Anglo Irish Bank Corporation plc Interim Management Statement 13 August 2008

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Anglo Irish Bank has performed strongly in the financial year to date. Against the backdrop of challenging conditions, we anticipate earnings per share growth of c.15% for the year ending 30 September 2008.

Against the backdrop of difficult market conditions, Anglo Irish Bank will report another very good performance in 2008. We remain focused on carefully managing the Bank's balance sheet and continuing to generate recurring and sustainable profits. We believe that this consistent and disciplined approach to business will continue to deliver for shareholders.

Anglo Irish Bank has performed strongly in the financial year to date. Against the backdrop of challenging conditions, we anticipate earnings per share growth of c.15% for the year ending 30 September 2008.

Strong internal capital generation is a key strength of our business model and this will result in growth of the Bank's core equity in excess of 20%, whilst continuing a progressive dividend policy. This inherent capital strength positions the Bank well in the current testing environment for the sector, where we expect credit impairment to rise and the higher cost of funding to remain.

The Bank's performance in 2008 demonstrates the resilience and strength of our business model. Expected highlights for the year will include:

  •     Growth in earnings per share of c.15%
  •     Strong asset quality with a lending impairment charge of between 0.13% and 0.18%
  •     Net interest margins broadly stable year on year as increasing lending margins partially offset higher funding costs
  •     Continued active management of the cost base
  •     Controlled loan growth of c.15% for the year equating to approximately 5% in the second six month period reflecting our cautious and selective approach to new lending
  •     Strong balance sheet with a significant high quality liquidity portfolio
  •     Customer deposits representing approximately 60% of total funding
  •     Immaterial net residual exposure to assets impacted by market dislocation
  •     Significant equity capital generation in the year with an expected Basel II core equity ratio of close to 6%

Business performance

Business lending

We anticipate net lending growth of approximately 15% for the full year. We continue to control loan growth in the second half of the year and have adopted a very cautious and selective approach to new lending opportunities. This strict lending policy will be maintained in 2009 with loan growth moderating further, predicated on sustaining our strong balance sheet. Lending is currently attracting increased margins and we expect this re-pricing to continue.

Lending asset quality

Notwithstanding the difficult environment, lending asset quality continues to be robust. We expect a lending impairment charge for the year of between 0.13% and 0.18%. Looking forward, impairment will continue to increase from historically low levels but we expect this will be maintained at a rate that reflects our strong underwriting standards and the focused and specialist nature of our business model.

Key aspects of our underwriting model that will mitigate against losses include:

  •     Professional, experienced and well capitalised client base
  •     Strict focus on cash flow loan serviceability
  •     Experienced and focused lending underwriting teams, specialists in their sectors
  •     Centralised risk and underwriting model ensuring consistent decision making with early identification and proactive management of issues
  •     True relationship lending with a high proportion of personal recourse
  •     Senior debt lending protected by client equity and secured by a first legal charge on tangible assets. Further cross collateralisation with legal security over clients' wider asset portfolios
  •     Traditional on-balance sheet lender - no transactional or 'bought' loans
  •     Independent assessment by Group Risk of each and every loan several times a year

The majority of the Bank's loan book in Ireland, the UK and North America is secured investment or owner occupier business lending supported by contractual rental or operating income. This lending is performing well, as cash flows derived from diverse sectors of the service economy remain strong. We continue to monitor both client and underlying tenant performance closely given the current economic environment.

The Bank's commercial and residential development lending is to experienced, well capitalised and proven clients, often supported by existing cash flows from their investment portfolios through cross collateralisation. The commercial portfolio, which has limited speculative exposure, continues to perform satisfactorily and there has been no significant increase in impaired loans within this area.

The Irish residential development sector has continued to deteriorate due to more restricted mortgage availability, particularly in the last quarter. This sector accounts for some 7% of the Bank's total loans and the majority of clients are well established and sufficiently strong to service their facilities through a protracted downturn. However, this sector represents the principal risk to future impairment and is a key focus for management as we work to proactively mitigate against any potential losses.

Assets impacted by the current credit market dislocation

The Bank has no direct exposure to US or other subprime sectors and does not sponsor any off balance sheet vehicles. Similarly, the Bank has very limited indirect exposure to assets impacted by market dislocation and has no residual exposure to Structured Investment Vehicles. In estimating full year profits we have allowed for additional write-downs in respect of our holdings in assets indirectly linked to US subprime. Accordingly, we do not anticipate material write-downs of treasury assets in 2009.

Funding

Against a background of sustained wholesale market dislocation, the Group continues to benefit from our strong customer funding franchise where we source c. 60% of total funding. This core franchise, which has been built over the last 30 years and now spans 16 international markets, provides an attractive source of durable and granular funding. The heightened level of competition across the sector has resulted in increased funding costs for all participants. We expect funding costs to remain at a premium for the foreseeable future.

In the global wholesale markets we continue to have good access out to one year duration. In addition, we have sourced longer term funding through structured instruments, private placings and bilateral repo transactions. The Bank's liquidity position remains strong with a significant surplus to operating and regulatory requirements.

Capital strength

The Bank consistently generates significant internal equity capital given the annuity and low volatility nature of our earnings stream, combined with our highly efficient cost structure. With controlled risk asset growth, and profit retentions of c. €1 billion in the current year, the Bank's Basel II core capital ratio will rise close to 6% at 30 September 2008. The ratio is expected to strengthen further to in excess of 6.5% in the subsequent period without recourse to additional external equity capital. With close to 100% of our lending secured, and insignificant trading exposures, this level of capital is conservative relative to the Bank's risk profile, but we consider it appropriate in the context of the prevailing environment.

The Bank operates under the Basel II Standardised method and therefore has not benefited from reduced risk weightings on lending assets. Accordingly, the pro-cyclical effects of Basel II should not result in any material impact on our capital requirements.

Outlook

We are confident our strong underwriting standards, centralised structure and ownership culture will serve the Bank well during this down-cycle. As virtually all lending is secured by tangible collateral, our total provisions comfortably exceed our net exposure to impaired loans. Furthermore, even allowing for a lending impairment charge in line with the 2009 market consensus of 0.7%, some four to five times the anticipated current year level and above management expectations, the Bank would remain highly profitable and capital accretive in 2009.

Our assessment is that the market environment will remain significantly challenged. Accordingly, we will restrict new lending activity, our primary focus being the management of asset quality and organically building our capital base. In addition, we will invest further in our funding franchises. These actions will serve to protect and enhance the Bank's strong balance sheet and position us well for when markets begin to recover.

Notwithstanding the current market dislocation, our performance in 2008 underscores the resilience and value of the business model. We are confident that the Bank will continue to demonstrate strong returns in 2009 and over the longer term.

David Drumm, Group Chief Executive, commented:

"Against the backdrop of difficult market conditions, Anglo Irish Bank will report another very good performance in 2008. We remain focused on carefully managing the Bank's balance sheet and continuing to generate recurring and sustainable profits. We believe that this consistent and disciplined approach to business will continue to deliver for shareholders."

ENDS
Release of full year preliminary results
Preliminary results for the year ended 30 September 2008 will be released at 7am on Wednesday 3 December 2008.
Contact details:
David Drumm, Group Chief Executive
Willie McAteer, Chief Risk Officer / Group Finance Director
Matt Moran, Chief Financial Officer
Anglo Irish Bank
Tel: +353 1 616 2003
Billy Murphy, Drury Communications Tel: +353 1 260 5000

Forward looking statement
This document contains certain forward looking statements with respect to the financial condition, results of operations and businesses of Anglo Irish Bank. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions, the existing regulatory environment and the current interpretations of IFRS applicable to past, current and future periods. Nothing in this announcement should be construed as a profit forecast.

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