Annual Report & Accounts 2009 - Anglo Irish Bank

Business review continued
Capital
Losses incurred by the Bank during the period to
31 December 2009 resulted in a significant deterioration
in the Bank’s regulatory capital base. The €8.3 billion
capital contribution from the Bank's Shareholder as at
31 December 2009 was included in the Bank’s regulatory
capital resources at that date. The inclusion of this capital
contribution, which was approved by the Financial Regulator,
restored the Bank's regulatory capital position resulting in a
Tier 1 Capital ratio of 6.6% and a Total Capital ratio of 10.7%
as at 31 December 2009.
On 31 March 2010, the €8.3 billion due from the Shareholder
at year end was settled via receipt of a promissory note. The
principal amount of the note is €8.3 billion and is adjustable
allowing for the Bank to continue to meet its regulatory
capital requirements. Note 58 to the Annual Report provides
further details on the promissory note.
The Bank reported a total capital ratio of 7.8% as at
31 May 2009 in its regulatory returns, a breach of the
minimum requirement at that reporting date. This breach was
temporary as the Minister for Finance, following his
commitment made on 28 May 2009, invested €3 billion of
share capital on 29 June 2009, restoring the Bank’s Total
Capital ratio to above the minimum required. The Minister for
Finance invested a further €1 billion of share capital in two
subsequent tranches: €0.8 billion on 6 August 2009 and
€0.2 billion on 25 September 2009. The €0.8 billion
investment was made following the completion of the LME
undertaken by the Bank on 4 August 2009 where €1.8 billion
of equity was realised on the buyback of subordinated debt
instruments. Further details of the LME are provided in notes
7 and 42 to the Annual Report.
The Bank’s regulatory capital position during the period to
31 December 2009 has benefited from derogations from
certain regulatory capital requirements which were granted on
a temporary basis by the Financial Regulator following
requests from the Bank. These derogations have been granted
in five tranches and full details of all derogations granted are
disclosed in note 53 to the Annual Report. The latest
derogations are applicable until 30 April 2010 or such
shorter period if the Bank’s capital ratios are restored to
a level adequate to enable it to comply with its existing
capital ratio requirements in place prior to the granting of
these derogations.
16
The capital investments and capital contribution made
to date by the Minister for Finance are evidence of the
Shareholder’s stated commitment to ensuring that the Bank
remains adequately capitalised. As indicated in note 24 to the
Annual Report, the Bank expects to transfer €35.6 billion of
loans (gross of specific impairment charges) to NAMA during
2010. While the final determined transfer price may trigger
additional losses and further capital requirements in the short
term, these transfers will significantly reduce the level of risk
weighted assets, easing pressure on the Bank’s overall capital
requirement going forward.
The Chairman’s statement and the Group Chief Executive’s
review contain details on how the Bank aims to manage its
capital base going forward. In addition, note 53 to the
Annual Report provides details on the Bank’s regulatory
capital position as at 31 December 2009.
Private Banking
The Group’s Private Banking business operated against a
backdrop of poor economic conditions and depressed asset
markets throughout the period under review. Income in the
period mainly comprised recurring interest and fee income
with minimal structuring and set up fees in the absence of
new business. Recurring asset under management fees were
lower as a result of declines in the value of client assets under
management. Asset management and related fees have
declined by €13 million from 2008.
Trust and fiduciary fees are earned where the Bank provides
custody, trustee, investment management and advisory
services to third parties, but where the related assets are not
carried on the Group's balance sheet. Following the sale of
the Austrian private banking business in December 2008 these
activities no longer represent a significant revenue stream for
the Private Banking business. The Group realised a profit of
€49 million from this sale which saw the Bank provide the
purchaser with a €24 million long term subordinated loan to
part fund the purchase price of €141 million.
As part of normal business activity the Bank previously
acquired property assets with the intention of placing these
investments with Private Banking clients. However, due
to wider market conditions a lack of investor appetite has
resulted in these assets now being held on the Group’s
balance sheet. Depending on the investment structure used