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Allied Irish Banks, p.l.c.
Introduction to
AIB Mortgage Bank (AIB MB)
Covered Bond Programme
Aaa / AAA / AAA
Inaugural Transaction
March 2006
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A number of statements we will be making in our presentation and in the accompanying slides will not be based on historical fact, but will be “forward-looking” statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward looking statements. Factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to, global, national and regional economic conditions, levels of market interest rates, credit or other risks of lending and investment activities, competitive and regulatory factors and technology change. Any ‘forward-looking’ statements made by or on behalf of the Group speak only as of the date they are made.
All comparisons in this presentation are relative to 2004 pro forma IFRS figures
visit www.aibgroup.com/investorrelations
Allied Irish Banks, p.l.c.
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Introduction to Allied Irish Banks Group
The Irish Economy & Housing Market
Irish Covered Bond Legislation
AIB Mortgage Bank – Structure & Mortgage Pool
AIB Group Funding Strategy, Role of AIB Mortgage Bank
Proposed Transaction
Contents
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Introduction to Allied Irish Banks Group
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Ireland’s largest publicly quoted company
Strong franchises with leading market shares in core banking products.
By market capitalisation €16.5 bn (Feb , 2006) 16.3% of Irish Stock Market Index 11th/47 DJ E Stoxx Bank Index
24th/54 FTSE Eurotop Bank Index
2005 - Total Assets € 133bn, PBT € 1.7bn
Senior debt ratings Moody’s ‘Aa3’ (stable outlook)S&P ‘A+’ (stable outlook)Fitch IBCA ‘AA-’ (stable outlook)
Allied Irish Banks, p.l.c.
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Y/ e-Dec ‘03 Y/ e-Dec ‘04 Y/ e- Dec ‘05 Total Assets €81bn €101bn €133bn
Group profit before tax €1,011m €1,430m €1,706m
Tier 1 Ratio 7.1% 8.2% 7.2%
Total Capital Ratio 10.4% 10.9% 10.7%
2005 Highlights
Very positive momentum, all Divisions performing strongly
Asset Quality maintained, Provisions decline to 15bpts from 20bpts
Cost Income Ratio 55.2% (2004=57.7%)
Continued commitment for investment in systems and people
Allied Irish Banks, p.l.c.
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PBT 10%5yr Av.GDP 3.0%
Investment in 22.5% of M&T BankContribution to PBT 12%5yr Av.GDP 2.6%
PBT 28%5yr Av.GDP 2.3%
PBT 50%5yr Av.GDP 5.1%
Ireland UK
USA Poland
Allied Irish Banks, p.l.c.
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AIB plc - AIB Bank (RoI) Division Y/e 2005
€779m Pre Tax Profits by 15%, Cost/Income @ 51.3% (52.7%) €39bn Risk Weighted Assets Provision Charge % of Av Loans 0.11% (0.14%)
A Market Leader in key segments with increased shares in deposit and lending sectors
Over 270 outlets
Major portfolios which experienced strong growth: Business banking Residential mortgages Personal banking Private banking
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AIB plc – AIB (GB & NI) Division Y/e 2005
€322m Pre Tax Profits by 18%, Cost/Income @ 48.7% (51.5%)
€18.4bn Risk Weighted Assets
Provision Charge % of Av Loans 0.13% (0.11%)
Great Britain
Focused on key selected segments, professional, not for profit, owner/managed businesses
Increasing activity by organic growth
Loan growth by 31%, Deposits by 21%,
Northern Ireland
Full service clearing bank, strong retail & commercial franchise
Loan growth by 25%, Deposits by 12%
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AIB plc – Capital Markets Division Y/e 2005
€403m Pre Tax Profits by 27%, Cost/Income @ 47.5% (54.4%)
€38bn Risk Weighted Assets
Provision Charge % of Av Loans 0.22% (0.27%)
Core businesses
Corporate Banking
Global Treasury
Investment Banking
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AIB plc – Poland Division Y/e 2005
€132m Pre Tax Profits by 13%, Cost/Income @ 65.7 % (67.4%)
€4.6bn Risk Weighted Assets ; Total Assets € 7.8bn
Provision Charge % of Av Loans 0.40% (0.91%)
Core Business
Improving economic recovery is supporting profit growth
BZ-WBK is benefiting from significant re-structuring
Full service clearing bank with strong retail deposit franchise
400+ outlets, mainly located in Western Poland
Increasing activity by organic growth
Loan growth by 4%, Deposits growth by 8%
Non-performing loans below market average
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The Irish Economy & Housing Market
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Republic of Ireland Economic Trends
1990 1995 2000 2005 (e) 2006 (f)
Population (‘000) 3,506 3,601 3,789 4,131 4,230
Employment (‘000) 1,160 1,282 1,671 1,929 1,989
Unemployment (‘000) 172 177 75 86 86
Unemployment (% ) 12.9 12.2 4.3 4.2 4.2
Inflation (% ) 3.4 2.5 5.6 2.5 3.2
Govt surplus (deficit) (% GNP) (2.0) (1.7) 3.6 (0.4) (1.4)
GNP per capita (€) 8,712 12,936 23,460 32,486 34,165
GNP growth rate 7.1% 8.9% 9.2% 4.5% 5.0%
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0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
2
4
6
8
10
12
14
16
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The Irish Labour Market Has Been Transformed
Total Employment ’00S (LHS)
Unemployment Rate % (RHS)
The Irish Labour Market Has been Transformed(‘000s) (%)
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Robust Public Finances
Government budget Surpluses average 1.5% of GDP since 1997 Budget close to balance in coming years Large current budget surpluses Significant capital expenditure/borrowing
Gen Gov Debt/GDP ratio <30% at end 2005(e) and declining Down from 90% of GDP in past decade Much less than half of eurozone average: 72%
Relatively Low Tax Economy Well below eurozone average Low PRSI/income tax, no local taxes
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Population Growth
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0-14 15-24 25-44 45-54 55-64 65+
1996 Census 2002 Census 2010 CSO ProjectionsSource: DOE and ESRI
Population Age Profile Estimates (m)
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Mortgage Debt at 16% of Housing Assets in ‘05
0
10
20
30
40
50
60
70
80
1999 2000 2001 2002 2003 2004 2005F 2006F
8
10
12
14
16
18
20
Increase in Total Housing Assets: LHS
Increase in Outstanding Mortgage Debt: LHS
Mortgages Outstanding as % of Total Housing Assets: RHS
Growth in Mortgage Debt and Housing Assets (€ m)
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Many Factors Underpin Strong Housing Demand
Continued strong inward migration
Favourable demographic trends
Untapped demand: Rising headship rates
Demand for second homes
Strong growth of economy and employment
Comfortable repayment affordability: longer term mortgages, lower cost units, low interest rates
Government incentivised savings scheme (SSIAs) will mature in 2006/7
Home ownership is seen as an attractive tax efficient savings scheme, there is no taxation on personal residential property
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Summary: A Sound Economy
Public finances to remain close to balance
Very low national debt. Declining debt/GDP ratio
Low tax economy attracting FDI and workers
Virtual full employment despite high immigration
Favourable demographics supporting growth
Further boost to growth from SSIAs in 2006-07
Inflation back down at eurozone average
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Irish Covered Bond Legislation
Asset Covered Securities Act 2001
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Summary of ACS Act 2001 (1)
In Ireland, Asset Covered Securities can only be issued by a specialist bank – “Designated Credit Institution” (DCI)
To obtain a license to operate a DCI from the Irish Financial Services Regulator – the applicant must
Be owned by a regulated bank
Be separately capitalised
Have non-executive board membership
Agree to publish information
Provide a detailed account of the business
Agree a Prudent Discount Factor for calculating LTVs
Appoint a Covered Asset Monitor
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Summary of ACS Act 2001 (2)
Eligibility for assets classes to be held by a DCI The Act restricts the asset classes, and Requires the Regulator to issue a Regulatory Notice (RN) for each
asset class RNs have only been issued for
Public Sector credits, Residential mortgages
The Act also allows Commercial Mortgages to be included but the RN has yet to be approved by the Regulator
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Summary of ACS Act 2001 (3)
The combined effect of The Act and the RN ensures the quality of the residential mortgage collateral cannot be compromised by changes in property market prices; the restrictions extend to controlling both the aggregate collateral holding and the actual collateral Pool
Each LTV is subjected to movement of the IL&P/ESRI Property Index; any increase is to be discounted by the Prudent Discount Factor, and any declines to be in full. The result is used to compute the Prudent Market Value of the Pool
At any point in time, the aggregate of all the mortgage assets of the DCI must not exceed a Prudent LTV of 80%
Any mortgage held in the Pool cannot be awarded a value that exceeds 75% of the Prudent LTV
The ACS Bondholders are protected at all times, since The Prudent Market Value of the Pool must be > the ACS principal
outstanding The interest receivable from the Pool must be > the interest payable
on the ACS for any 12 month period The weighted average maturity of the pool must be > the ACS maturity
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Summary of ACS Act 2001 (4)
The Pool will be over-collateralised
Balance Sheet Interest rate sensitivity is subject to limits
In the Event of Default
The regulator will appoint the NTMA (a government agency) or other suitable manager to manage the pool
The Covered Asset Pool is exempt from bankruptcy proceedings and bond holders interests are prioritised ahead of non-pool creditors
Financial Statements are required to disclose the Pool’s performance
2006 – Proposed amendments Overcollaterisation to be legislated at a minimum of > 3% A number of technical adjustments
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AIB Mortgage Bank Overview
Origination – Branch Distribution
Origination – Portfolio Data
Origination – Credit Policy
Origination – Review by LTV
Indicative Collateral Pool
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Overview of AIB Mortgage Bank
Registered as a Designated Mortgage Credit Institution
License granted by Regulator – Feb 2006
Non-guaranteed, Public Unlimited Company - wholly owned by AIB plc
Shareholders investment exceeds €650m
9 Directors, including 4 non-executive directors
Major activities outsourced to AIB (ROI) Division, subject to terms of the Service Level Agreement
€13.6bn residential mortgage loans transferred to AIB MB from AIB (ROI)
Prudent Discount Factor - 15 %
Pool Overcollateralisation set @ > 5%
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Origination – Branch Network Distribution
Irish mortgage market drawn balances are estimated at €100bn+, AIB has a market share of 16%+
AIB has a presence in all major towns and cities, by a network of 188 branches and 87 sub-offices
35% - 40% of the Banked Public – have a primary account relationship with AIB
90%+ of our branched sourced mortgages come from existing bank account holders
AIB MB currently does not book mortgages introduced through intermediaries
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Origination - Portfolio Data
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Origination - Credit Policy
Max LTV = 92%
Max Loan amount determined by DSR ( Debt Service Ratio ) = the Proportion of Net Income that is prudent to allow for purposes of Mortgage Repayments
DSR is stress tested to allow for increases in interest rates of 2%
Lenders have no sanctioning Targets/Quotas
Loan to be repaid by scheduled retirement date
Exceptions are approved by Senior Mortgage Lenders subject to the customers ability to repay
Regular reporting to Regulator
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Origination – Review by Loan To Value
Primary focus on debt service ratio (repayment capacity)
Consistent LTVs (% nos of drawdowns) Dec 02 Dec 03 Dec 04 Dec 05
< 75% 66 67 67 70
> 75% < 90% 26 25 24 17
> 90% 8 8 9 13
Total 100 100 100 100
Strong arrears profile Dec 02 Dec 03 Dec 04 Dec 05
% total mortgage advances 0.8% 0.5% 0.5% 0.5%
New Business
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Indicative Collateral Pool
Minimum Contractual Overcollateralisation 5%
Pool Size c.€5.0bn
Aggregate Prudent LTV* 40%
Un-indexed LTV 63%
Dublin/Non-Dublin 30/70
No. of Properties c. 35,000
BTL/Owner Occupier 23/77
Prudent Market Discount 15%
Currently no commercial mortgages
No arrears > 3 months included in pool
Minimal interest rate risk
* Aggregate Outstanding Mortgages as a % of aggregate PMV of property
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AIB Group Funding Strategy & Role of AIB Mortgage Bank
AIB Group Funding Strategy Statement
AIB Group Funding Profile
AIB Group Debt Distribution as at 31 Dec 2005
Role for AIB Mortgage Bank’s ACS issuance
Issuing Strategy
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AIB Group Funding Strategy
‘Maximise resource generation through the Group franchise and ensure access to competitively priced wholesale market funding sources in order to support the profitable growth of the Group’
2005 Annual results comment on
AIB Group’s market share of Irish deposit market is increasing
Available capacity in a range of wholesale markets and instruments
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AIB Group – Funding Profile
55.2% 52.0%
21.9% 24.1%
8.9%
10.3% 10.0%
10.2%
3.8% 4.2%
0
20
40
60
80
100
2004 2005Customer Accounts Deposits by Banks CDs & CPs Senior Debt Capital
Significant opportunities available to increase issuance into global markets, e.g. CP – Euro, US$, EMTN benchmarks and structured notes
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AIB Debt Distribution as at 31 Dec 2005
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2007
2008
2009
2010
2011
2012
2015
2020
2025
Perpet
ual
Tier (i) Tier (ii) Snr-Benchmk Snr-Priv.Place.
Euro – 76%
STG - 18%
US$ - 5%
Other – 1%
Step-up issues – adjustedto earliest call date
Moody’s S&P Fitch
Aa3 A+ AA-
Aa3 A+ AA-
A1 A(Lwr)/A-(Uppr) A+
A2 A- A+
€ (m)
Senior Debt - Private Placements 1,903
Senior Debt - Benchmark Issues 4,750
Tier (ii) 3,537
Tier (i) 1,710
Total 11,900
Debt Distribution€ (m)
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Role of AIB Mortgage Bank’s ACS programme
The role of the programme is to provide the AIB Group with a competitive funding tool that will
Leverage from the quality of security held on Balance Sheet
Generate funding at a competitive price
Provide the Group with a product that can be marketedefficiently in all markets for all maturities
EMTN programme established to facilitate issuance of up to €15bn of Aaa / AAA / AAA rated securities
Provides the Group with an opportunity to cultivate an investor base which requires Aaa / AAA / AAA rated securities
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Issuing Strategy
One issuing document – a Euro Medium Term Note Programme – to be updated annually
On-going commitment to investor relations, including
Regular marketing initiatives
Establishment of web-access
Reports on collateral pool performance
Responsible Primary Market Strategy, involving the employment of high profile Management Groups who will commit to secondary market making
At least one benchmark issue per annum
Participation in Euro Private Placements, and at a later date issuance in non-euro currencies
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Proposed Transaction
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Issuer : AIB Mortgage Bank
Document : EMTN programme
Listing : Dublin
Rating : Aaa / AAA / AAA
Overcollaterisation : Minimum = 5%
LTV : Aggregate Prudent < 40%, Un-indexed < 63%
Maturity Extention : Up to 1yr, interest set at €uribor +50bpts
Amount : Euro benchmark
Coupon : Fixed Rate , Paid annually
Launch : Week of 27 March 2006
Syndicate : Leads – AIB Group Treasury, Barclays Capital,Deutsche Bank, Morgan Stanley
Co-Leads – Citigroup, DZ Bank, HVB,LBBW, UBS
Proposed Transaction : AIB MB – Asset Covered Securities Inaugural Issue
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Contacts
AIB Mortgage Bank T: + 353-1-641-4748
Chief Executive : David Kelly
Treasury Director : Gerry O’Connor
AIB Group Investor Relations www.aibgroup.com/investorrelations
Exec., GM Group Finance : Alan Kelly T: + 353-1-641-4191
Manager : Maurice Tracey
AIB Global Treasury [email protected]
Chief Dealer, Funding : Duncan Farquhar T: + 353-1-641-7811
Dealer : Jim McKeever
