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

Business review continuedof the Bank’s Wealth Management business and (iii) the Bank’sacquisition of/merger with INBS. The Bank was also required toprepare, in conjunction with INBS and the NTMA, a high levelrestructuring and work-out steps plan, based on theRestructuring Plan (the ‘High Level Steps Plan’) and, subject tothe approval of the NTMA, implement that High Level StepsPlan, subject to any variations directed by the EC. The Bank isproceeding with the implementation of the High Level StepsPlan, following its approval by the NTMA on 20 June 2011,and is required to report to the Department of Finance on amonthly basis on the progress against the forecasts agreed inthe High Level Steps Plan. A number of commitments werealso made to the EC as part of the Restructuring Plan inrelation to the State aid provided to the Bank. A MonitoringTrustee was approved by the EC on 8 December 2011 toreport on a quarterly basis for a period of three years on theGroup's adherence to these Restructuring Plan commitments.The Bank’s branches in Vienna and Jersey closed in June 2011and the Dusseldorf branch closed in August 2011. The assetsand liabilities of INBS (subject to certain limited excludedliabilities) transferred to the Bank under the INBS TransferOrder on 1 July 2011.As a result of the disposal of the majority of the US loan book,the Bank’s representative office in New York closed in January2012 and the Bank now retains a small team in Boston to workthrough the residual asset cases and operational wind-down ofthe US office.On 30 January 2012, following a comprehensive process toevaluate all of the available alternatives for the future directionof its Wealth Management business, the Bank announced itsdecision to commence an orderly wind-down of the business.This process is currently underway and may include a cosourcingarrangement.offset by the acquisition of 212 additional staff under the INBSTransfer Order. The Group headcount at 31 December 2011 is1,219 which includes 183 people working directly in theBank's NAMA unit. In late 2011 the Bank launched a voluntaryredundancy programme with a target reduction of 130 roles.This process will be implemented during 2012.Other administrative costs of €108m are in line with theprevious year as significant professional fees continue to beincurred, principally in relation to ongoing asset recoverymatters.Exceptional costs of €82m incurred during the year primarilyrelate to professional fees associated with Bank restructuringwork, significant non-recurring transactions and costs relatedto certain legacy matters. The principal non-recurringtransactions include NAMA and a significant debt recoverycase.TaxationNo Irish tax will be payable on the Group’s Irish businessactivities due to the availability of losses in the Bank which areoffset against taxable profits within the Group. However acurrent period foreign tax charge of €6m arises. A deferred taxcharge of €6m has been recognised in respect of the release ofdeferred tax assets.The Group’s current tax liability at 31 December 2011 includesa payable of €23m acquired under the INBS Transfer Order on1 July 2011.The Group is currently in discussions with the US InternalRevenue Service with respect to potential US tax exposuresrelating to the Group’s US filing obligations.CostsOperating expenses2011 2010€m €mStaff costs 107 130Other administrative expenses 108 108Depreciation and amortisation 23 26Recurring operating expenses 238 264Exceptional costs 82 89Total operating expenses 320 353Total recurring operating expenses for the year to31 December 2011 are €238m and exceptional costs are€82m.Staff costs have fallen by 18% compared with the prior year.This includes the impact of a €13m credit representing a onceoff past service gain arising from approved amendments to theBank’s two defined benefit pension schemes. Adjusting forthis, staff costs fell by 8%, driven by an 11% decrease inaverage staff numbers from 1,332 during 2010 to 1,186during the current year. This is primarily due to the transfer outof the Bank of 210 staff under the AIB Transfer Order andreduced US staffing following the loan book sales, partiallyRisks and uncertaintiesThe Group is subject to a variety of risks and uncertainties inthe course of its business activities. The principal risks anduncertainties facing the Bank at present are those related togeneral economic conditions, Government policy andrestructuring risk, ratings downgrades, eurozone risk, liquidityand funding risk, NAMA participation, credit risk, operationalrisk, events of default risk, regulatory compliance risk, marketrisk, valuation risk, the Fitness and Probity regime, andlitigation and legal compliance risk. In addition continuedconcerns within the banking industry regarding counterpartyand country risk could adversely impact on the Bank. Moredetail is contained in the Principal risks and uncertaintiesstatement on pages 18 to 22.Subsequent events and futuredevelopmentsThe key events that have occurred since the end of the yearare reviewed in note 57 to the financial statements. The GroupChief Executive’s review and the Chairman’s statement reviewthe outlook and future of the Group.1Gross of impairment provisions and including lendingassociated with the Group’s assurance company14