Allied Irish Banks p.l.c. Interim Management Statement
(Thomson Reuters ONE) - Allied Irish Banks, p.l.c. ("AIB") [NYSE:AIB] is issuing thefollowing update on business and key performance trends. Please notethat all trends in the update are in constant currency terms.OVERVIEWOur financial results for 2009 are expected to reflect solidoperating profits before bad debt provisions set against a backgroundof a very difficult operating environment. We expect operating profitto be achieved in all divisions - Republic of Ireland, CapitalMarkets, UK and CEE.The bad debt charge will be heavily weighted to the loans that havebeen identified for potential transfer to NAMA over the comingmonths. These loans are predominantly in our Republic of Ireland and,to a much lesser extent, UK divisions. Excluding the Republic ofIreland, the other three divisions collectively are expected toremain profitable this year underlining the importance ofinternational diversification. It is expected that Capital Marketsand CEE have little or no assets that will transfer to NAMA. M&Tcontinues to perform well relative to its US regional banking peersand its Q3 financial performance exceeded market consensusexpectations.Our principal source of funding continues to be our stable customerdeposits which at the end of September comprised 50% of our totalfunding, up 1% since the end of June. In wholesale markets, liquidityis significantly better than in the early part of the year asillustrated by a wider range of counterparties, increased balancesacross our global funding programmes and our recent un-guaranteedsenior debt issues in the public markets. We are experiencing modestimprovement in pricing, particularly for shorter duration funding,although term pricing remains elevated and conditions are morechallenging than historic norms.Our capital ratios continue to exceed minimum regulatory requirementsand we continue to actively consider the range of potential sourcesof additional capital as outlined in our statement of 16th September.OPERATING PROFITDiverse multi-national sources of income and intense management ofour cost base is driving an expected underlying operating profit ofaround ?2bn in 2009 before bad debt provisions. Capital Marketscontinues to perform very strongly; operating profit from thisdivision is expected to be ahead of the level achieved in 2008 and tobe the largest divisional contributor to group profit. The quality ofour Polish business and the relatively positive economic conditionsin which it is operating is likely to result in a broadly similaroperating profit in 2009 relative to 2008. Income pressure and mostparticularly the cost of customer deposits is the key driver ofreduced operating profits in our Republic of Ireland and UKdivisions.Loan and deposit volumesWeak demand for credit is likely to result in year end gross customerloans being broadly in line with last year. Increased impairmenthowever is expected to reduce year on year net customer lending byaround 4%. The low level of demand is most apparent in Irelanddespite our reaffirmed commitment to our domestic market. Forexample, we anticipate providing around ?2bn of new lending this yearto our SME customers, delivered through our extensive branch network,15 dedicated business centres and 250 relationship managers. We areproviding 1 in 3 of all new mortgages and first time buyer drawdownsare currently up this year by around 28%. We are targeting a smallincrease in our Polish book as we take higher return opportunities,particularly in the personal market. In other international marketsour priority continues to be on de-leveraging the balance sheet.At our half year results presentation we said customer deposits hadstabilised following outflows in the first quarter of 2009. Thisstability has continued and the full year balance is expected toincrease over the half year level.MarginsWe expect the net interest margin to reduce by around 25 basis points(bps) from 221 bps in 2008. The primary negative catalyst continuesto be the cost of customer deposits partly offset by improvingreturns on our loan book and higher treasury margins.Non-Interest IncomeLower fees from banking activity, investment banking and assetmanagement and the cost of the Government Guarantee Scheme willreduce non-interest income in 2009, partly offset by some bonddisposal gains. Overall, we expect non-interest income to reduce thisyear by over 10%.CostsFurther and ongoing savings are being achieved and are continuing thedownward trend in costs. In 2009 we are targeting costs to fall byaround 5% following the 5% reduction already achieved in 2008. A keydriver of this improving trend is the number of people employed whichhas reduced by over 1,500 in the 9 months to September on a full timeequivalent basis. All expense categories across the group are subjectto scrutiny and review as we develop further savings initiatives.ASSET QUALITYDeterioration in our overall loan book continues but the pace of thatdeterioration is slowing. This trend reflects the significant portionof the book already criticised rather than a material improvement inthe quality of the book or operating conditions. The increase incriticised loans in the second half of 2009 is expected to besignificantly less than the ?18bn increase in the first half.Additions to impaired loans continue to be heavily weighted to thosepreviously indicated property & construction exposures that maytransfer to NAMA. At our half year results presentation we said thata bad debt charge outlook figure for 2009 was likely to be overtakenby the implementation of the first phase of NAMA. Accordingly we didnot revise the previously guided figure of ?4.3bn provided in May. Wedid however note that in light of the continuing deterioration in theeconomies in which we operate, particularly in Ireland, the risk tothat figure of ?4.3bn was that it would be higher. We now expect thebad debt charge for 2009 to be around ?5.3bn, with the increasepredominantly on the ?24bn portfolio indicated in September by theMinister for Finance that may transfer to NAMA. Of that ?24bnportfolio, c. ?6.7bn was impaired at the half year and we expect theimpaired element to have increased at year end by c. ?3.8bn to?10.5bn. In our statement of 16th September our estimate of balancesheet provisions at the end of 2009 for NAMA loans was c. ?3.5bn. Wenow expect those provisions to be c. ?4.2bn. Accordingly, there isno material change other than timing to our assessment of thecombined effect of NAMA writedowns and bad debt charges on our profitand capital.An outline estimated profile of the ?24bn loans indicated inSeptember that may transfer to NAMA is as follows:+-------------------------------------------------------------------+| | Landbank & | Associated | Total || | Development | ?bn | ?bn || | ?bn | | ||----------+---------------------+-----------------+----------------|| Republic | | | || of | 14.2 | 6.4 | 20.6 || Ireland | | | ||----------+---------------------+-----------------+----------------|| United | | | || Kingdom | 2.6 | 0.7 | 3.3 ||----------+---------------------+-----------------+----------------|| Rest of | | | || World | 0.2 | - | 0.2 ||----------+---------------------+-----------------+----------------|| | | | || | 17.0 | 7.1 | 24.1 ||----------+---------------------+-----------------+----------------|| | | | ||--------------------------------------------------+----------------|| Performing at 30th June 2009 | c. || | 17.4 ||--------------------------------------------------+----------------|| Impaired at 30th June 2009 | c. || | 6.7 ||--------------------------------------------------+----------------|| | ||--------------------------------------------------+----------------|| Forecast performing at 31st December 2009 | || | c.13.6 ||--------------------------------------------------+----------------|| Forecast impaired at 31st December 2009 | || | c.10.5 ||--------------------------------------------------+----------------|| | ||--------------------------------------------------+----------------|| Balance sheet provisions at 30th June 2009 | c. || | 2.3 ||--------------------------------------------------+----------------|| Forecast balance sheet provisions at 31st | c. || December 2009 | 4.2 |+-------------------------------------------------------------------+We continue to work closely with the NAMA team. In our statement of16th September we noted that the Minister guided an average industrywide discount of 30% for NAMA eligible loans and had stressed thevariability between banks. Based on our work to that point, we saidthen that we expected the discount for AIB loans that may transfer toNAMA to be less than the estimated industry wide average of 30%. Theactual outcome however can only be known following an extensiveexercise in which those loans are individually valued on a case bycase basis by NAMA. We expect to provide an updated estimate of thelikely effect on AIB when there is more clarity on matters such asthe final amount of loans to be transferred, pricing and transfertiming of loans, fees payable to AIB, fair value of the considerationto be received and due diligence is completed. In the meantime, it isour view that there is no reason to believe that the average discountapplicable to AIB's NAMA eligible loans will fall significantlyoutside the Minister's guidance of 30%.Following the expected enactment of the NAMA legislation anapplication by AIB to participate in the NAMA bank asset acquisitionscheme is to be considered by our shareholders at an EGM to beconvened shortly.In our Republic of Ireland division loan book of around ?78bn, c.?57bn is "non-NAMA" of which around ?27bn is in personal mortgages.Recent reviews show some signs of stabilisation and the overallprovision requirement in the portfolios comprising the aforementioned?57bn has not materially increased since the half year. At the end of2009 the ?27bn mortgage portfolio is expected to include close to?500m of impaired loans and have balance sheet provisions of c.?125m. The remaining ?30bn of the pro-forma Republic of Irelanddivision loan book is expected to include impaired loans of c. ?3.7bnand will have balance sheet provisions of c. ?1.8bn.In our other divisions - Capital Markets, UK and CEE, there are signsof stabilisation and in the second half of 2009 we are expecting thebad debt provision charges to be lower in Capital Markets & CEE andbroadly similar in the UK relative to the charges incurred in thefirst half to June. Impaired loans and bad debt charges are clearlyhigher than in previous years, reflecting more difficult conditionsin all markets and the prudent balance sheet provisions in eachdivision reflects these conditions. In the UK, property &construction (including ?3.3bn of aforementioned loans that couldtransfer to NAMA) and leisure are the sectors receiving ourparticularly close attention. Leveraged transactions in CapitalMarkets and property and consumer loans in Poland are also beingtightly managed.FUNDINGAs already noted, our customer franchise deposits are a stable andgrowing part of our overall funding. Our customer loan to depositratio was at 152% at the end of September, down from 156% at the endof June and we continue to target a progressive reduction in thisratio. NAMA will be a major liquidity event in the Irish market,materially reducing loan to deposit ratios and the NAMA bondsreceived as consideration for loans that may be transferred to NAMAwould substantially increase our level of qualifying liquid assets.Our level of qualifying liquid assets / contingent funding was ?54bnat the end of September.Our recent success in sourcing non Government guaranteed andunsecured deposits represents a key positive change in marketsentiment. In recent weeks we have raised a total of ?1.75bn of termfunding in 2 separate bond issues for 3 years and 5 yearsrespectively. There was strong demand for both issues, which wereheavily oversubscribed by a wide range of overseas investors.Agreement on the terms and conditions of a modified Governmentguarantee is expected shortly. The fee is expected to be higher thanthat for the existing guarantee, although applicable to what weanticipate will be an increasingly lower level of coveredliabilities.CAPITALOur core tier 1 capital ratio at the end of September was c. 8.5% andreflected the accelerated timing of bad debt provisions on the loansthat may transfer to NAMA.In our 16th September statement we referred to our intention to raisecapital over the next 12/18 months and we outlined the potentialsources of that capital - the equity market, a strategic investmentand asset sales / business disposals. In that statement we alsoacknowledged the Government's intent to assist and support capitalraising measures and its appreciation that such measures should betaken over a reasonable timeframe. Our firm intention and resolve tostrengthen our capital position is unchanged. Market expectations andregulatory requirements for banks to hold higher levels of capitalcontinue to evolve and in that context we are reviewing the quantumand ratios appropriate for AIB.In the 3 months to the end of September our shareholders' equityincreased by c. ?333m, due to an increase in the fair value ofAvailable for Sale securities.INTERACTION WITH EUROPEAN COMMISSION (EC)The EC will consider over the coming months the competitive effectsof state aid on our business and markets. We are engagingconstructively with the EC and our restructuring plan has beensubmitted in recent days and accordingly consideration of potentialoutcomes is premature at this very preliminary stage.Further details of our performance and outlook will be provided inour 2009 Preliminary Results announcement scheduled for 3rd March2010. -ENDS-For further information please contact: Alan Kelly Catherine Burke General Manager, Group Finance Head of Corporate Relations AIB Group AIB Group Dublin 4 Dublin 4 Tel: +353-1-641 2162 Tel: +353-1-641 3894This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 18.11.2009 - 08:01 Uhr
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