Bank of Ireland Presentation

Transcription

1 As at 26 April 2012 Bank of Ireland Presentation May 2012

2 Forward-looking statement This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934 with respect to certain of the Bank of Ireland Group s (the Group ) plans and its current goals and expectations relating to its future financial condition and performance, the markets in which it operates, and its future capital requirements. These forward looking statements can be identified by the fact that they do not relate only to historical or current facts. Generally, but not always, words such as may, could, should, will, expect, intend, estimate, anticipate, assume, believe, plan, seek, continue, target, goal, would, or their negative variations or similar expressions identify forward looking statements. Examples of forward looking statements include among others, statements regarding the Group s near term and longer term future capital requirements and ratios, level of ownership of the Irish Government, loan to deposit ratios, expected impairment charges, the level of the Group s assets, the Group s financial position, future income, business strategy, projected costs, margins, future payment of dividends, the implementation of changes in respect of certain of the Group s defined benefit pension schemes, estimates of capital expenditures, discussions with Irish, UK, European and other regulators and plans and objectives for future operations. Such forward looking statements are inherently subject to risks and uncertainties, and hence actual results may differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include, but are not limited to, the following: concerns on sovereign debt and financial uncertainties in the EU and in member countries and the potential effects of those uncertainties on the Group; general economic conditions in Ireland, the United Kingdom and the other markets in which the Group operates; the ability of the Group to generate additional liquidity and capital as required; the effects of the 2011 PCAR and the deleveraging reviews conducted by the Central Bank; property market conditions in Ireland and the UK; the potential exposure of the Group to various types of market risks, such as interest rate risk, foreign exchange rate risk, credit risk and commodity price risk; the implementation of the Irish Government s austerity measures relating to the financial support package from the EU/IMF; the availability of customer deposits to fund the Group s loan portfolio; the outcome of the Group s participation in the ELG Scheme; the performance and volatility of international capital markets; the effects of the Irish Government s stockholding in the Group (through the NPRFC) and possible increases in the level of such stockholding; the impact of further downgrades in the Group s and the Irish Government s credit rating; changes in the Irish banking system; changes in applicable laws, regulations and taxes in jurisdictions in which the Group operates particularly banking regulation by the Irish Government the outcome of any legal claims brought against the Group by third parties; development and implementation of the Group s strategy, including the Group s deleveraging plan, competition for customer deposits and the Group s ability to achieve estimated net interest margins and cost reductions; and the Group s ability to address information technology issues. Nothing in this document should be considered to be a forecast of future profitability or financial position and none of the information in this document is or is intended to be a profit forecast or profit estimate. Any forward looking statements speak only as at the date they are made. 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. The reader should however, consult any additional disclosures that the Group has made or may make in documents filed or submitted or may file or submit to the US Securities and Exchange Commission. Disclaimer: This presentation, together with any verbal briefings or discussions, comprises materials (the Materials ) provided by Bank of Ireland by way of general update to customers and prospective customers of Bank of Ireland (the Purpose ) and is not an invitation or inducement to engage in any investment activity. The Materials are only to be used for the Purpose. While reasonable care has been taken in the collation of the Materials, they are for information only. Bank of Ireland accepts no responsibility for reliance thereon. You should take independent appropriate advice in respect of any decisions made with respect to the Materials. This document has been provided only for the use by the direct recipient of the document from Bank of Ireland and is not to be transmitted or distributed in whole or in part to any other person. Information speaks only as of its date and the Bank of Ireland makes no undertaking to update any of the information contained herein. No offer of any securities is made pursuant to this document. This document is not a prospectus for the purpose of Directive 2003/71/EC and no reliance should be placed upon this document for the purposes of making any investment decision in respect of securities which may be issued by Bank of Ireland from time to time. The Governor and Company of the Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, The Governor and Company of the Bank of Ireland is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Services Authority. Details about the extent of our authorisation and regulation by the Financial Services Authority are available from us on request. The Governor and Company of the Bank of Ireland is incorporated in Ireland with limited liability. Registered Office - 40 Mespil Road, Dublin 4, Ireland. Registered Number C-1. 2

3 Ireland Overview

4 Ireland sees market confidence return Market confidence returns Irish 2yr and 10yr bond yields have tightened sharply from Summer 2011 highs In January 2012, Ireland successfully swapped bonds due in 2014 for new bonds with a 2015 maturity First sign that Ireland may soon be able to return to the new issue market EU actions that benefit Ireland Introduction of ECB 3 year LTRO Removal of Private Sector Involvement (PSI) from the European Stability Mechanism (ESM) ECB cut in interest rates Financing available for Irish State Reduction in interest rate on loans from European Financial Stability Facility (EFSF) & ESM 4

5 Irish economy Ireland s return to growth GDP increased by 0.7% in 2011 led by exports, representing the first year of growth since 2007 Ireland is forecast to grow again by 0.5% 1 in 2012, the only peripheral country to grow in both years Current account back in surplus in 2010 and 2011 in contrast to other peripheral countries Domestic demand remains weak Consumer confidence remains poor Unemployment rate of 14.3% but below peak of 14.6% Property prices down 49% from peak in 2007 Achievements to date Fiscal consolidation targets met Underlying Government deficit declining 9.4% of GDP for 2011 vs 10.6% Troika target EU/IMF Programme implementation continues 2011 bank recapitalisation completed at a lower cost than expected ( 16.5bn vs 24bn) No material funding requirement until 2014 Economy returned to growth despite austerity Austerity measures of c.15% of GDP implemented since Reuters consensus 5

6 Underlying strengths remain Fundamentals of Irish economy Very open economy Exports forecast to be c.110% of GDP in 2012 (vs EU average of c.45% 1 ) Substantial gains in competitiveness Unit labour costs reduced by c.12% since 2009, forecast to improve by c.20% relative to Euro Area ( ). Only country in the EU to see a fall in unit labour costs in Commercial rents reduced by c.50% 3 since 2007 Favourable demographics by international standards Median age , youngest in the EU Strong fundamentals continue to attract Foreign Direct Investment (FDI) - Record number of IDA investments won in 2011, 148 secured International recognition IBM Global Location Trends Report -1st in world in terms of value of investment projects attracted World Bank s Ease of Doing Business Index th in world, highest ranked EA country, 3rd highest ranked country in the EU Ernst & Young s Globalisation Index most globalised nation in the western world PayPal announced 1,000 jobs in New International Operations Centre Feb 2012 IDA welcomes Allergan Pharmaceuticals Ireland s $350 million expansion Jan 2012 Dell announces Cloud and Technology Solutions Investments in Ireland June 2011 Source: IDA Ireland IDA Ireland welcomes Intel s $500m upgrade of Leixlip plant Jan 2011 Lilly to invest 330m in New Biopharmaceutical Facility in Cork Feb 2012 Twitter to establish international office in Ireland September 2011 LinkedIn to create 100 new jobs in Dublin Mar EU Commission Autumn Forecasts &4 Eurostat 2012 & Lisney Indices D

7 Bank of Ireland Group Overview

8 Bank of Ireland Overview Pillar bank, systemically important retail & commercial bank in the Irish Banking sector playing a critical role in the operation of the Irish economy Product Irish Market Shares 1 Current Accounts: Extensive network in Ireland over one million customers, c.250 full service branches, largest ATM network - Personal - Business 35% 36% Leading market positions in Ireland no.1 or no.2 in all our principal product and market segments - Multi National Corporation (MNC) >50% Mortgages 20% Credit Cards 34% Business Loan Accounts 35% Life and Pension 21% Broad product offering Consumer, Private Banking, Business, Corporate Banking, Treasury, Savings/Pension/Life assurance distribution Successful joint venture with UK Post Office circa one and a half million depositors International presence In core niche Corporate Banking segments Deposit & treasury services in UK & US 1 Latest data available 8

9 Substantial progress made to date Capital Loans 1 Deposits Core Tier 1 Ratio 15.1% 144bn 29% 91bn EBA/PCAR Stress Test Basis 9.7% 14.3% 114bn 102bn 65bn 8% 71bn 6.3% Sept 2008 Dec 2010 Dec 2011 Bank fully recapitalised as per 2011 PCAR requirements Adequacy of Group capital position confirmed under severe stressed scenario - EBA Stress Test, July 2011 At end Mar 2012, Core tier 1 ratio in line with Dec 2011 levels Sept 2008 Dec 2010 Dec % of three year 10bn asset divestment target contracted/completed to date Loans and advances reduced by a further 3% to 99bn at end Mar 2012 Further c. 9bn to reach Group s target of c. 90bn by Dec 2014 Sept 2008 Dec 2010 Dec 2011 At end Mar 2012, deposits stood at 70bn Group loan to deposit ratio down to 142% Mar 2012 from 144% Dec 2011 Further c. 5bn - c. 10bn to reach Group s target by Dec Net of impairment provisions 9

10 Strongly capitalised bank Bank of Ireland ownership structure Private Stockholders 85% State 15% Including: existing stockholders; former bondholders; and new investors Strongly capitalised - Core Tier 1 ratio of 15.1% at Dec 2011 Significant private equity investment in 2011 Fairfax Financial Holdings, WL Ross, Capital Research and Management Company, Fidelity Investments and Kennedy Wilson Government shareholding - reduced to 15% bn Average covered liabilities & Average fees payable 1.03% 1.03% 1.20% 1.00% Assets - back book repricing, muted demand impacting new lending Liabilities - strategy to proactively reduce deposit pricing bn 69bn 23bn 0.80% 0.60% Operating Costs - the Group maintains a rigorous focus on cost management bn 0.14% 0.50% 46bn 44bn 18bn 26bn 0.40% 0.20% Impairments - charges peaked in 2009 but remain elevated in 2010 and ROI mortgage arrears have not yet peaked, Irish property values remain uncertain 0 Dec 2009 Dec 2010 Dec 2011 Deposits Wholesale Funding 0.00% Average Fees Eligible Liabilities Guarantee (ELG) - total fees payable of 449m in Strategy to continue to reduce ELG covered liabilities 10

11 Asset profile at Dec 2011 Profile of total loans and advances to customers 102bn (Net of impairment provisions) 17bn 25bn 3bn 27bn 30bn ROI Mortgages UK Mortgages Non-property corporate & SME Property & Construction Consumer Loan book reduced by 12bn between Dec 10 and Dec 11 through : Loan portfolio divestments Loan repayments Subdued demand for new lending Loans and advances reduced by a further 3% to 99bn at end Mar 2012 Asset transfers to NAMA completed in 2011 Geographic profile of total loans and advances to customers Dec 2011 (Net of impairment provisions) AFS and NAMA Senior Bonds Portfolio, Dec 2011 Liquid asset securities of 15.3bn 48% Republic of Ireland Rest of World No sovereign exposure to Greece, Spain or Portugal Less than 30m sovereign exposure to Italy NAMA target to repay 25% of senior bonds by end % All securities eligible for Monetary Authority operations 11

12 Irish Residential Mortgage Book Irish Residential Mortgage book Dec 2011 PCAR/PLAR economic assumptions (CBI) Retail Ireland Owner Occupier Buy to Let Total Base 2011 Stress 2011 Current Total mortgages (gross) m 20,863 6,991 27,854 GDP 0.9% -1.6% 0.7% (2011) Neither past due nor impaired 88% 77% 85% GNP -1.5% -2.6% -2.5% (2011) Negative Equity m 2,474 1,241 3,715 Unemployment Rate 13.4% 14.9% 14.4% (ave 11) Weighted average indexed LTV 100% 118% 105% Employment -0.8% -2.5% -2.1% (ave 11) Coverage ratio impairment provisions as % of loans >90 days past due and/or impaired 31.8% 45.9% 37.9% Interest Rates House Prices (PTT) 1% -55% 1% -58.5% 1% -49% (Mar 12) Arrears >90 days past due and/or impaired - BOI (no. of cases) - Industry (no. of cases) Restructuring arrangements m 5.6% 9.2% 1, % % - 1,819 Commercial Property Inflation -HICP -CPI -2.5% 0.4% 0.9% -22% 0.1% 0.7% -11.4% (Q4 11 y-o-y) 1.1%(2011) 2.6%(2011) BOI Irish Residential Mortgage book Negative equity insignificant correlation between negative equity and arrears. Unemployment remains the key driver of arrears and provisioning 79% of negative equity neither past due or impaired Capitalisation of arrears Group does not capitalise arrears even after restructuring PCAR house price peak to trough assumption 55% Interest Only 82% of the mortgage book paying principal and interest Restructuring arrangements all paying a minimum of Interest Only Personal Insolvency Bill Targeted to deal with unsustainable debt but provides a mechanism to ensure debt is proactively managed and pursued New mechanism for non-judicial debt settlement Personal Insolvency Arrangement (PIA) for the agreed settlement of both secured & unsecured debt over 20k fairness is a key objective, debtors who can afford to pay do pay and efficient and effective arrangements for ensuring those who cannot pay now fully are given a clear and coherent path forward that is consistent with affordability and sustainability Patrick Honohan, Governor of the Central Bank of Ireland, 14 March

13 ROI Owner Occupied Mortgages: 21bn 1 Loans greater than 90 days past due Dec 09 Dec 10 Dec 11 Industry* Loan Volume 451bps 739bps 1,229bps No. of Cases 361bps 566bps 922bps Bank of Ireland Loan Volume 327bps 484bps 740bps No. of Cases 261bps 376bps 560bps * Source: Central Bank of Ireland Restructuring Arrangements Owner occupied mortgages that have been restructured amount to 1.2bn at Dec 11 of which 0.2bn were > 90 days past due and/or impaired Restructured mortgages are paying at least full interest Sustainable solutions to support customers in financial difficulty Impairment Charges & Provisions Dec 09 Dec 10 Dec 11 Impairment charge 101m 176m 2 182m Impairment charge (bps) 54bps 85bps 2 88bps Impairment Provision stock 129m 307m 489m Coverage Ratio 3 19% 31% 32% Properties in possession Of the total negative equity of 2.5bn, 82% or 2.0bn is in the book that is neither past due nor impaired 1 Before impairment provisions of 489m 2 Dec 10 reflects the impact of increasing the peak to trough house price decline assumption from 45% to 55% which increased the Dec 10 charge by approximately 40m 3 Impairment provisions as a % of impaired loans together with loans where arrears are greater than 90 days past due 4 Property values are determined by reference to the original or latest property valuations held, indexed to the Residential Price Index published by the Central Statistics Office 13

14 ROI Buy to Let Mortgages: 7bn 1 Loans greater than 90 days past due Dec 09 Dec 10 Dec 11 Bank of Ireland Loan Volume 568bps 938bps 1,681bps No. of Cases 340bps 591bps 1,076bps Restructuring Arrangements Buy to let mortgages that have been restructured amount to 0.6bn at Dec 11 of which 0.1bn were > 90 days past due and/or impaired Restructured mortgages are paying at least full interest Sustainable solutions to support customers in financial difficulty Impairment Charges & Provisions Dec 09 Dec 10 Dec 11 Impairment charge 92m 165m 2 262m Impairment charge (bps) 103bps 236bps 2 374bps Impairment Provision stock 115m 268m 537m Coverage Ratio 3 27% 40% 46% Properties in Possession Of the total negative equity of 1.2bn, 72% or 0.9bn is in the book that is neither past due nor impaired 1 Before impairment provisions of 537m 2 Dec 10 reflects the impact of increasing the peak to trough house price decline assumption from 45% to 55% which increased the Dec 10 charge by approximately 60m 3 Impairment provisions as a % of impaired loans together with loans where arrears are greater than 90 days past due 4 Property values are determined by reference to the original or latest property valuations held, indexed to the Residential Price Index published by the Central Statistics Office 14

15 Funding position strengthened Customer deposits 65bn 35bn 71bn 36bn Deposit profile is highly granular and retail oriented Loan to deposit ratio of 144% at Dec 11, further reduced to 142% at end Mar bn 21bn 8bn 27bn 8bn Retail Ireland Retail UK Corporate & Treasury Other Post Office JV exceeded expectations with growth of 5bn in 2011; total book is now 16bn Key challenge for 2012 is to lower deposit pricing while reducing the quantum of deposits covered by ELG Dec 2010 Dec 2011 Wholesale Funding Profile 70bn Significant reduction from peak wholesale funding requirement of 85bn in Sept Targeted to fall to 25bn 30bn by end bn 51bn At end Mar 2012, wholesale funding stood at 50bn 20bn 23bn Reduction in wholesale funding is driven by asset deleveraging, growth in deposits and recapitalisation proceeds 17bn 17bn 11bn Dec 2010 Dec 2011 Monetary Authorities Private Secured Private Unsecured Exceptional liquidity facilities from the Central Bank were nil at end Dec 11 ( 8bn at Dec 10) Group raised 4.2bn of unguaranteed secured term funding backed by UK residential mortgage assets during

16 Group s funding strategy % Proportion of Retail deposits has increased The Group aims to fund loan portfolios substantially through sticky deposits and term wholesale funding. Non - core portfolios will gradually delever 95% of the 3 year divestment target of 10bn has been completed/contracted to date Sept-08 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Retail Deposits Corporate Deposits Extension of maturity profile of Wholesale Funding 90 85bn 80 78bn 70 70bn 60 61bn 61bn 58bn 51bn % Continue to extend wholesale funding maturity profile 28bn or 55% of wholesale funding had a remaining term of >1 year to maturity at Dec 11 v 32% at Dec 2010 Participation in the ECB s LTRO in December 2011 ( 7.5bn) and February 2012 ( 4.8bn) enabled Group to lengthen of tenure of wholesale funding Target a loan to deposit ratio of <120% by Dec % 29% 32% 41% 32% 31% Low unsecured refinancing requirements in 2012 of 2.7bn & in 2013 of 2.6bn Sept-07 Sept-08 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Total wholesale funding Term funding ratio 1 Mortgage loans are available as collateral for term wholesale funding 1 Wholesale funding with a remaining term to maturity of greater than one year 16

17 Strengthening the Balance Sheet Significant progress on key priorities in 2011 Capital Asset Deleveraging Deposits Wholesale Funding Efficiency / Costs EU Plan Key challenges Profitability Operating Income Impairment charges 2011 PCAR requirements fully met - substantially provided by private sector 86% of the bn divestment target achieved; well below PCAR base case assumption discounts Redemptions are in line with expectations 8bn of deposits gathered since July 2011 Loan to Deposit Ratio reduced from 175% (Dec 10) to 144% (Dec 11) Wholesale funding reduced by 19bn or 27% 4.2bn of secured term funding raised during refinancing requirements are very manageable Significant infrastructural changes and investment being delivered good progress on targets Overall costs down 8% in 2011, staff numbers down 7% Revised EU Plan approved in December strategic shape of the Group reconfirmed Loss before tax of 190m for 2011, compared to a loss of 950m for 2010 Underlying loss before tax in 2011 of 1.5bn compared to 3.5bn for 2010; prior year included NAMA related losses 2.5bn Operating income has reduced significantly due to: Lower interest rates for longer Intense competition for deposits in the Irish market High wholesale funding costs Cost of the ELG guarantee Average ELG covered down 25bn in 2011 Impairment charges peaked but remain elevated due to: Weak economic recovery with recent consensus revisions to growth forecasts Illiquidity and value uncertainty in Irish property markets Irish mortgage arrears did not peak in 2011 Priority For

18 Remain focused on targets Measure Dec 2010 Dec 2011 Target Loans and advances to customers (net of provisions) 114bn 102bn c. 90bn Balance Sheet Related Group loan / deposit ratio 175% 144% < 120% Capital -Core Tier 1 Capital -PCAR/EBA Stress Test Basis Guarantee Fees ELG/CIFS Covered Liabilities (avg.) ELG/CIFS Fees 9.7% - 69bn 343m 15.1% 14.3% 44bn 449m Margin maintained over regulatory minimum Fully disengaged from ELG scheme for new issuance/rollovers Net interest margin 1.46% 1.33% > 2.0% Income Related Cost/income ratio 63% 79% < 50% Impairment Charge 1.9bn 1.9bn 55bps-65bps 1 We remain focused on achieving all our targets. We are on track to meet our balance sheet restructuring and cost reduction targets. Our core franchises are intact and offer opportunity The timing and pace by which we achieve our income related targets is dependent on the pace of economic recovery, the trajectory of interest rates and the success of initiatives which we are pursuing to manage our credit risks and reduce our funding costs Re-building profitability is a key focus for Impairment charge as a % of average annual loans and advances to customers D

19 Asset Covered Securities (ACS)

20 Key Strengths of Irish Covered Bonds ACS Residential Mortgage Asset Covered Securities (ACS) remain a key element of our long term funding strategy Specialist Bank Principle Bank of Ireland Mortgage Bank Robust collateral restrictions Coverpool MtM on regular basis Strong over-collateralisation Monthly External Reporting Role of Sovereign defined Unlimited company status with recourse to assets of issuing entity Coverpool assets ring fenced on balance sheet Coverpool is 100% prime Irish residential mortgages LTV limits of 75% for liquidity purposes National CSO House Price Index updated monthly Requirement to incorporate changes quarterly, monitored externally Both legislative and contractual commitments on a MtM basis Covered Asset Monitor ensures compliance on Coverpool obligations NTMA pre-defined manager of Coverpool as a last resort BOIMB ACS Coverpool Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Total property valuation ( bn) Total Mortgage Balance ( bn) Weighted average indexed LTV 89.4% 88.9% 87.9% 100.3% 105.2% Amount in arrears ( m) Prudent Market Value of Mortgages ( bn) Qualified Substitution Assets ( bn) Eligible Coverpool Assets ( bn) Bonds issued ( bn) Legislative Overcollateralisation (min 5%) 6% 6% 6% 11% 8% 20

21 Bank of Ireland ACS Residential ACS Pfandbriefe Cedulas Italian OBG Valuation of Collateral Prudent Market Value incorporating movements in national Central Statistics Office House Price Index. Requirement to incorporate index at least quarterly Prudent assessment by appraiser every 3 years Market value by appraisers or issuer with frequency not defined Market value with no specified valuation methodology External Monitoring Independently regulated Covered Asset Monitor ensures on-going compliance with Coverpool obligations Similar to ACS Issuer reports to Bank of Spain, no defined frequency Semi annual independent asset monitor reviews Minimum OC Requirements 5% on a Prudent Market Value basis, incorporating falls in Irish House Price Index 2% on NPV basis 25% Nominal None ALM Requirements Strict controls on weighted average duration of assets vs. liabilities, interest receivable vs. interest expense, interest rate risks and cross currency risks Similar to ACS plus liquidity coverage of 180 days Only requirement is OC of 25%, but calculation based on eligible assets Interest receivables must be greater than interest expense Role of State in insolvency NTMA to source or alternatively act as manager of Coverpool post insolvency BaFin appoints Coverpool administrator No sovereign involvement No sovereign involvement D