Transcript Career Framework Outline

Allied Irish Banks plc
Capital & Funding
May 2006
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.
1
Allied Irish Banks, p.l.c.



Ireland’s largest publicly quoted company

By market capitalisation

2005 - total assets € 133bn, PBT € 1.7bn

Senior debt ratings
Retail & commercial bank with strong franchises in all geographies
# 1 bank in Ireland with leading market shares in core banking products
 €16bn (May 2006)
 15.7% of Irish Stock Market Index
 14th/47 DJ E Stoxx Bank Index
 26th/53 FTSE Eurotop Bank Index
Moody’s
S&P
Fitch IBCA
‘Aa3’ (stable outlook)
‘A+’ (stable outlook)
‘AA-’ (stable outlook)
2
Executive Structure
Group Chief
Executive
Eugene
Sheehy x
Group Executive Committee
AIB Bank (RoI)
Managing Director
Donal Forde
AIB Group (UK) p.l.c.
Managing Director
Robbie Henneberry x
AIB Capital Markets
Managing Director
Colm Doherty
AIB Poland Division
Managing Director
Gerry Byrne
Global Treasury
Managing Director
Nick Treble
Liquidity & Funding
Gerry O’Connor
Chief Dealer –
Funding
Duncan Farquhar
Head of Group
Strategic
Human Resources
Mary Toomey x
Group Chief Risk
Officer
Shom Bhattacharya
Group Financial
Director
John O’Donnell x
Head of A/C
& Finance
Maeliosa
O’Hogartaigh x
Director of
Operations
Steve Meadows x
Group Finance
General Manager
Alan Kelly x
Group Investor
Relations Manager
Maurice Tracey
‘x’ new appointments
3
Performance Highlights - Continued Positive Momentum
Basic earnings per share
- adjusted basic *
151.0 c
145.9 c
 15%
Positive income / cost gap
Cost / income ratio
5%
 2.5%
Impaired loans
Dividend
1%
 10%
Return on equity
20.6%
Tier 1 capital ratio
7.2%
* Excludes (i) profit on new bankcentre development and (ii) hedge volatility under IFRS
4
Buoyant Customer Demand Driving Income
27%
16%
15%
12%
6%
Loans
Deposits
.
Net Interest
Margin
-20 bps
 Organic growth
Net Interest
Income
Other income
Total
Operating
Income
- best use of capital
- solid capital and funding positions
5
Divisional profile - Dec 2005
AIB Bank, ROI Division
PBT
44%
RWA’s
39%
5yr Av.GDP 5.1%
M&T Bank
Investment in 23.5% of M&T Bank
Contribution to PBT 9%
5yr Av.GDP
2.6%
UK Division
Capital Markets Division
PBT 22%
RWA’s 38%
PBT
17%
RWA’s
18%
5yr Av.GDP 2.3%
Poland Division
PBT
8%
RWA’s
5%
5yr Av.GDP 3.0%
6
Divisional Performance
Profit before tax
 AIB Bank Republic of Ireland
€779m
 24%
 AIB GB & NI
€322m
 18%
 Capital Markets
€403m
 27%
 Poland
€132m
 13%
€148m *
 16%
 M&T
* after tax figure
7
AIB Bank Republic of Ireland  24%
Underlying profit  15% (pre 2004 investigation charge)
 Cost / income ratio  51.3% (52.7% in 2004)


Reinforcing our no. 1 position in Irish banking
Year on year growth
31%
28%
20%
Deposits

Total Loans
Business
Lending
24%
25%
Mortgage
Lending
Personal
Lending
Customer demand creating abundance of opportunities
 Uncompromising on quality
 Net  500 people in 2005, over 300 vacancies now
 Competition effect in line with expectations
8
AIB Bank UK Division  18%

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
High quality, high growth franchises
 25%
 18%
 11%
€322m
People acquisition a high priority
 Almost 50%  in business developers
since 2003
AIB Bank
GB&NI
€169m
€153m
Great
Britain
Northern
Ireland
NI

Good performance in a lower growth environment
 Loans  25%, deposits  12%
 Strong focus on cost management
9
Capital Markets  27%
16%
29%
55%
Corporate Banking
Treasury
Investment Banking / Allied Irish America

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%
10
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
11
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
12
Operations – single enterprise approach
Major investment programme underway


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
Service Quality
Managed
Cost
Operational
Excellence
Risk
13
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 midmarket 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
14
Positive “jaws” in all franchises
%
14
12
6%
5%
15%
3%
10
8
3%
6
4
2
0
-2
Group
AIB Bank AIB Bank
RoI
GB & NI
Income
Capital
Markets
Poland
Costs
15
Income / cost gap; a healthy relationship
%
14
12
10
8
6
4
2
2003
2002
Cost growth
2004
2005
Income growth
16
Well contained costs
Underlying *
change %
2004
€m
2005
1,136
Staff costs
1,298
13
578
Other costs
583
-1
145
Depr. & amort.
130
-13
2,011
7
1,859
Operating expenses

“run rate” increase of
+ 5%

Performance compensation
+ 1%

Regulatory / compliance costs
+ 1%
+ 7%

2006 full year forecast
* excludes impact of currency movements
+ 9%
17
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
18
Tier 1 - Components
10%
2004
Tier 1 Core
15%
Non-Innovative
Innovative
75%
Requlations
10%
 Core T(1) must exceed
51% of Total T (1)
2005
14%

Innovative cannot be
>15% of Total Tier (1)
76%
19
Funding
%
100
80
10%
10%
9%
10%
22%
24%
55%
52%
2004
2005
60
40
Capital
Senior Debt
CDs & CPs
Deposits by banks
Customer a/cs
20
0



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.
20
AIB Debt Distribution - April 2006
Debt Distribution
€ (m)
4,000
3,500
Euro 82%
3,000
STG 14%
2,500
US$
4%
2,000
1,500
Step-up issues – adjusted
to earliest step-up date
1,000
500
€ (m)
ACS
Moody’s
al
25
20
20
20
15
20
12
Snr-Priv.Place.
er
pe
tu
Snr-Benchmk
20
11
20
10
20
09
20
08
Tier (ii)
P
Tier (i)
20
20
07
0
S&P
Fitch
Asses Covered Securities
3,500
Aaa
AAA
AAA
Senior Debt - Private Placements
1,903
Aa3
A+
AA-
Senior Debt - Benchmark Issues
4,750
Aa3
A+
AA-
Tier (ii)
3,537
A1
A(Lwr)/A-(Uppr)
A+
Tier (i)
1,710
A2
A-
A+
Total
15,400
21
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
22
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
[email protected]
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
23
Appendix 1
The Irish Economy & Housing Market
24
Republic of Ireland Economic Trends
2000
Population (‘000)
3,506
3,601
3,789
4,131
4,230
Employment (‘000)
1,160
1,282
1,671
1,929
1,989
172
177
75
86
86
12.9
12.2
4.3
4.2
4.2
3.4
2.5
5.6
2.5
3.2
Govt su rplus (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
16.8%
8.5%
11.1%
7.7 %
5.7%
Unemployment (%)
Inflation (%)
GNP per capita (% change)
2006
(f)
1995
Unemployment (‘000)
2005
(e)
1990
25
The Irish Labour Market Has Been Transformed
The Irish Labour Market Has been Transformed
(‘000s)
2,000
(%)
Total Employment ’00S (LHS)
18
1,800
16
1,600
14
1,400
12
1,200
10
1,000
8
800
600
Unemployment Rate % (RHS)
6
4
200
2
0
0
Ap
r92
Ap
r94
Ap
r96
Q
4'
'9
7
Q
2'
98
Q
4
'9
8
Q
2
'9
9
Q
4
'9
9
Q
2
'0
0
Q
4
'0
0
Q
2
'0
1
Q
4
'0
1
Q
2
'0
2
Q
4
'0
2
Q
2
'0
3
Q
4
'0
3
Q
2'
04
Q
4
'0
4
400
26
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
27
Population Growth
Population Age Profile Estimates
(m)
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
0-14
15-24
1996 Census
Source: DOE and ESRI
25-44
2002 Census
45-54
55-64
65+
2010 CSO Projections
28
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20 F
06
F
Rise in Housing Assets
Housing Assets
€ (m)
700
600
500
400
300
200
100
0
29
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
30
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
31
Appendix 2
AIB Trading Update
(released 16th May 2006)
32
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
33
underpins the resilience and potential of our market position.
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
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.
expectations.
Full year loan growth for the division is expected to be over 20% and
deposits are expected to grow by around 15%.
34
AIB Trading Update cont…./
POLAND DIVISION
MARGINS
A year of strong profit growth is expected in Poland.
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.
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.
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%.
35
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.
36