 31 December 2008 (75% at 31 December 2007).
| 31 December | 31 December | ||
| 2008 | 2007 | ||
| Loans to customers | € bn | € bn | % change(1) |
| AIB Bank Republic of Ireland | 75 | 72 | 5 |
| Capital Markets | 26 | 25 | 9 |
| AIB Bank UK | 20 | 24 | 7 |
| CEE | 8 | 7 | 43 |
| AIB Group | 129 | 128 | 8 |
| 31 December | 31 December | ||
| 2008 | 2007 | ||
| Customer accounts | € bn | € bn | % change(1) |
| AIB Bank Republic of Ireland | 42 | 42 | 1 |
| Capital Markets | 27 | 17 | 68 |
| AIB Bank UK | 14 | 14 | 22 |
| CEE | 10 | 8 | 41 |
| AIB Group | 93 | 81 | 22 |
(1)Excluding currency factors
Return on equity and return on assets
The return on equity was 8.2%, compared to 21.8% in 2007.The return on assets was 0.47%, compared to 1.21% in 2007.
Capital ratios
A strong capital position was reflected in a tier 1 ratio of 7.4% and a total capital ratio of 10.5%.
| Proforma(2) | ||||
| 31 December 2008 | 31 December 2008 | 31 December 2007 | 31 December 2007 | |
| Capital | Basel II | Basel II | Basel II | Basel I |
| Core tier 1 ratio | 8.4% | 5.8% | 6.0% | 5.8% |
| Tier 1 ratio | 10.0% | 7.4% | 7.7% | 7.5% |
| Total capital ratio | 13.1% | 10.5% | 10.2% | 10.1% |
(2) Includes the € 3.5 billion of core tier 1 capital from the Government, as announced on 11 February 2009, subject to shareholder, regulatory and EU state aid approval.
The Group's capital ratios remained robust during the period with the core tier 1 capital ratio benefiting from net retentions during the period. Risk weighted asset growth slowed to 6%.The total capital ratio increased to 10.5%.
Tier 1 capital was €9.9 billion at 31 December 2008 compared with € 10.4 billion at 31 December 2007. The decrease arose from the repayment in July 2008 of the US$ 250 million preference shares (see note 25), the goodwill arising from the acquisition of BACB and exchange rate movements offset by net retentions of € 460 million. Tier 2 capital increased to € 4.3 billion up from € 3.5 billion at 31 December 2007, primarily reflecting the redemption of € 200 million perpetual floating rate notes and the issue of Stg £ 700 million callable dated subordinated fixed/floating rate notes due July 2023.The application of Basel II had a marginally positive impact on the Group's capital ratios at 31 December 2007.
Management Report - Commentary on results
Assets under management
Assets under management in the Group amounted to € 12 billion at 31 December 2008 compared with € 19 billion at 31 December 2007 reflecting the significant deterioration in global equity markets.
Credit ratings
AIB is rated by independent rating agencies Standard and Poor's, Moody's and Fitch. As at 25 February 2009, Standard and Poor's have an A long-term rating on AIB, AIB's long-term rating with Moody's was Aa3 and Fitch have a long-term rating of A on AIB. AIB's liabilities covered under the terms of the Irish Government Guarantee Scheme 'Credit Institutions (Financial Support) Scheme 2008' are rated AAA by Standard and Poor's, Moody's and Fitch.
Trading portfolio financial assets
In October 2008, the International Accounting Standards Board approved certain amendments to IAS 39.These amendments permitted the reclassification of financial assets from the trading book to available for sale ('AFS'). AIB applied the amendment and the majority of assets held in the trading portfolio were reclassified as available for sale, leaving a balance of € 401 million in the trading portfolio as at 31 December 2008 (o 8.3 billion at 31 December 2007).
Based on fair values at 31 December 2008 (or date of reclassification for assets reclassified to available for sale), Global Treasury recorded a fair value charge to income of € 31 million during 2008 in relation to the traded credit portfolio. This is in addition to the charge of € 92 million taken for the year ended 31 December 2007.
If the reclassification (effective 1 July 2008) of financial assets had not been made, the income statement for the second half of 2008 would have included a negative fair value movement of € 236 million relating to the reclassified assets which instead was charged to equity.
Financial investments available for sale
Global Treasury manages the significant majority of AIB's "financial investments available for sale" portfolio of € 29 billion. The portfolio includes securities reclassified from the trading portfolio in line with the IAS 39 amendment. The accounting convention is to fair value these assets through the equity account and not the income statement. The fair value of financial assets is determined by reference to market prices where these are available in an active market. Where market prices are not available or markets are inactive, as is the situation in certain sectors at present, fair values are determined using valuation techniques, which use observable and non-observable market parameters.
The net charge to equity for 2008 on the financial investments available for sale portfolio was o 465 million (after taxation), which does not affect our regulatory capital calculation.
| Portfolio | Treatment/impact | Valuation method |
| -Traded credit portfolio financial assets | € 31 million charge to income | Quoted prices(1)/observable market parameters |
| - Financial investments available for sale | € 465 million (after taxation) charge to equity account(2) | Quoted prices(1)/observable and non-observable market parameters |
The above charges reflect the accounting convention to fair value these assets.
(1) Quoted prices in relation to debt securities and quoted/unquoted prices in relation to equity shares.
(2) This is taken directly to reserves and not through the income statement.
Management Report - Commentary on results
Structured securities portfolio (held by Corporate Banking)
The structured securities portfolio consists of US subprime mortgages, CDOs/CLOs and other structured securities. The following summarises the size of each portfolio and the charge taken in the income statement in 2008.
| Nominal | Income statement | |
| Portfolio | € m | charge € m |
| US subprime mortgages | ||
| -Whole loan format | 111 | - |
| - Securitisations | 197 | 19 |
| Total US subprime | 308 | 19 |
| CDOs / CLOs | 603 | 11 |
| Other structured securities | 565 | 6 |
The above charge to income is in respect of those assets for which the accounting convention is to fair value through the income statement.
The total charge to income in the reporting period for the structured securities portfolio was € 36 million (€ 75 million since June 2007). In addition, as part of a restructuring of assets, there was a one-off charge to income of € 17 million arising from the disposal of the only investment that contained an element of subprime in the CDO/CLO portfolio and an impairment provision of € 8 million ($12 million) in relation to a small portion of under performing assets included in other structured securities.
AIB has no direct or indirect exposure to SIVs or conduits and no direct exposure to monoline insurers, while indirect exposure remains limited to € 60 million.
AIB originated Collateral Debt Obligations
In addition to the above asset portfolios, AIB provides asset management services to third parties regarding Collateralised Debt Obligations ("CDOs") and Collateralised Bond Obligations ("CBO").
There are five vehicles set up since 2001, four of which invest in European sub investment grade leveraged finance assets (CDOs) and one in U.S. High Yield Bonds (CBO).A CDO/CBO allows third party investors to make debt and/or equity investments in a vehicle containing a portfolio of leveraged corporate loans and bonds with certain common features. The Group's investment in these vehicles and maximum exposure totals € 30 million (31 December 2007: € 34 million). AIB does not have control over these vehicles nor does it bear the significant risks and rewards that are inherent in the assets. There is no recourse to the Group by third parties in relation to these vehicles. Accordingly, these vehicles are not consolidated in the Group's financial statements and the Group's interests are included within equity shares.
Management Report - Commentary on results
Funding
There was strong growth in customer resources (22%) which exceeded customer loan growth (8%) during 2008 with the loan deposit ratio reducing from 157% at 31 December 2007 to 140% at 31 December 2008. During 2008 the Group benefited from its retail and corporate franchise, as customer resources continued to be a significant and dependable part of our overall funding, accounting for 54% of the total funding base and the Group franchise in the wholesale market remained robust. In a challenging market environment, the Group continued to access funding through a range of programmes, achieving a broad mix of duration. Wholesale term funding(1) with a maturity of over 1 year amounted to o 18 billion, representing 81% of term funding. As at 31 December 2008, we held € 40 billion in qualifying liquid assets/contingent funding (of which approximately € 9 billion has been pledged) which represents a significant excess over the regulatory requirement. Net interbank deposits represent 6% of funding. In summary, AIB has a solid funding base with 2 million customer depositors and a well diversified investor base across our commercial paper, certificates of deposit and debt issuance programmes.
Market conditions have continued to deteriorate in 2009 with AIB sourcing more short-term funds and increasing its use of collateralised funding sources.
(1)Includes debt securities in issue (bonds and medium term notes), subordinated liabilities and other capital instruments, reserve capital instrument and non-cumulative perpetual preferred securities.
| Balance sheet summary | 31 December 2008 | 31 December 2007 |
| Total assets € bn | 182 | 178 |
| Loans and receivables to customers € bn | 129 | 128 |
| Customer deposits € bn | 93 | 81 |
| Wholesale funding € bn | 63 | 72 |
| Loan deposit ratio | 140% | 157% |
| 31 December 2008 | 31 December 2007 | ||||
| Sources of funds | € bn | % | € bn | % | |
| Customer accounts | 92.6 | 54 | 81.3 | 48 | |
| Deposits by banks - secured | 8.6 | 5 | 7.9 | 5 | |
| - unsecured(1) | 17.0 | 10 | 22.5 | 13 | |
| Certificates of deposit and commercial paper | 21.0 | 12 | 22.1 | 13 | |
| Asset covered securities | 7.2 | 4 | 7.2 | 4 | |
| Senior debt | 9.7 | 6 | 12.6 | 8 | |
| Capital | 14.7 | 9 | 15.7 | 9 | |
| Total sources of funds | 170.8 | 100 | 169.3 | 100 | |
| Other(2) | 11.3 | 8.6 | |||
| Total liabilities, shareholders' equity and minority interests | 182.1 | 177.9 | |||
| (1)Deposits by banks (unsecured) when netted against loans to banks | 10.7 | 6 | 13.0 | 8 | |
(2)Non-funding liabilities including derivative financial instruments, other liabilities, retirement benefits and accruals and other deferred income.
Cashflow
As reflected in the condensed statement of cash flows, there was a net decrease in cash and cash equivalents of € 1,419 million. Net cash inflows from operating activities before taxation were o 5,133 million, while cash outflows from taxation were € 357 million. Cash outflows from investing activities were € 5,655 million, primarily reflecting a net increase in financial investments available for sale of €5,004 million, which are held for liquidity purposes.
Cash outflows from financing activities were € 540 million, primarily reflecting the cash outflow for equity dividends paid on ordinary shares of € 720 million, the redemption of subordinated liabilities of € 356 million and interest paid on subordinated liabilities of € 255 million, offset by the cash inflow from the issue of subordinated liabilities of € 885 million.
Management Report - Divisional commentary
Divisional commentary: basis of presentation
During the second half of 2008, the Central & Eastern Europe ('CEE') division was formed bringing together the Group's interests in Poland, Bulgaria and the Baltic region. In Poland, AIB has a 70.5% share in Bank Zachodni WBK ('BZWBK'), together with its subsidiaries and associates. BZWBK Wholesale Treasury and Capital Markets' share of certain Investment Banking subsidiaries results are reported in Capital Markets division. On 1 February 2008 AIB acquired AmCredit, a mortgage business operating in the Baltic region. AIB acquired, on 29 August 2008, a 49.99% shareholding in Bulgarian American Credit Bank ('BACB'), a SME lender operating in Bulgaria.
Underlying percentage change: The growth percentages are shown on an underlying basis, adjusted for the impact of exchange rate movements on the translation of foreign locations' profit and excluding profit on disposal of businesses, profit on disposal/development of Bankcentre and branches as part of the sale and leaseback programme and excluding interest rate hedge volatility (hedging ineffectiveness and derivative volatility).
AIB Bank Republic of Ireland recorded a loss of € 52 million in 2008. Operating profit before provisions of € 1,181 million was in line with 2007.
Lower income -3%; lower costs -7%
Cost income ratio decreases to 45.9%
Income/cost growth rate gap +4%
Higher provision charge at 1.74% of loans
AIB Bank Republic of Ireland Retail and commercial banking operations in Republic of Ireland, Channel Islands and Isle of Man; AIB Finance and Leasing; Card Services; Wealth Management and share of Hibernian Life Holdings Limited, AIB's venture with Hibernian Life and Pensions Limited.
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| AIB Bank Republic of Ireland income statement | € m | € m | 2008 v 2007 |
| Net interest income | 1,705 | 1,777 | -4 |
| Other income | 478 | 490 | -2 |
| Total operating income | 2,183 | 2,267 | -3 |
| Personnel expenses | 640 | 716 | -10 |
| General and administrative expenses | 313 | 320 | -2 |
| Depreciation / amortisation | 49 | 52 | -5 |
| Total operating expenses | 1,002 | 1,088 | -7 |
| Operating profit before provisions | 1,181 | 1,179 | - |
| Provisions for impairment of loans and receivables | 1,298 | 104 | 1,140 |
| Amounts written off financial investments | 4 | - | - |
| Total provisions | 1,302 | 104 | 1,144 |
| Operating profit/(loss) | (121) | 1,075 | - |
| Associated undertakings | (5) | 7 | - |
| Profit on disposal of property | 6 | 12 | -50 |
| (Loss)/profit before disposal of business | (120) | 1,094 | - |
| Profit on disposal of business | 68 | - | - |
| (Loss)/profit before taxation | (52) | 1,094 | - |
AIB Bank Republic of Ireland: 2008 was a very challenging year for AIB Bank Republic of Ireland. A marked deterioration in economic outlook combined with falling asset values and ongoing dislocation in wholesale funding markets adversely impacted revenue growth during 2008.This required taking significant actions to manage credit and contain costs. Operating profit before provisions at € 1,181 million was maintained at the same level as 2007.This represented a very satisfactory outcome against such a difficult economic backdrop. Operating expenses reduced by 7% with total operating income 3% lower. This generated a positive income/cost growth rate gap of +4%.
Management Report - Divisional commentary
Net interest income of € 1,705 million was 4% lower than 2007. AIB continued to provide support to the home mortgage, SME, personal and business markets. Reflecting this support, loan balances increased by 5% with mortgages up 10% and non mortgage lending up by 2%. Net interest margins tightened primarily due to the significant increase in loan funding costs. Total customer accounts increased by 1%.Within this growth percentage deposits increased by 9% reflecting the strength of the AIB franchise, in a very competitive market. This growth was largely offset by a fall in current account volumes.
Other income was 2% down on 2007 reflecting disposal of AIB's merchant acquiring businesses and the fourth quarter 2008 cost of the Government guarantee which is treated as a reduction in other income. Investment product income was lower due to the adverse performance of investment markets and customer reluctance to invest. Retail income generally was less buoyant as the economic situation worsened through the course of 2008.
Total operating expenses were 7% lower benefiting from early identification of cost savings and strong management action to deliver efficiencies across all elements of the business. Personnel expenses were 10% lower on the back of reduced staff numbers and variable compensation. General and administrative expenses were also down reflecting tight management of all expense headings. This strong action on cost management resulted in an improvement in the cost income ratio from 48.0% in 2007 to 45.9% in 2008.
The provision charge for loan impairments for the year to December 2008 showed a significant uplift reflecting the weakness in the Irish economy generally and most particularly in the property and construction sector which accounted for approximately 81% of the charge reflecting the very severe downturn in that sector. The impairment charge was 1.74% of average loans, up from 0.16% of average loans for the year to December 2007.
AIB's share of profit from Hibernian Life Holdings Limited reflects difficult conditions in that market. The profit on disposal of business of € 68 million reflects the division's share of profits from the sale of 50.1% of AIB's merchant acquiring businesses. Arising from this transaction, a merchant acquiring joint venture was formed with First Data Corporation.
Management Report - Divisional commentary
Capital Markets division profit of € 585 million was up 13%. Operating profit before provisions was up 52%.
Strong performance in difficult market conditions
Slower demand for credit in Corporate Banking
Significant growth in corporate deposits
Robust performance in Global Treasury
Investment Banking impacted by falling equity and asset values
Improvement in cost income ratio from 47.1% to 33.9%
Capital Markets Corporate Banking, Global Treasury and Investment Banking.
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| Capital Markets income statement | € m | € m | 2008 v 2007 |
| Net interest income | 1,064 | 586 | 87 |
| Other income | 94 | 389 | -76 |
| Total operating income | 1,158 | 975 | 21 |
| Personnel expenses | 268 | 328 | -16 |
| General and administrative expenses | 108 | 118 | -6 |
| Depreciation / amortisation | 16 | 14 | 14 |
| Total operating expenses | 392 | 460 | -13 |
| Operating profit before provisions | 766 | 515 | 52 |
| Provisions for impairment of loans and receivables | 160 | (18) | - |
| Provisions for liabilities and commitments | (4) | 2 | - |
| Amounts written off financial investments available for sale | 25 | 1 | 4,050 |
| Total provisions | 181 | (15) | - |
| Operating profit | 585 | 530 | 13 |
| Profit on disposal of property | - | 2 | - |
| Profit before taxation | 585 | 532 | 13 |
Capital Markets profit before taxation of € 585 million grew by 13% on 2007 while operating profit before provisions increased by 52% from € 515 million to € 766 million. Net interest income increased by 87%, principally driven by higher income arising from the management of cash positions and interest rate and liquidity management activities which benefited from lower US dollar interest rates relative to higher euro lending rates giving rise to higher net interest income. Other income declined by 76% due to the offsetting cost of cross currency interest rate swaps used to manage liquidity, lower income from asset management activities and also due to exceptional income in 2007 generated on the sale of a trade investment. The cost in respect of the covered institutions Government guarantee also adversely impacted other income year on year.
Total operating expenses decreased by 13% including a fall in staff costs of 16%, reflecting the division's flexible cost structure and concerted management focus on cost containment. Strong growth in income and lower costs combined to improve the cost income ratio from 47.1% to 33.9%.
Provisions for loan impairment amounted to € 160 million compared with net write backs of € 18 million in 2007. This reflected the scale of economic downturn experienced in our principal credit markets, further impacted by the price and availability of credit in dislocated and volatile markets.
Management Report - Divisional commentary
| Year | Year | Underlying | |||
| 2008 | 2007 | % change | |||
| Capital Markets business unit profit split | € m | € m | 2008 v 2007 | ||
| Corporate Banking | 335 | 404 | -13 | ||
| Global Treasury | 213 | - | - | ||
| Investment Banking | 37 | 128 | -72 | ||
| Profit before taxation | 585 | 532 | 13 | ||
Corporate Banking profit before taxation declined by 13% due to provisions for loan impairment increasing from net write backs of € 18 million in 2007 to provisions of € 160 million in 2008. Operating profit before provisions increased by 33%, notwithstanding the difficulties encountered in our credit markets and a general slowdown in demand for credit. This represented a solid performance across all sectors underpinned by a robust franchise and rigorous credit and relationship management. Average loan margins increased year on year while loan volumes increased by 9%.While the global economic downturn resulted in higher credit provisions, overall asset quality remains resilient with management extremely vigilant in their continuing efforts to anticipate and manage exposures in stressed market conditions. Particular focus on close customer interaction also resulted in significant growth in corporate deposits which grew by 89% during the year.
Global Treasury benefited from a particularly strong performance following on from the exceptional market volatility experienced in the second half of 2007 and which continued into 2008. Profit before taxation was € 213 million compared to a break even outturn in 2007. Customer treasury business was down on 2007, principally due to a combination of lower FX and derivative volumes as the impact of the economic slowdown set in and also due to significantly weaker sterling exchange rates. Wholesale Treasury performed very strongly, particularly from cash management, interest rate and liquidity management activities. The amendment to IAS 39 which facilitated the reclassification of assets from trading to available for sale portfolios, as outlined in note 1 and note 16, reduced the level of income volatility in dislocated markets.
Investment Banking profit before taxation fell by 72% on 2007, particularly impacted by declining values in most asset classes which resulted in lower trading, corporate finance, asset management and stockbroking income. In addition, income for 2007 included a once off exceptional profit of €40 million on the sale of a trade investment. Trading conditions were further adversely impacted by lower demand for investment products and uncertain market conditions for mergers and acquisitions activity. Financial outsourcing activities continued to perform well in a challenging environment. Notwithstanding the unprecedented level of deterioration in asset values, business units continue to focus on risk minimisation, the development of customer relationships and to endeavour to position business to take maximum advantage of any upturn in the markets.
Management Report - Divisional commentary
AIB Bank UK division profit was £ 152 million down 61% with operating profit before provisions of £ 323 million,
in line with 2007.
Operating profit before provisions in line with 2007
Zero cost growth
Strong growth in customer deposits of 22%
AIB Bank UK Retail and commercial banking operations in Great Britain and Northern Ireland.
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| AIB Bank UK income statement | Stg £ m | Stg £ m | 2008 v 2007 |
| Net interest income | 471 | 470 | - |
| Other income | 107 | 107 | 1 |
| Total operating income | 578 | 577 | - |
| Personnel expenses | 157 | 177 | -11 |
| General and administrative expenses | 91 | 70 | 29 |
| Depreciation / amortisation | 7 | 8 | -1 |
| Total operating expenses | 255 | 255 | - |
| Operating profit before provisions | 323 | 322 | - |
| Provisions for impairment of loans and receivables | 204 | 12 | 1,559 |
| Provisions for liabilities and commitments | - | - | - |
| Total provisions | 204 | 12 | 1,559 |
| Operating profit | 119 | 310 | -62 |
| Income from associated undertakings | 1 | - | - |
| Profit on disposal of property | 2 | - | - |
| Profit before disposal of business | 122 | 310 | -61 |
| Profit on disposal of business | 30 | - | - |
| Profit before taxation | 152 | 310 | -61 |
| Profit before taxation € m | 190 | 452 | -61 |
AIB Bank UK reported profit before taxation of £ 152 million and operating profit before provisions of £ 323 million, marginally ahead of 2007. This is a solid operating performance against the backdrop of the very challenging economic environment. Profit before taxation at £ 152 million compared to £ 310 million for 2007. In these difficult market conditions, AIB Bank UK had a focused approach which delivered a steady operating profit performance, with emphasis on deposit gathering, lending returns and cost management. Net interest income has been maintained, despite higher funding costs, through a series of measures including active margin management and strong deposit growth. Good growth was achieved in underlying net interest income as customer loan and deposit balances increased by 7% and 22% respectively, the majority of loan growth occurred in the first six months. Costs have been actively managed, resulting in zero growth, after including significant costs for the UK Financial Services Compensation Scheme ("FSCS").AIB Bank UK's proportionate share amounted to £ 17 million of the cost of protecting UK depositors of several failed UK financial institutions. These additional costs have been offset by planned operational efficiencies, some reduced headcount, and by reducing discretionary spend which would have resulted in a year on year reduction in operating costs of 6% on 2007 and in a positive income/cost growth rate gap of 6% excluding the UK FSCS £ 17 million charge referred to above. The cost income ratio remained at 44.1%, the same level as the previous year and excluding the cost of the UK FSCS, the ratio would have improved to 41.3%.AIB Bank UK's deposits are also guaranteed by the Irish Government, and the cost of that guarantee is included within the other income line for the period since its inception in October 2008.
Profit before taxation declined by 61% reflecting increased provisions from loan impairment in a deteriorating economic environment, with the provision charge increasing to £ 204 million compared to the very low levels experienced in the previous year. Approximately half of this charge was in relation to IBNR provisions. During the second half of 2008 in more recessionary conditions, there has been an increase in the number of customers experiencing cashflow difficulties and consequently the number of impaired loans has risen to 2.6% of loans. In the early part of 2008 AIB Bank UK strengthened all credit management teams with an emphasis on early identification of impairment and active management of all vulnerable credit cases.
Management Report - Divisional commentary
The £ 30 million profit on disposal of business reflects the division's share of profits from the sale of 50.1% of AIB's merchant acquiring businesses. Arising from this transaction, a merchant acquiring joint venture was formed with First Data Corporation.
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| AIB Bank UK profit split | Stg £ m | Stg £ m | 2007 v 2008 |
| AIB (GB) | 89 | 174 | -49 |
| First Trust Bank | 33 | 136 | -76 |
| Profit on sale of business | 30 | - | - |
| Profit before taxation | 152 | 310 | -61 |
Allied Irish Bank (GB), profit before taxation of £ 89 million was down 49% on 2007. Operating profit before provisions in 2008 increased by 5% to £ 193 million on the previous period, which is a positive performance in very difficult operating conditions. This performance was achieved through a combination of active management of interest income and successfully targeted reductions in the underlying cost base. Net interest income grew by 2% reflecting continued success at margin management and a strong increase in customer deposit balances, which have grown by 29% since December 2007.There has been selective growth in customer loan balances of 12% and the focus on well managed balance sheet growth has continued in 2008. Costs have decreased by 2% on 2007 which includes the cost of the FSCS and if excluded, costs would have shown a significant decrease on the previous year. The cost income ratio for the year has improved to 41.8% from 43.3% for the previous period with positive income/cost growth rate gap of 4%. Against the low provisions experience in 2007, the level of provisions for impairment increased to £ 106 million and included IBNR provisions of £ 39 million, reflecting the economic environment.
First Trust Bank profit before taxation fell by 76% to £ 33 million, while the operating profit before provisions fell by 6% to £ 130 million for 2008. Customer loan balances were maintained at the same level as last year, with the continued focus on balance sheet management leading to an improvement in lending margins along with a 9% growth in customer deposit balances. This was supported by a number of successful issues of fixed rate deposit bonds, offering competitive interest rates in a declining rate environment. Active management of the cost base continues to be a feature of performance. While overall costs have increased by 3%, this includes the costs associated with the participation in the FSCS which if excluded would have resulted in costs reducing by 2% reflecting increased operational efficiencies being realised across the network. The level of provisioning for loan impairment increased to £ 98 million, of which £ 59 million was in relation to IBNR, reflecting the impact from the deterioration of economic conditions in the Northern Ireland economy
Management Report - Divisional commentary
Central & Eastern Europe (CEE)
During the second half of 2008, the Central & Eastern Europe (CEE)(1) division was formed bringing together the Group's interests in Poland, Bulgaria and the Baltic region.
Poland Bank Zachodni WBK ('BZWBK'), in which AIB has a 70.5% shareholding, together with its subsidiaries and associates, BZWBK Wholesale Treasury and Capital Markets' share of certain Investment Banking subsidiaries results are reported in Capital Markets division.
Very strong growth in loans and customer deposits
7% positive income cost growth rate gap
| Year | Year | Underlying | |
| 2008 | 2007 | % change | |
| Poland income statement | Pln m | Pln m | 2008 v 2007 |
| Net interest income | 1,542 | 1,167 | 32 |
| Other income | 1,362 | 1,400 | -3 |
| Total operating income | 2,904 | 2,567 | 13 |
| Personnel expenses | 870 | 822 | 6 |
| General and administrative expenses | 656 | 604 | 9 |
| Depreciation / amortisation | 110 | 123 | -11 |
| Total operating expenses | 1,636 | 1,549 | 6 |
| Operating profit before provisions | 1,268 | 1,018 | 25 |
| Provisions for impairment of loans and receivables | 344 | 6 | 5,632 |
| Provisions for liabilities and commitments | 7 | (2) | - |
| Total provisions | 351 | 4 | 8,680 |
| Operating profit | 917 | 1,014 | -10 |
| Income from associated undertakings | (2) | 2 | - |
| Profit on disposal of property | 8 | - | - |
| Profit before taxation Pln m | 923 | 1,016 | -9 |
| Profit before taxation € m | 263 | 269 | -9 |
Poland recorded an underlying profit before tax decrease of 9% to Pln 923 million (€ 263 million) for 2008.This is a strong performance in the context of a slowing Polish economy, which has felt the impact of the global downturn, particularly in the second half of 2008.
Net interest income in 2008 was up by 32% driven primarily by exceptional balance sheet growth. Customer loan balances increased by 42% since 31 December 2007.This growth was achieved across all business lines with a specific focus on retail products. Mortgage lending grew by 49% and other personal lending was up 55%, both reflecting the aspirations to increase market share. Business lending grew by 37% with strong growth in the corporate and SME segments. Customer deposits increased by 41% following a strong focused drive for resources throughout 2008. Business deposits grew strongly, particularly in the fourth quarter. Margins improved across all lines of lending reflecting the recovery of increased costs of funding. Market competition for deposits rose in intensity with pricing in excess of market prices a common feature, resulting in reduced margins on deposits.
Other income overall decreased by 3%. Strong underlying growth of 17% was recorded in fee income areas including fees on loans, debit card and credit card fees and daily banking fees. 2008 also benefited from profit on equity disposals and sales of structured products. These strong performances were offset by the substantial fall of 43% in fees earned in the asset management business as a result of the adverse conditions on the local financial and equity markets. The volume of mutual funds decreased by 63% to Pln 8.4 billion, though retaining the number two position in terms of market share (11.3% v 16.8% in December 2007). Brokerage income was also negatively impacted.
(1)See table on page 25 for CEE pre-tax profit summary.
Management Report - Divisional commentary
Total operating expenses increased by 6% since 2007.The branch network development program is nearing finalisation with 95 branches opened in 2008 bringing the network total to over 500 branches at 31 December 2008. Staff numbers increased by 12% during the year. Overall staff costs have increased by 6% reflecting increased staff numbers and higher salaries, offset somewhat by reduced levels of performance related costs. General and administrative expenses increased by 9%, driven primarily by increased costs of the expanded branch infrastructure and IT development. In light of the evolving economic slowdown a strong proactive approach to cost management generally has been in place in the second part of 2008. Positive income/cost growth rate gap of 7% resulted in a reduced cost/income ratio of 56.3% (2007: 60.4%).
The provision charge of Pln 344 million reflects the weakening of the economic environment. It represents a 1.16% charge on average customer loans and includes 0.55% for IBNR and 0.61% for specific impairment with property and personal lending sectors most impacted. Impaired loans as a percentage of total loans increased to 2.9% from 2.8% at the end of 2007.
BACB - Bulgaria. AIB acquired a 49.99% shareholding in BACB, a SME lender on 29 August 2008.
The result for the post acquisition period September to December 2008 included a share in profits of € 3 million and funding costs of € 2 million. However, following the substantial global economic downturn and the resultant impact on banking valuations generally, an impairment review resulted in a carrying value adjustment of € 57 million, giving rise to a loss of € 56 million being recorded.
AmCredit - Baltic Region. Mortgage business acquired on 1 February 2008.
A loss of € 33 million was recognised since acquisition. This reflected an operating loss of € 9 million, a goodwill impairment charge of € 15 million and additional impairment provisions on loans of € 9 million arising from a sharp downturn in the three Baltic economies in 2008.
| Year | Year | ||
| 2008 | 2007 | ||
| CEE profit split | € m | € m | |
| Poland | 263 | 269 | |
| BACB | (56) | - | |
| AmCredit | (33) | - | |
| CEE | 174 | 269 | |
Management Report - Divisional commentary
Group
Group includes interest income earned on capital not allocated to divisions, the funding cost of certain acquisitions, hedging in relation to the translation of foreign locations' profit, unallocated costs of central services, the contribution from AIB's average share of approximately 24.2% in M&T Bank Corporation ('M&T') and profit on disposal of property.
| Year | Year | |
| 2008 | 2007 | |
| Group income statement | € m | € m |
| Net interest income | 70 | 62 |
| Other income | 104 | 44 |
| Total operating income | 174 | 106 |
| Personnel expenses | 52 | 96 |
| General and administrative expenses | 51 | 62 |
| Depreciation / amortisation | 46 | 34 |
| Total operating expenses | 150 | 192 |
| Operating profit /(loss) before provisions | 24 | (86) |
| Provisions for impairment of loans and receivables | - | - |
| Provisions for liabilities and commitments | - | (9) |
| Amounts written off financial investments available for sale | - | - |
| Total provisions | - | (9) |
| Operating profit/(loss) | 24 | (77) |
| Associated undertaking - M&T | 94 | 120 |
| Profit on disposal of property | 2 | 64 |
| Construction contract income | 12 | 55 |
| Profit/(loss) before disposal of business | - | (1) |
| Profit before taxation | 132 | 161 |
Group reported a pre-tax profit of € 132 million for the year ended December 2008.This compares to a pre-tax profit of € 161 million for the year ended December 2007. The result for both periods includes construction contract income and profit on disposal of property. The operating profit in 2008 was € 24 million compared with an operating loss of € 77 million in 2007.
The trends in net interest income and other income in Group division are impacted by reclassification of income between headings in relation to interest rate hedging. Consequently, it is more meaningful to analyse the trend in total operating income. Total operating income increased in 2008 from € 106 million in 2007 to € 174 million in 2008.This increase mainly included higher capital income in 2008 and € 27 million relating to interest rate hedge volatility (hedge ineffectiveness and derivative volatility) compared to a negligible amount in 2007. Total operating income also includes hedging profits in relation to foreign currency translation hedging (€ 4 million profit for the year ended 2008 compared to € 12 million profit in 2007).
The total operating expenses decreased from € 192 million in 2007 to € 150 million in 2008. Personnel expenses decreased from € 96 million in 2007 to € 53 million in 2008 mainly due to reduction in variable compensation and tight cost control in a number of areas. General and administrative expenses decreased from € 62 million to € 51 million principally due to a reduction in expenditure on professional fees in 2008 and active management of all cost categories. Depreciation/amortisation expenses increased from € 34 million in 2007 to € 46 million in 2008 reflecting project and investment spend in recent years on the single enterprise agenda.
AIB's share of M&T's after-tax profit for 2008 amounted to € 94 million for 2008. On a local currency basis, M&T's contribution to AIB of US$ 138 million was down 17% relative to 2007 (US$ 166 million). M&T's euro contribution to AIB Group performance was impacted by the weakening of the US dollar rate relative to the euro.
Profit on sale of property in 2008 relates to profit on sale of branches in the Republic of Ireland (€ 2 million before tax). Profit on the sale of property in 2007 includes profit on sale of 22 branches in the Republic of Ireland (€ 64 million before tax).
Construction contract income of € 12 million reflects the profit earned in 2008 from the development of Bankcentre, based on the stage of completion (construction contract income was € 55 million in 2007).
Consolidated income statement
for the year ended 31 December 2008
| Notes | 2008 € m | 2007 € m | |||||
| Interest and similar income | 3 | 10,228 | 9,340 | ||||
| Interest expense and similar charges | 4 | 6,361 | 5,922 | ||||
| Net interest income | 3,867 | 3,418 | |||||
| Dividend income | 5 | 27 | 31 | ||||
| Fee and commission income | 6 | 1,183 | 1,453 | ||||
| Fee and commission expense | 6 | (142) | (197) | ||||
| Net trading income | 7 | (73) | 74 | ||||
| Other operating income | 8 | 206 | 89 | ||||
| Other income | 1,201 | 1,450 | |||||
| Total operating income | 5,068 | 4,868 | |||||
| Administrative expenses | 9 | 2,187 | 2,376 | ||||
| Impairment and amortisation of intangible assets | 78 | 60 | |||||
| Depreciation of property, plant and equipment | 92 | 85 | |||||
| Total operating expenses | 2,357 | 2,521 | |||||
| Operating profit before provisions | 2,711 | 2,347 | |||||
| Provisions for impairment of loans and receivables | 19 | 1,822 | 106 | ||||
| Provisions for liabilities and commitments | (2) | (8) | |||||
| Amounts written off financial investments available for sale | 29 | 1 | |||||
| Operating profit | 862 | 2,248 | |||||
| Associated undertakings | 37 | 128 | |||||
| Profit on disposal of property | 10 | 12 | 76 | ||||
| Construction contract income | 11 | 12 | 55 | ||||
| Profit on disposal of businesses | 12 | 106 | 1 | ||||
| Profit before taxation - continuing operations | 1,029 | 2,508 | |||||
| Income tax expense - continuing operations | 13 | 144 | 442 | ||||
| Profit for the period - continuing operations | 885 | 2,066 | |||||
| Attributable to: | |||||||
| Equity holders of the parent | 767 | 1,949 | |||||
| Minority interests in subsidiaries | 118 | 117 | |||||
| 885 | 2,066 | ||||||
| Basic earnings per share - continuing operations | 14(a) | 82.9c | 218.0c | ||||
| Diluted earnings per share - continuing operations | 14(b) | 82.8c | 216.4c | ||||
D Gleeson, Chairman. E Sheehy, Group Chief Executive. J O'Donnell, Group Finance Director. W M Kinsella, Secretary
Consolidated balance sheet
for the year ended 31 December 2008
| Notes | 2008 € m | 2007 € m | ||||
| Assets | ||||||
| Cash and balances at central banks | 2,466 | 1,264 | ||||
| Items in course of collection | 272 | 383 | ||||
| Trading portfolio financial assets | 16 | 401 | 8,256 | |||
| Derivative financial instruments | 26 | 7,328 | 4,557 | |||
| Loans and receivables to banks | 17 | 6,266 | 9,465 | |||
| Loans and receivables to customers | 18 | 129,489 | 127,603 | |||
| Financial investments available for sale | 20 | 29,024 | 20,984 | |||
| Financial investments held to maturity | 1,499 | - | ||||
| Interests in associated undertakings | 1,968 | 1,682 | ||||
| Intangible assets and goodwill | 774 | 636 | ||||
| Property, plant and equipment | 603 | 608 | ||||
| Other assets | 673 | 786 | ||||
| Current taxation | 69 | 2 | ||||
| Deferred taxation | 248 | 254 | ||||
| Prepayments and accrued income | 1,055 | 1,143 | ||||
| Disposal group and assets classified as held for sale | 8 | 239 | ||||
| Total assets | 182,143 | 177,862 | ||||
| Liabilities | ||||||
| Deposits by banks | 25,578 | 30,389 | ||||
| Customer accounts | 22 | 92,604 | 81,308 | |||
| Trading portfolio financial liabilities | 111 | 194 | ||||
| Derivative financial instruments | 26 | 6,468 | 4,142 | |||
| Debt securities in issue | 23 | 37,814 | 41,866 | |||
| Current taxation | 35 | 181 | ||||
| Deferred taxation | 2 | 60 | ||||
| Other liabilities | 2,158 | 1,473 | ||||
| Accruals and deferred income | 1,375 | 1,808 | ||||
| Retirement benefit liabilities | 1,105 | 423 | ||||
| Provisions for liabilities and commitments | 85 | 74 | ||||
| Subordinated liabilities and other capital instruments | 25 | 4,526 | 4,506 | |||
| Disposal group classified as held for sale | - | 161 | ||||
| Total liabilities | 171,861 | 166,684 | ||||
| Shareholders' equity and minority interests | ||||||
| Share capital Share premium | 294 1,693 | 294 1,693 | ||||
| Other equity interests Reserves | 497 698 | 497 327 | ||||
| Profit and loss account | 5,756 | 7,016 | ||||
| Shareholders' equity | 8,938 | 9,827 | ||||
| Minority interests in subsidiaries | 1,344 | 1,351 | ||||
| Total shareholders' equity including minority interests | 10,282 | 11,178 | ||||
| Total liabilities, shareholders' equity and minority interests | 182,143 | 177,862 | ||||
D Gleeson, Chairman. E Sheehy, Group Chief Executive. J O'Donnell, Group Finance Director. W M Kinsella, Secretary
Condensed statement of cash flows
for the year ended 31 December 2008
| Consolidated statement of cash flows | 31 December 2008 € m | 31 December 2007 € m |
| Net cash flows from operating activities Investing activities Purchase of financial investments available for sale Proceeds from sale and maturity of financial investments available for sale Additions to property, plant and equipment Disposal of property, plant and equipment Additions to intangible assets Disposal of investment in associated undertakings Disposal of investment in businesses and subsidiaries Additions to investment in associated undertakings Investment in business Dividends received from associated undertakings | 4,559 (19,404) 14,400 (140) 26 (150) 5 114 (231) (113) 55 | 475 (18,476) 15,292 (128) 105 (138) 5 1 - - 56 |
| Cash flows from investing activities | (5,438) | (3,283) |
| Financing activities Re-issue of treasury shares Issue of subordinated liabilities Redemption of subordinated liabilities Interest paid on subordinated liabilities Equity dividends paid on ordinary shares Dividends on other equity interests Dividends paid to minority interests | 10 885 (356) (255) (720) (38) (66) | 49 128 - (254) (651) (38) (82) |
| Cash flows from financing activities | (540) | (848) |
| Net decrease in cash and cash equivalents | (1,419) | (3,656) |
| Analysis of changes in cash At 1 January Net cash flow before the effect of exchange translation adjustments Effect of exchange translation adjustments | 10,427 (1,419) (486) | 14,355 (3,656) (272) |
| At 31 December | 8,522 | 10,427 |
Consolidated statement of recognised income and expense
for the year ended 31 December 2008
| 2008 € m | 2007 € m | |
| Foreign exchange translation differences Net change in cash flow hedges, net of tax Net change in fair value of financial investments available for sale, net of tax Net actuarial (losses)/gains in retirement benefit schemes, net of tax Net other gains/(losses) relating to the period | (551) 678 (465) (727) 72 | (290) (37) (191) 393 (22) |
| Income and expense recognised Profit for the period | (993) 885 | (147) 2,066 |
| Total recognised income and expense for the period | (108) | 1,919 |
| Attributable to: Equity holders of the parent Minority interests in subsidiaries | (167) 59 | 1,793 126 |
| Total recognised income and expense for the period | (108) | 1,919 |
Condensed consolidated reconciliation of movements in
shareholders' equity
for the year ended 31 December 2008
| 2008 € m | 2007 € m | |
| Profit attributable to equity holders of the parent Dividends on ordinary shares Dividends on other equity interests Share based payments Actuarial (losses)/gains recognised in retirement benefit schemes Other recognised losses relating to the period Other recognised gains/(losses) in associated undertakings Ordinary shares re-issued Net movement in own shares | 767 (720) (38) 5 (727) (307) 100 29 2 | 1,949 (651) (38) 25 393 (527) (22) 83 10 |
| Net movements in shareholders' equity Opening shareholders' equity | (889) 9,827 | 1,222 8,605 |
| Closing shareholders' equity | 8,938 | 9,827 |
| Shareholders' equity: Ordinary shareholders' equity Other equity interests | 8,441 497 | 9,330 497 |
| 8,938 | 9,827 |