IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

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Business reviewThis business review covers the year to 31 December 2011 andincludes commentary on key areas of financial and operatingperformance of the Group during that period.On 24 February 2011 the majority of the Bank’s Irish and UKdeposit books, certain National Asset Management Agency(‘NAMA’) bonds and the Bank’s shares in its deposit-taking Isleof Man subsidiary were transferred to Allied Irish Banks, p.l.c.(‘AIB’) and its UK subsidiary AIB Group (UK) p.l.c. (‘AIB UK’)pursuant to a transfer order made by the Irish High Courtunder Section 34 of the Credit Institutions (Stabilisation) Act2010 (‘CISA’) (the ‘AIB Transfer Order’).On 29 June 2011 the European Commission (‘EC’) approved,under EU State aid rules, the joint restructuring and work-outplan for the Bank and Irish Nationwide Building Society (‘INBS’)(the ‘Restructuring Plan’) which had been submitted by theIrish Government to the EC on 31 January 2011. Pursuant tothe Restructuring Plan, the Bank and INBS were to becombined and then resolved over a period of up to ten years.On 1 July 2011 all of the assets and liabilities (with theexception of certain limited excluded liabilities) of INBStransferred to the Bank by way of a further transfer ordermade by the Irish High Court under Section 34 of CISA (the‘INBS Transfer Order’) and on that date the Bank announced itsintention to change its name to Irish Bank ResolutionCorporation Limited (‘IBRC’). This change became effective on14 October 2011.IBRC is a Government-owned banking entity which, inaccordance with the commitments made by the State to theEC, will not be active in new lending or deposit markets. AMonitoring Trustee was approved by the EC on8 December 2011 to report on the Group's adherence to theseRestructuring Plan commitments. The strategic objective of theBank is to work out its assets in an orderly process over aperiod of up to ten years, securing the best outcome for thetaxpayer. IBRC will continue to operate as a regulated entity,bound by the Capital Requirements Directive and thereforesubject to an 8% minimum capital requirement.Financial performanceThe results for the year ended 31 December 2011 includeamounts relating to INBS from 1 July 2011. Further informationrelating to the INBS integration is contained in notes 1 and 2.The Bank reports a loss before taxation for the year of €873m.This loss arises primarily due to net impairment charges of€1,644m, a loss of €214m on the transfer of the majority ofthe Bank’s Irish and UK deposit books, certain NAMA bondsand the Bank’s shares in its deposit-taking Isle of Mansubsidiary to AIB and AIB UK, and a loss of €426m on otherdisposals. These losses were offset to an extent by anoperating profit of €620m and a favourable adjustment of€776m to the cumulative loss on transfer to NAMA. Interestincome on the promissory notes of €1,447m is a keycontributor to operating profit in the year.The transfer of the majority of the Bank’s customer depositspursuant to the AIB Transfer Order increased the Bank’sreliance on central bank and monetary authority supportmechanisms for funding. This represented 87% of totalfunding (€42.2bn) at 31 December 2011 (2010: 70%,€45.0bn), with €40.1bn borrowed under special fundingfacilities (2010: €28.1bn).Total assets at 31 December 2011 amounted to €55.5bn, adecrease of €17.4bn or 24% on a constant currency basis.These reductions demonstrate the Bank’s commitment todeleverage the balance sheet in line with the objective ofminimising losses for the taxpayer. The principal drivers of thisreduction were the transfer of NAMA senior bonds to AIBpursuant to the AIB Transfer Order, the sale of the majority ofthe US loan book, the ongoing deleveraging of the loanportfolio and receipt from the Minister for Finance, the Bank’ssole shareholder, of the first scheduled annual payment on thepromissory note. The Government promissory notes represent54% of the Bank’s total assets as at 31 December 2011.Gross customer lending at 31 December 2011 totals €29.1bn 1 .Impaired loans amount to €17.8bn, with cumulativeimpairment provisions of €10.4bn. During the year, the Bankrecognised a specific lending impairment charge of €2.1bn,driven primarily by the continued significant decline in prices inboth residential and commercial markets in Ireland and the UK,offset by a release of €0.6bn of the collective impairmentprovision.Total capital support provided by the Minister for Financeremains at €29.3bn. The Total capital ratio at31 December 2011 is 16.3% with a Core Tier 1 ratio of 15.1%.Customer lending and asset qualityThe Bank’s primary focus remains the orderly work-out of theloan book and the achievement of maximum recovery in theinterest of the Bank, the Shareholder and the Irish taxpayer.The Bank is required to report to the Department of Finance ona monthly basis on the progress in respect of these objectives.Total lendingAnalysis of customer lending 1Held for saleLoans and advancesto customers2011 2010 2011 2010€m €m €m €mIreland 102 862 19,157 16,198UK - 618 8,977 10,849US 277 723 618 7,643Total 379 2,203 28,752 34,690Provisions for impairment (103) (565) (10,339) (9,577)Customer lending net of impairment 276 1,638 18,413 25,113Provisions as a % of loan balances 27% 26% 36% 28%8
Business review continuedIrish Bank Resolution Corporation LimitedAnnual Report & Accounts 2011Gross loan balances of €2.9bn along with cumulativeprovisions of €1.0bn transferred to the Bank on 1 July 2011under the INBS Transfer Order. These balances includedresidential mortgages of €1.9bn with cumulative provisions of€0.4bn.Gross customer lending balances, which declined during theyear by €10.8bn or 29% (excluding INBS additions), total€29.1bn 1 at 31 December 2011, of which €28.8bn or 99%relate to loans and advances to customers while the remaining1% are classified as held for sale. Held for sale loan balancescomprise those remaining US loans of €0.3bn for which a salesprocess is being actively pursued and €0.1bn of gross loanswhich at 31 December 2011 were expected to transfer toNAMA. There remains €0.6bn of US loans classified as loansand advances to customers which could not be sold due totransfer restrictions and which are likely to be held untilrepayment, refinancing or an unrestricted ability to sell isachieved. At 31 December 2011 the Bank’s Ireland divisionaccounts for 66% of total lending with the UK and US divisionsaccounting for 31% and 3% respectively.The reduction in the loan book has been primarily driven bydisposals and repayments in the US (€7.0bn) and the UK(€1.9bn) as the Bank continues to focus on deleveraging itslending portfolio. The UK and Irish markets remain stressedand deleveraging of the portfolio at acceptable prices remainschallenging.During 2011 the Bank successfully completed the deleveragingof the majority of its US loan book. This process involvedindividual loan sales earlier in the year combined with the bulksale of US loans which was completed in a number of tranchesduring the final quarter of the year. The bulk loan sale was thelargest transaction in the US commercial real estate market in2011, with the three counterparties purchasing €5.8bn ofgross assets following a competitive bidding process.The gross assets, for which the Bank received €4.4bn ofproceeds, had a carrying value of €4.8bn and included loansand swaps together with a number of foreclosed real estateassets. The overall loss on disposal totalled €406m. Thedisposal resulted in a significant reduction in the Group’s riskweighted assets and was broadly neutral from a regulatorycapital perspective.Lending asset qualityGrading analysis 1 2011 2010Loans and Heldadvances to forcustomers sale Total Total€m €m €m % €m %Good quality 4,397 7 4,404 15% 7,627 20%Satisfactory quality 240 65 305 1% 1,035 3%Lower quality but not past due or impaired 3,610 - 3,610 12% 4,778 13%Total neither past due or impaired 8,247 72 8,319 28% 13,440 36%Past due but not impaired 3,023 31 3,054 11% 5,910 16%Impaired loans 17,482 276 17,758 61% 17,543 48%28,752 379 29,131 100% 36,893 100%Provisions for impairment (10,339) (103) (10,442) (10,142)Total 18,413 276 18,689 26,751Uncertainty within the markets continues to adversely affectthe Bank’s loan book across all sectors and locations. Whilstthere had been some improvement in the UK and US, thecontinuing weakness of the Irish economy and weaker trendsin some parts of the UK in the second half of 2011 has seen anincrease in the proportion of the overall loan book that isdeemed ‘at risk’ by management. This includes those loansthat are considered to be impaired, past due but not impairedand lower quality. At 31 December 2011, 84% of loans areclassified as ‘at risk’ (2010: 77%).Impaired loans at 31 December 2011 total €17.8bn(2010: €17.5bn), and represent 61% of the total loan bookversus 48% at 31 December 2010. Ireland continues to be theworst performing region with 65% of the portfolio impairedand specific provisions totalling 41% of gross loans. In the UKand US 55% and 25% respectively of the portfolios areimpaired.The amount of loans classified as past due but not impaireddeclined to €3.1bn at 31 December 2011 from €5.9bn at31 December 2010. The decrease primarily reflects thedownward migration of loan balances to impaired status.Ireland accounts for €2.2bn (71%) of the total past due butnot impaired amount, the UK €0.9bn (28%) and the US €24m(1%).The level of loans past due and outstanding for more than 90days, which represents the highest risk element of past due,has decreased from €3.2bn at 31 December 2010 to €2.2bn,but as a proportion of the overall past due figure has increasedto 71% at 31 December 2011 (2010: 55%). A full agedanalysis is included within note 50 to the financial statements.Lower quality but not past due or impaired loans at31 December 2011 totalled €3.6bn or 12% of gross lendingassets. Although currently not past due or impaired, theserepresent loans which management deem to have a higher riskof deterioration.Lending assets deemed to be good quality by managementtotal €4.4bn at 31 December 2011, representing 15% of totalgross lending assets.9
Page 1 and 2: Irish Bank Resolution Corporation L
Page 3 and 4: ContentsIrish Bank Resolution Corpo
Page 5 and 6: Chairman’s statementIrish Bank Re
Page 7 and 8: Group Chief Executive’s reviewIri
Page 9: Group Chief Executive’s review co
Page 13 and 14: Business review continuedIrish Bank
Page 15 and 16: Business review continuedIrish Bank
Page 17 and 18: Board of DirectorsIrish Bank Resolu
Page 19 and 20: Corporate Responsibility continuedI
Page 21 and 22: Principal risks and uncertainties c
Page 23 and 24: Principal risks and uncertainties c
Page 25 and 26: Report of the DirectorsIrish Bank R
Page 27 and 28: Corporate governance statementIrish
Page 29 and 30: Corporate governance statement cont
Page 31 and 32: Corporate governance statement cont
Page 33 and 34: OpinionIn our opinion:• the Group
Page 35 and 36: Consolidated statement of comprehen
Page 37 and 38: Bank statement of financial positio
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Irish Bank ResolutionCorporation Li
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IBRC annual report for 2011 - Irish Bank Resolution Corporation ...

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