Post on 26-Mar-2015
transcript
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A number of statements we will be making in our presentation and in the accompanying slides will not be based on historical fact, but will be “forward-looking” statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward looking statements. Factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to, global, national and regional economic conditions, levels of market interest rates, credit or other risks of lending and investment activities, competitive and regulatory factors and technology change. Any ‘forward-looking statements made by or on behalf of the Group speak only as of the date they are made.
Allied Irish Banks plc
Capital & Funding
May 2006
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Allied Irish Banks, p.l.c.
Ireland’s largest publicly quoted company
Retail & commercial bank with strong franchises in all geographies
# 1 bank in Ireland with leading market shares in core banking products
By market capitalisation €16bn (May 2006) 15.7% of Irish Stock Market Index 14th/47 DJ E Stoxx Bank Index
26th/53 FTSE Eurotop Bank Index
2005 - total assets € 133bn, PBT € 1.7bn
Senior debt ratings Moody’s ‘Aa3’ (stable outlook)S&P ‘A+’ (stable outlook)Fitch IBCA ‘AA-’ (stable outlook)
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Executive Structure
Group Executive CommitteeGroup Chief Executive
Eugene Sheehy x
AIB Bank (RoI)Managing Director
Donal Forde
AIB Group (UK) p.l.c.Managing Director
Robbie Henneberry x
AIB Capital MarketsManaging Director
Colm Doherty
AIB Poland Division Managing Director
Gerry Byrne
Head of Group Strategic
Human ResourcesMary Toomey x
Group Chief Risk Officer
Shom Bhattacharya
Group Financial Director
John O’Donnell x
Director of Operations
Steve Meadows x
Global Treasury Managing Director
Nick Treble
Liquidity & Funding Gerry O’Connor
Chief Dealer –Funding
Duncan Farquhar
Head of A/C & Finance Maeliosa
O’Hogartaigh x
Group Finance General Manager
Alan Kelly x
Group InvestorRelations Manager
Maurice Tracey
‘x’ new appointments
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Performance Highlights - Continued Positive Momentum
Basic earnings per share 151.0 c
- adjusted basic * 145.9 c 15%
* Excludes (i) profit on new bankcentre development and (ii) hedge volatility under IFRS
Positive income / cost gap 5%
Cost / income ratio 2.5%
Impaired loans 1%
Dividend 10%
Return on equity 20.6%
Tier 1 capital ratio 7.2%
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Buoyant Customer Demand Driving Income
12%
16%
27%
6%
15%
Loans Deposits . Net InterestIncome
Other income TotalOperating
IncomeNet Interest
Margin-20 bps
Organic growth - best use of capital
- solid capital and funding positions
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Divisional profile - Dec 2005
PBT 8%RWA’s 5%5yr Av.GDP 3.0%
Investment in 23.5% of M&T BankContribution to PBT 9%5yr Av.GDP 2.6%
PBT 17%RWA’s 18%5yr Av.GDP 2.3%
PBT 44%RWA’s 39%5yr Av.GDP 5.1%
AIB Bank, ROI Division UK Division
M&T Bank Poland Division
Capital Markets Division
PBT 22%RWA’s 38%
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Divisional Performance
AIB Bank Republic of Ireland €779m 24%
AIB GB & NI €322m 18%
Capital Markets €403m 27%
Poland €132m 13%
M&T €148m * 16%
* after tax figure
Profit before tax
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Underlying profit 15% (pre 2004 investigation charge)
Cost / income ratio 51.3% (52.7% in 2004)
Reinforcing our no. 1 position in Irish banking
AIB Bank Republic of Ireland 24%
Year on year growth
25%24%
31%28%
20%
Deposits Total Loans BusinessLending
MortgageLending
PersonalLending
Customer demand creating abundance of opportunities Uncompromising on quality Net 500 people in 2005, over 300 vacancies now Competition effect in line with expectations
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AIB Bank UK Division 18%
18%
25%
11%
AIB Bank GB&NI
Great Britain
Northern Ireland
€322m €169m €153m
Cost / income ratio 48.7% (51.5% in 2004)
GB Selective business sector focus driving
outperformance Loans 31%, deposits 21% Market share gains in:
- private education - legal & accounting - healthcare - hotels
People acquisition a high priority Almost 50% in business developers
since 2003
NI Good performance in a lower growth environment
Loans 25%, deposits 12% Strong focus on cost management
High quality, high growth franchises
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55%29%
16%Corporate Banking
Treasury
Investment Banking / Allied Irish America
Capital Markets 27%
Cost / income ratio 47.5% (54.4% in 2004)
Outstanding performance in Corporate Banking 33% Loans 29% Solid profit growth in premium Irish franchise > 70% profit from international franchises
Harvesting carefully planned skills transfer Strong growth in U.K., New York, structured / acquisition finance and debt management
Robust treasury performance 2% Strong customer business Low risk positions; trading profits not a material % of AIB
Investment Banking at centre of Irish corporate activity 22%
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Poland 13%
Underlying profit 29% (pre disposal of business in 2004)
Cost / income ratio to 65.7% (67.4% in 2004) Performance driven by:
Non interest income 10% Tight cost management 3% Further provision reductions 54%
Early signs of loan book momentum 4% following flat H1 Personal cash loans 80% Maintaining risk discipline
Top tier mutual funds provider; income 115%, market share12.6%
Qtr 1 2006 - continuation of strong profit growth momentum
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M&T 16%
Partnership Approach
23.5% shareholding (Dec 2005)
Acquired in 2003, equity accounted
IRR 24%
Best performing US Regional Bank Stock
Strong management driving performance in challenging environment
Cost management offsetting slow income growth
Cost / income ratio 51.2% (53.5% in 2004)
Further reduction in non performing loans and provisions
Qtr 1 2006 - performance in line with expectations
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Operations – single enterprise approach
Core business banking and payment system
Vendor agreement signed Cross divisional application: staged
roll out over 2 years
Core retail banking system; implementation 2007 – 2008
2 new data centres – capacity & risk benefits
Home mortgages - improvement in response times
RiskManaged
Cost
Service Quality
Operational Excellence
Major investment programme underway
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Growing our presence in competitive markets
Ireland
Great Britain
Poland
Rest of World
• Over 70,000 more customers than in 2004; increases in both business and personal sectors
• Improving trend in customer satisfaction
• Continuing migration from small to mid-market customers
• Consistent customer satisfaction underpins “best business bank” status
• Over 100,000 more customers than in 2004• Customer recruitment spread over key
sectors and products
• Leveraging competencies developed in Capital Markets
• Selective international expansion
High quality, sustainable growth
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Positive “jaws” in all franchises
-2
0
2
4
6
8
10
12
14
Group AIB BankRoI
AIB BankGB & NI
CapitalMarkets
Poland
Income Costs
5% 3%
6%
3%
15%
%
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Income / cost gap; a healthy relationship
2
4
6
8
10
12
14
2002 2003 2004 2005
Cost growth Income growth
%
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Well contained costs
1,136 Staff costs 1,298 13
578 Other costs 583 -1
145 Depr. & amort. 130 -13
1,859 Operating expenses 2,011 7
“run rate” increase of + 5%
Performance compensation + 1%
Regulatory / compliance costs + 1%
+ 7%
Underlying *
2004 €m 2005 change %
* excludes impact of currency movements
2006 full year forecast + 9%
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Strong asset quality
2004 2005
1.3 Impaired loans (ILs) % 1.0
5.8 Criticised loans / total loans % 5.1
0.7 Gross new ILs % 0.4
73 Total provisions / ILs % 78
20 Bad debt charge bps 15
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75%
15%
10%
Tier 1 Core
Non-Innovative
Innovative
2004
Tier 1 - Components
76%
14%
10%
2005
Requlations
Core T(1) must exceed 51% of Total T (1)
Innovative cannot be >15% of Total Tier (1)
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Funding
0
20
40
60
80
100
2004 2005
Capital
Senior Debt
CDs & CPs
Deposits by banks
Customer a/cs
55%
22%
10%
9%
52%
24%
10%
10%
%
Resource gathering is dominated by relationship sources. Wholesale sources remain under utilised, at year-end 2005 Total bond issuance was equivalent to only 9% of Balance Sheet.
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AIB Debt Distribution - April 2006
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Tier (i) Tier (ii) Snr-Benchmk Snr-Priv.Place. ACS
Euro 82%
STG 14%
US$ 4%
Step-up issues – adjustedto earliest step-up date
Moody’s S&P Fitch
Aaa AAA AAA
Aa3 A+ AA-
Aa3 A+ AA-
A1 A(Lwr)/A-(Uppr) A+
A2 A- A+
€ (m)
Asses Covered Securities 3,500
Senior Debt - Private Placements 1,903
Senior Debt - Benchmark Issues 4,750
Tier (ii) 3,537
Tier (i) 1,710
Total 15,400
Debt Distribution€ (m)
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Looking Forward
2006 Guidance:
16 May - Trading Statement, “targeting mid to high teens growth in adjusted basic earnings per share (EPS)…Loans are expected to increase by 25% (in 2006) ….and customer deposits by 15%....
Targets:
“consistent double digit EPS growth ….ROE in excess of 20%.....positioned to be in the top quartile of FTSE Eurotop Bank Index (E3Bank) on an adjusted EPS basis ………….3% Cost vs. Income Gap : JAWS
Strategies: Aggressive organic growth agenda
Disciplined capital management e.g. monetising value of balance sheet assets
Investing to manage growth centralisation of business locations single Enterprise wide systems
Implementation of Basel II , targeting Foundation Level
Diversify range of funding instruments
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Contacts
AIB Group Investor Relations www.aibgroup.com/investorrelations
Executive : Alan Kelly T: + 353-1-6412162
Manager : Maurice Tracey T: + 353-1-641-4191
AIB Global Treasury bond.issues@aib.ie
Head of Liquidity & Funding : Gerry O’Connor T: + 353-1-6417891
Chief Dealer, Liquidity : Finbarr Dowling T: + 353-1-6417803
Chief Dealer, Funding : Duncan Farquhar T: + 353-1-641-7811
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Appendix 1
The Irish Economy & Housing Market
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Republic of Ireland Economic Trends
1990 1995 2000 2005 (e) 2006 (f)
Population (‘000) 3,506 3,601 3,789 4,131 4,230
Employment (‘000) 1,160 1,282 1,671 1,929 1,989
Unemployment (‘000) 172 177 75 86 86
Unemployment (%) 12.9 12.2 4.3 4.2 4.2
Inflation (%) 3.4 2.5 5.6 2.5 3.2
Govt surplus (deficit) (% GNP) (2.0) (1.7) 3.6 (0.4) (1.4)
GNP per capita (€) 8,712 12,936 23,460 32,486 34,165
GNP per capita (% change) 16.8% 8.5% 11.1% 7.7% 5.7%
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
2
4
6
8
10
12
14
16
18
The Irish Labour Market Has Been Transformed
Total Employment ’00S (LHS)
Unemployment Rate % (RHS)
The Irish Labour Market Has been Transformed(‘000s) (%)
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Robust Public Finances
Government budget
Surpluses average 1.5% of GDP since 1997
Budget close to balance in coming years
Large current budget surpluses
Significant capital expenditure/borrowing
Gen Gov Debt/GDP ratio
<30% at end 2005(e) and declining
Down from 90% of GDP in past decade
Much less than half of eurozone average: 72%
Relatively Low Tax Economy
Well below eurozone average, similar to UK
Low PRSI/income tax, no local taxes
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Population Growth
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0-14 15-24 25-44 45-54 55-64 65+
1996 Census 2002 Census 2010 CSO ProjectionsSource: DOE and ESRI
Population Age Profile Estimates (m)
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Rise in Housing Assets
0
100
200
300
400
500
600
700
Housing Assets€ (m)
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Many Factors Underpin Strong Housing Demand
Continued strong inward migration
Favourable demographic trends
Untapped demand: Rising headship rates
Demand for second homes
Strong growth of economy and employment
Comfortable repayment affordability: longer term mortgages, lower cost
units, low interest rates
Government incentivised savings scheme (SSIAs) will mature in 2006/7
Home ownership is seen as an attractive tax efficient savings scheme, there
is no taxation on personal residential property
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Summary: A Sound Economy
Public finances to remain close to balance
Very low national debt. Declining debt/GDP ratio
Low tax economy attracting FDI and workers
Virtual full employment despite high immigration
Favourable demographics supporting growth
Further boost to growth from SSIAs in 2006-07
Inflation back down at eurozone average
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Appendix 2
AIB Trading Update
(released 16th May 2006)
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AIB Trading Update
Allied Irish Banks, p.l.c. (“AIB”) [NYSE:AIB] is issuing the following
update on trading following a review of performance in the year to
date. All trends in this update are in constant currency terms.
Since issuing guidance in February 2006 business in all our principal
franchises has been strong and these positive trends are being
sustained. Customer demand is buoyant and both the pipelines of
new business and their high levels of conversion at good rates of
return on capital underpin our confidence in the future. Asset quality
is very strong and recoveries of impaired loans are particularly high in
the year to date.
Productivity continues to improve and we are targeting income
growth to exceed cost growth at enterprise and individual division
level. Economic conditions in our international and domestic markets
are good and create a very positive environment for us to develop
high quality business. We continue to invest heavily in our people
and systems to underpin and sustain profitable growth. The
investment programme in our operations is also designed so that we
are well positioned and prepared to meet industry wide regulatory
requirements.
Profit is expected to increase in each of our operating divisions this
year. We also anticipate a good increase in the contribution from our
investment in M&T.
For the full year 2006, we are now targeting mid to high teens
growth in adjusted basic earnings per share (EPS).* This
guidance is relative to the 2005 number of 145.9c. The rate of
EPS growth for the interim 6 months to June is expected to
exceed that of the full year’s due to a level of impaired loan
recoveries in the current period that we consider to be
exceptional.
Our planned growth will be supported through a combination of
capital we generate internally and capital we select from a suite
of other available sources. Our funding profile is conservative and
was recently boosted by the successful and efficient raising of
€3.5bn in the fixed income market.
* Excludes profit on Bankcentre sale and development, profit on Aviva / ARK Life
transaction and hedge volatility under IFRS
REPUBLIC OF IRELAND DIVISION
Our domestic retail and commercial banking franchise is
performing strongly. A higher interest rate environment is
expected to temper rather than materially reduce customer
demand and we are now targeting loans to increase this year by
around 25%, higher than previously guided in February. We
expect growth in customer deposits to be around 15%.
Competition remains intense although its impact is as anticipated.
Our recently revised suite of products and services further
underpins the resilience and potential of our market position.
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AIB Trading Update cont…./
We have agreed a framework for performance related pay with our
staff that sets us apart from our peers. This action reflects our
confidence in the future and ensures we continue to attract and retain
key people to sustain long term growth. It increases the proportion of
variable costs and together with other discretionary investments in
our business will mean an above trend growth in costs this year.
However, we expect the rate of income growth to be greater than the
rate of increase in costs.
UK DIVISION
In Great Britain our focus on chosen business sectors continues to
deliver high quality growth. The consistent high grade customer
service we provide is creating an abundance of opportunities and
there is strong momentum in both loans and deposits. Our
aggressive business development plan is being executed by high
calibre teams in which we continue to invest and supplement with
additional skilled people. Branch and office locations are being
upgraded or relocated to ensure we optimise the potential of our
market position.
First Trust in Northern Ireland is performing well and in line with
expectations.
Full year loan growth for the division is expected to be over 20% and
deposits are expected to grow by around 15%.
CAPITAL MARKETS
Corporate Banking, which comprises over half this division’s
profit, is enjoying another outstanding year. We have a proven
ability to identify and establish premium positions in attractive
international markets from which we derive over 70% of
Corporate Banking’s profit. This ability, allied to a strong domestic
franchise is the hallmark of Corporate Banking’s consistent
outperformance. We are targeting loans to increase by around
20% this year and expect the pattern of strong profit growth to
continue.
Global Treasury is performing well. Performance in our customer
business is well distributed and robust across the major product
lines of foreign exchange, cash management and interest rate
risk management. Performance in our wholesale business is in
line with expectations with our bond management activities a
highlight.
Goodbody Stockbrokers and our corporate finance teams are
notable contributors to an overall good performance anticipated
in Investment Banking.
35
AIB Trading Update cont…./
POLAND DIVISION
A year of strong profit growth is expected in Poland.
Buoyant demand for our best-in-class investment funds products is a
particular highlight. Momentum in the latter months of 2005 has
continued and inflows from new and existing customers are running
at record levels.
An increase in our loan book of around 10% is anticipated with good
demand evident for personal loans. Demand for local currency
mortgages is beginning to recover which we see as a welcome
development. The business lending environment is gradually
improving and while liquidity amongst corporates is still high there is
a positive outlook for investment spending which should increase
loan demand.
In the savings market, customers are primarily focused on investment
funds; we expect a single digit increase in our deposits this year.
M&T BANK CORPORATION
A good contribution is expected again in 2006 as M&T maximises
opportunities in a relatively lower growth environment. In the first
quarter of this year, M&T once again exceeded market consensus.
Both efficiency gains and further improvements in asset quality were
highlights of performance.
MARGINS
In line with our guidance at the announcement of our 2005
results in February we continue to expect around 20 basis points
of reduction in our net interest margin this year. The causes are
the same as they have been for some time – loans growing faster
than deposits, lower reinvestment rates for customer account
funds, business mix and competition.
NON INTEREST INCOME
We are now targeting a significant increase of around 12% in
2006. In Poland, asset management, stockbroking and payment
processing fees are all growing strongly. Activity levels and
business pipelines are also well up on last year in our Irish
corporate finance business.
COSTS
We are confident that we will again achieve our core objective of
maintaining a positive gap of at least 3% between income and
cost growth. This year we expect an above trend cost increase of
around 9%.
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AIB Trading Update cont…./
In this time of exceptional opportunity and income buoyancy we
consider it prudent to invest so that the long term health of our
business is assured. People recruitment and reward, building
common operating systems and a resilient risk, compliance and
corporate governance framework across the enterprise are all
essential ingredients vital to achieving this goal. In the event of an
income slowdown, the pace of investment would be moderated
without impairing our business
ASSET QUALITY
All leading indicators of asset quality are solid. We remain vigilant in
our assessment and management of risk; while this is an
exceptionally benign credit environment, there are currently no trends
or developments that lead us to foresee an imminent deterioration.
We now expect the bad debt provision charge in 2006 not to exceed
15 basis points of average loans. As referred to earlier in this update,
very high non recurring recoveries in the first half are likely to mean a
lower charge in the interim period to June.
NOTE
Group results for the interim period to 30th June 2006 will be
announced on 1st August 2006.