Annual Report & Accounts 2009 - Anglo Irish Bank

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Notes to the financial statements continued 52. Financial instruments continued 134 Net trading (expense)/income includes a gain of €2m (30 September 2008: charge of €4m) in respect of changes in the value of financial liabilities designated at fair value through profit or loss. The gain/charge is largely offset by corresponding negative/positive changes in the value of matching derivative instruments. The portion of the change in value that is attributable to changes in credit risk is €nil (30 September 2008: €nil). Fair value of financial assets and financial liabilities The following table represents the carrying amount and the fair value of the Group's financial assets and financial liabilities at the period end. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. The concept of fair value assumes realisation of financial instruments by way of a sale. However, in many cases, particularly in respect of loans and advances to customers, the Group intends to realise assets through collection over time. Readers of these financial statements are therefore advised to use caution when using this data to evaluate the Group's financial position. The Group Financial assets 31 December 2009 30 September 2008 Carrying Fair Carrying Fair amount value amount value €m €m €m €m Cash and balances with central banks 302 302 1,822 1,822 Financial assets at fair value through profit or loss - held on own account - held in respect of liabilities to customers under 118 118 233 233 investment contracts 244 244 469 469 Derivative financial instruments 2,483 2,483 1,995 1,995 Loans and advances to banks 7,360 7,365 14,002 13,967 Assets classified as held for sale * 25,892 25,330 - - Available-for-sale financial assets 7,890 7,890 8,158 8,158 Loans and advances to customers 30,852 28,558 72,151 70,873 Financial liabilities Deposits from banks 32,971 32,991 20,453 20,271 Customer accounts 27,214 27,377 51,499 51,554 Derivative financial instruments 2,669 2,669 1,490 1,490 Debt securities in issue 15,148 14,414 17,280 16,558 Liabilities to customers under investment contracts 383 383 1,191 1,191 Subordinated liabilities and other capital instruments 2,383 680 4,948 2,736 * Excludes non-financial assets of €12m at 30 September 2008. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm's length transaction. The Group has estimated fair value wherever possible using quoted prices from active markets. The fair value of liquid financial assets has been determined using bid prices, while offer prices have been used to determine the fair value of financial liabilities. For illiquid financial assets and liabilities, including loans and advances to customers, there are, by definition, no active markets. Accordingly, fair value has been estimated using appropriate valuation techniques. The methods used to determine the fair value of items not carried at fair value are as follows:
Cash and balances with central banks The fair value of cash and balances with central banks is their carrying amount as these balances may be withdrawn without notice. Loans and advances to banks The fair value of overnight placements is their carrying amount. The fair value of other loans and advances to banks is calculated by discounting expected cash flows using current market rates for placements with similar credit profiles and remaining maturities. In many cases, the carrying value is a close representation of fair value due to short term maturity profiles. Assets classified as held for sale Loans which are expected to be transferred from the Group to NAMA are classified as held for sale and are carried in the statement of financial position on the same basis as prior to their reclassification from loans and advances. These loans continue to be carried at amortised cost less provisions for impairment. Derivatives associated with loans classified as held for sale are carried at fair value. The Minister in a statement of 16 September 2009 indicated that an average industry wide discount of 30% will apply to loans transferring to NAMA. The Bank has no control over the valuation of assets transferring to NAMA. These will be determined based on the methodology outlined in the NAMA Act and the associated regulations. The fair value presented in the table in respect of loans is based on a discount of 30% to gross value. Loans and advances to customers The estimation of fair values of loans and advances is inherently uncertain, dependent upon many unobservable factors and requires the exercise of considerable subjective judgement by management. Market conditions at 31 December 2009, particularly the lack of liquidity in the Irish commercial property market and the increased significance of counterparty credit considerations, have contributed to the uncertainty when estimating the fair values of loans and advances. The estimated fair value of loans and advances carried at amortised cost at 31 December 2009 includes an adjustment to reflect the Group's assessment of credit factors that market participants would consider in valuing such assets. Readers are advised that the Group intends to realise assets through collection over time rather than by way of sale and that the estimated fair values provided would be subject to change depending on the exact circumstances of a particular sale scenario. Deposits from banks and customer accounts The fair value of deposit liabilities repayable on demand is their carrying amount. The fair value of other deposits is calculated by discounting expected cash flows using market interest rates or rates currently offered by the Group. Debt securities in issue The fair value of short term debt securities in issue is calculated using discounted cash flows. The fair value of medium term debt securities in issue is their quoted market value at period end, where available. Where quoted market values are unavailable, the fair value is determined taking into consideration the market value of similar quoted securities. Subordinated liabilities and other capital instruments The fair values of subordinated liabilities and other capital instruments are their indicative market levels. Anglo Irish Bank Annual Report & Accounts 2009 135
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Annual Report & Accounts 2009
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Contents Page Chairman’s statemen
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Legacy matters The Bank is continui
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Jim Brydie was appointed Head of Gr
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Business review This business revie
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Divisional lending balances by sect
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holdings, reduced investment cash f
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30 September 2008. Average total cu
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Income statement - treasury impairm
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to acquire these assets they are in
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Board of Directors Donal O’Connor
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In keeping with our environmental p
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Principal risks and uncertainties T
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Credit risk Credit risk is the risk
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Report of the Directors The Directo
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Corporate governance statement On 1
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Corporate governance statement cont
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Independent Auditors' report to the
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Consolidated income statement For t
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Consolidated statement of financial
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Consolidated statement of changes i
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Statement of cash flows For the 15
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Notes to the financial statements I
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Notes to the financial statements c
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Page 180: www.angloirishbank.com Anglo Irish
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