Annual Report & Accounts 2009 - Anglo Irish Bank

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Notes to the financial statements continued 4. Fee and commission income and expense 15 months Year ended ended 31 December 30 September 2009 2008 €m €m Fee and commission income Corporate treasury commissions 61 73 Asset management and related fees 15 28 Financial guarantee fees 12 13 Trust and other fiduciary fees 1 8 Other fees 9 21 98 143 Fee and commission expense (142) (11) 5. Net trading (expense)/income 15 months Year ended ended 31 December 30 September 2009 2008 €m €m 62 Fees which are an integral part of the effective interest rate of a financial instrument are included in net interest income. The Corporate Treasury division provides foreign exchange and interest rate management services to the Bank’s corporate clients. Corporate treasury commissions have reduced in the current financial period due to decreased sales of interest rate derivatives as a result of a reduction in new lending volumes. Asset management and related fees are earned for the sourcing, structuring and on-going management of investments on behalf of clients. The decline in these fees in the current period reflects the significant reduction in new client investment activity and a decrease in the value of assets under management. The decrease in both trust and other fiduciary fees and other fees is primarily due to the disposal of Anglo Irish Bank (Suisse) S.A. in February 2008 and Anglo Irish Bank (Austria) A.G. in December 2008 (note 14). Fee and commission expense includes €134m (30 September 2008: €nil) in relation to the Irish Government guarantee scheme. Further details of the scheme are provided in note 55. Interest rate contracts (251) 24 Foreign exchange contracts (179) (10) Credit contracts 1 (9) Hedge ineffectiveness 2 (1) (427) 4 The Group's corporate lending clients typically enter into interest rate swaps with the Bank to hedge their exposure to rising interest rates. Interest rate contracts include credit fair value losses of €212m (30 September 2008: €nil) relating to these swaps, reflecting the deterioration in corporate counterparty credit quality (note 21). Interest rate contracts also include negative mark-to-market movements of €47m (30 September 2008: €8m) in respect of interest rate swaps entered into in connection with the acquisition of investment assets by the Group’s Private Banking business that have not been allocated to policyholders under investment contracts or sold to Private Banking clients. Included within foreign exchange contracts is the impact of a non-trading Japanese Yen financing arrangement, which was first entered into in May 2008 and ended during December 2008 and January 2009. The financing arrangement was intended to reduce the Group's overall net cost of funding and was structured in a manner which was anticipated to result in no net after tax loss for the Group arising from currency fluctuations. In the six months to 31 March 2009 the arrangement resulted in a pretax loss of €181m but an after tax benefit of €17m. However, due to the significant operating losses incurred by the Group in the nine months to 31 December 2009, €97m of taxation benefit has not been recognised resulting in a pre-tax loss for the fifteen month period to 31 December 2009 of €181m (30 September 2008: €31m) and an after tax cost of €80m (30 September 2008: gain of €6m). The potential benefit of these losses carried forward is a component of unrecognised deferred tax assets in note 35.
6. Financial assets designated at fair value 15 months Year ended ended 31 December 30 September 2009 2008 €m €m Net change in value of financial assets designated at fair value through profit or loss held on own account (53) (128) The net change in value includes negative fair value movements on debt securities of €51m (30 September 2008: €128m) and net losses on equity shares of €2m (30 September 2008: €nil). The charge in the current period primarily relates to negative fair value movements on asset backed securities indirectly linked to residential and commercial mortgage markets and collateralised loan obligations. Market valuations of these securities have been adversely impacted during the period by continued weakening underlying credit fundamentals in certain structured finance investments as well as illiquidity for these assets. The residual carrying value is €76m (30 September 2008: €163m (note 20)). 7. Gains on repurchase of financial liabilities 15 months Year measured at amortised cost ended ended 31 December 30 September 2009 2008 €m €m Gains on repurchases under the Group's liability management exercise ('LME') 1,752 - Gains on other repurchases 6 30 1,758 30 The Group repurchased certain subordinated liabilities in August 2009 as part of its ongoing capital management activities. €1,805m of Tier 1, €307m of Upper Tier 2 and €388m of Lower Tier 2 securities were bought back at prices of 27%, 37% and 55% of par respectively (note 42). The net gain of €1,752m results from consideration paid of €819m extinguishing securities with a carrying value of €2,571m. The gain includes the release of hedge accounting fair value adjustments following termination of the related interest rate swaps. 8. Other operating income 15 months Year ended ended 31 December 30 September 2009 2008 Decrease in value of assets designated at fair value held in respect of liabilities €m €m to customers under investment contracts Decrease in value of liabilities designated at fair value held in respect of liabilities (534) (308) to customers under investment contracts 539 329 Net gains on disposal of available-for-sale financial assets 5 17 Rental income 11 5 Net losses on disposal of trade finance assets (6) - Other - 3 15 46 The decrease in the value of assets held in respect of liabilities to customers under investment contracts in the current period (see note 40) results from the decline in the market values of property and financial assets held on behalf of policyholders, in particular the declines in the market value of UK commercial property and in equity markets. The elimination of negative investment returns on own shares and subordinated liabilities held for the benefit of policyholders gave rise to a credit of €5m (30 September 2008: €28m). The Group recognised gains of €25m on the sale of €0.8bn of government bonds during the period. These capital gains were offset by capital losses of €20m on the disposal of asset backed securities and investments in bank subordinated debt. Anglo Irish Bank Annual Report & Accounts 2009 63
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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
Page 13 and 14: holdings, reduced investment cash f
Page 15 and 16: 30 September 2008. Average total cu
Page 17 and 18: Income statement - treasury impairm
Page 19 and 20: to acquire these assets they are in
Page 21 and 22: Board of Directors Donal O’Connor
Page 23 and 24: In keeping with our environmental p
Page 25 and 26: Principal risks and uncertainties T
Page 27 and 28: Credit risk Credit risk is the risk
Page 30 and 31: Report of the Directors The Directo
Page 32 and 33: Corporate governance statement On 1
Page 34 and 35: Corporate governance statement cont
Page 36 and 37: Independent Auditors' report to the
Page 38 and 39: Consolidated income statement For t
Page 40 and 41: Consolidated statement of financial
Page 42 and 43: Consolidated statement of changes i
Page 44 and 45: Statement of cash flows For the 15
Page 46 and 47: Notes to the financial statements I
Page 48 and 49: Notes to the financial statements c
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Notes to the financial statements c
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Supplementary information Consolida
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www.angloirishbank.com Anglo Irish
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Annual Report & Accounts 2009 - Anglo Irish Bank

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