Bank of Ireland Presentation

Bank of Ireland
Presentation
October 2012
(as at 24th October 2012)
Forward-looking statement
This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934 and Section 27A of the US Securities Act
of 1933 with respect to certain of the Bank of Ireland Group’s (the Group) plans and its current goals and expectations relating to its future financial condition and performance, the
markets in which it operates, and its future capital requirements. These forward looking statements can be identified by the fact that they do not relate only to historical or current
facts. Generally, but not always, words such as ‘may,’ ‘could,’ ‘should,’ ‘will,’ ‘expect,’ ‘intend,’ ‘estimate,’ ‘anticipate,’ ‘assume,’ ‘believe,’ ‘plan,’ ‘seek,’ ‘continue,’ ‘target,’ ‘goal,’
‘would’, or their negative variations or similar expressions identify forward looking statements. Examples of forward looking statements include among others, statements regarding
the Group’s near term and longer term future capital requirements and ratios, loan to deposit ratios, expected impairment charges, the level of the Group’s assets, the Group’s
financial position, future income, business strategy, projected costs, margins, future payment of dividends, the implementation of changes in respect of certain of the Group’s defined
benefit pension schemes, estimates of capital expenditures, discussions with Irish, UK, European and other regulators and plans and objectives for future operations.
Such forward looking statements are inherently subject to risks and uncertainties, and hence actual results may differ materially from those expressed or implied by such forward
looking statements. Such risks and uncertainties include, but are not limited to, the following:
concerns on sovereign debt and financial uncertainties in the EU and in member countries and the potential effects of those uncertainties on the Group;
general economic conditions in Ireland, the United Kingdom and the other markets in which the Group operates;
changes in applicable laws, regulations and taxes in jurisdictions in which the Group operates particularly banking regulation by the Irish and UK Governments together with any
changes arising on foot of the Euro Area Summit Statement on 29 June 2012;
the impact of further downgrades in the Group’s and the Irish Government’s credit rating;
the availability of customer deposits at sustainable pricing levels to fund the Group’s loan portfolio and the outcome of the Group’s disengagement from the ELG scheme;
development and implementation of the Group’s strategy, including the Group’s deleveraging plan and the Group’s ability to achieve estimated net interest margin increases
and cost reductions;
property market conditions in Ireland and the UK;
the performance and volatility of international capital markets;
the potential exposure of the Group to various types of market risks, such as interest rate risk, foreign exchange rate risk, credit risk and commodity price risk;
the effects of the Irish Government’s stockholding in the Group (through the NPRFC) and possible increases in the level of such stockholding;
the outcome of any legal claims brought against the Group by third parties or legal or regulatory proceedings more generally that may have implications for the Group;
the Group’s ability to address information technology issues;
potential deterioration in the credit quality of the Group’s borrowers and counterparties; and
implications of the Personal Insolvency Bill 2012 for distressed debt recovery and impairment provisions.
Nothing in this document should be considered to be a forecast of future profitability or financial position and none of the information in this document is or is intended to be a profit
forecast or profit estimate. Any forward looking statements speak only as at the date they are made. The Group does not undertake to release publicly any revision to these forward
looking statements to reflect events, circumstances or unanticipated events occurring after the date hereof. The reader should however, consult any additional disclosures that the
Group has made or may make in documents filed or submitted or may file or submit to the US Securities and Exchange Commission.
Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, Bank of Ireland is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by
the Financial Services Authority. Details about the extent of our authorisation and regulation by the Financial Services Authority are available from us on request. Bank of Ireland is
incorporated in Ireland with limited liability. Registered Office - Head Office, 40 Mespil Road, Dublin 4, Ireland. Registered Number - C-1.
1
Irish
Economy
Overview
Ireland re-enters bond markets in 2012
Significant rally in Irish Sovereign debt
Market confidence returns
20%
In the year to October 2012, the NTMA issued €11.2bn in
new and exchange bonds and T-bills
Ireland
Spain
15%
January 2012: Bond switch from January 2014 - new
February 2015
Italy
10%
July, September, October 2012: T-bill issuance
5%
0%
11 11 11 11 11 11
11 11
11 11
12 12
12
11 11 12 12 12 12 12 12
n ‘ eb ‘ ar ‘ pr ‘ ay ‘ un ‘ Jul ‘ ug ‘ ep ‘ ct ‘ ov ‘ ec ‘ an ‘ eb ‘ ar ‘ pr ‘ ay ‘ un ‘ Jul ‘ ug ‘ ep ‘
A
A
O
J
J
J
F
F
M
M
S
S
A
A
N
D
M
M
Ja
Source: Bloomberg - 10 year generic yields
Bank debt follows similar trend July 2012:
(i) New issuance 5.5% October 2017
(ii) Switch from 2013 and 2014
(iii) Tap of the existing Irish 5% October 2020 bond
August 2012: New issuance - 5 amortising bonds
Ireland’s maturity profile lengthened
Dec 2011 Ebn
Aug 2012 Ebn
Change Ebn
2013
6.0
5.6
-0.4
2014
11.9
7.6
-4.3
12%
BKIR ELG 2015
BKIR Covered 2015
10%
NTMA 2015
8%
6%
4%
2%
0%
2
b ‘1
Fe
2
r ‘1
Ma
2
r ‘1
Ap
Source: Bloomberg (yields)
2
y ‘1
Ma
2
n ‘1
Ju
2
l ‘1
Ju
2
g ‘1
Au
2
p ‘1
Se
2015
6.3
9.9
3.6
2016
14.4
14.4
0.0
2017
0.0
3.9
3.9
2018
13.2
13.2
0.0
2019
16.1
16.1
0.0
2020
19.6
20.9
1.3
Source: Bloomberg, NTMA, Department of Finance & BOI Economics Research Unit.
Includes all official funding drawn down to the end of May 2012, excludes €16.84bn in IMF funding
which amortises from July 2015 through February 2022; excludes short term debt, excludes
amortising bonds.
2
Irish economy stabilising
Ireland records stronger than expected growth
GDP grew by 1.4% in 2011, forecast to grow by 0.8%
in 20121
Current account surplus c.€1.8bn in 2010 and 2011,
forecast to be c.€4.5bn in 2012
Ireland continuing to meet its commitments
Significant outperformance versus fiscal target in 2011,
General Government deficit of 9.1% of GDP versus 10.6%
Troika target
Continued delivery on EU/IMF Programme benchmarks
Domestic environment subdued
On track to match or beat 2012 fiscal targets
Tax revenue 1.5% ahead of forecast to end September
Consumer spending remains muted
Unemployment rate 14.8% in Q2 2012
Residential property prices down c.50% from peak in 2007
BOI Economic Research Unit
Ireland’s current account in surplus
€m
20
15
6,000
Current Spending
Taxes
10
4,000
5
2,000
0
0
-2,000
-5
-4,000
-10
-6,000
-15
-8,000
-20
-10,000
2
12
20
1
11
20
11
20
1
11
20
20
1
2
Q
1
4
Q
Q
3
Q
20
2
1
Q
10
10
Q
20
20
3
4
Q
0
10
20
Q
2
Q
20
1
20
09
4
1
Q
09
09
Q
20
20
2
Q
Q
3
08
09
20
20
4
1
Q
Q
08
08
20
20
2
20
08
Q
Q
3
4
Q
1
20
07
07
20
3
Q
Q
07
20
20
2
1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(f)2013(f)2014(f) 2015(f)
Source: CSO, ERU
07
-25
-12,000
Q
8,000
Tax revenues increasing
Q
1
Graph shows: Annual % change in tax revenues and current spending
Source: Irish Department of Finance
3
Competitive position remains
Underlying strengths of Irish economy remain
Ireland regained competitiveness: unit labour costs 2009-2013
Very open economy
Exports accounted for 106% of GDP in 2011
(Portugal 35%, Spain 30%, Italy 29%,Greece 21%)1
25%
20%
15%
Continuing to attract FDI
Record number of IDA investments won in 2011,
significant further investments in 2012
1st in Eurozone for Ease of Doing Business4
2nd most attractive country globally for FDI5
Best location to invest in Western Europe6
Datastream (for 2011)
IMD World Competitiveness Yearbook 2012
3
CSO Census 2011
4
World Bank Doing Business 2012 report
5
NIB/FDI Intelligence Inward Investment Performance Monitor 2011
6
Site Selection magazine’s annual Best to Invest rankings
1
2
-22%
5%
0%
USA
Sweden
Poland
Finland
Austria
Portugal
Netherlands
Italy
France
Spain
Greece
Germany
EU
-25%
Belgium
-20%
Ireland
-15%
Luxembourg
-10%
United Kingdom
-5%
Euro Area
Attractive investment characteristics
Flexible labour market, 1st for availability of skilled
labour2
Favourable demographics – c.52% of population
under the age of 353
Low corporate tax rate of 12.5%
% Change
10%
Substantial gains in competitiveness
Unit labour costs down c.15% since 2009, forecast to
improve by c.22% relative to Euro Area (2009-2013)
Commercial rents down c.51% since 2007
Graph shows: Whole economy unit labour costs
Source: EU Commission Spring forecasts 2012
Commercial rents down substantially
140
130
120
110
100
90
80
70
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2011
2012
Source: Lisney Research - Commercial Rental Indices Q2 2012
D339 Oct 12
4
Bank of Ireland
Overview
Bank of Ireland overview
Systemically important retail & commercial bank in the Irish banking sector playing a critical role in the operation of the Irish economy
Product
Irish market shares1
Current Accounts:
1
 Personal
36%
 Business
36%
 Corporate
>50%
Mortgages
21%
Credit Cards
34%
Business Loan Accounts
35%
Life and Pension
21%
Extensive network in Ireland
over one million customers, c.250 full service branches
Leading market positions in Ireland
no. 1 or no. 2 in all our principal product and market segments
Broad product offering
Consumer, Private Banking, Business, Corporate
Banking, Treasury, Savings/Pension/Life assurance
distribution
Extension of relationship with UK Post Office
c. one and a half million depositors
International presence
Acquisition Finance and certain other niche lending
activities in UK, US and Europe
Deposit & treasury services in UK and US
Latest data available
5
Further progress on key priorities
Capital
Core Tier 1 Ratio
15.1%
Loans1
14.9%
Deposits
E144bn
E91bn
32%
14.3%
14.0%
E114bn
PCAR/EBA basis
E102bn
9.7%
E71bn
E72bn
Dec 2011
Jun 2012
E65bn
E98bn
6.3%
Sept 2008
Dec 2010
Dec 2011
Jun 2012
Group maintains strong capital ratios core tier 1 ratio of 14.9% at June 2012
Ratio reflects after tax loss incurred in
period partly offset by lower RWAs as
a result of deleveraging
On a PCAR/EBA basis, core tier 1
ratio of 14.0% versus 10.5% PCAR
requirement
1
Sept 2008
Dec 2010
Dec 2011
Jun 2012
Asset disposal target of e10bn
exceeded ahead of schedule and
below 2011 PCAR base case
assumptions - average discount of
7.9% incurred
Net redemptions continue in line
with expectations
Further c.e8bn net redemptions
required to reach Group’s target of
c.e90bn by December 2014
Sept 2008
Dec 2010
Deposits increased by e1bn since
December 2011; FX impact
Focus on reducing quantum of
deposits covered under ELG Scheme
and reducing rates paid
Loan to deposit ratio of 136% at
June 2012
Target of e75bn - e80bn by
December 2014
Net of impairment provisions
6
Focus on rebuilding profitability
Ownership structure
Net Interest Margin
ELG exit
Net Interest Margin trend
Covered liabilities1
133bps
d
Re
uc
tio
Ireland 15% stockholder in BOI
n
0b
10
E
n
4%
/7
E36bn
E22bn
E14bn
H2 2011
State
E136bn
120bps
H1 2011
15%
Private Stakeholders
at period end
133bps
85%
Sept 2008
Jun 2012
n CIFS Scheme n Customer Deposits n Wholesale Funding
H1 2012
Cash invested by
the State
€4.8bn
Cash paid by BOI to
the State
€2.5bn
Current State
investments in BOI
€2.8bn
+15%
stockholding
NIM impacted by interest rate
environment and deposit pricing

H1 2012 - E6bn reduction in the level
of covered liabilities
Group focused on reducing risk
to State
UK Mortgages - SVR increased by
a total of 150bps since 1 June 2012
April 2012 - Bank of Ireland (UK)
plc withdrew from ELG Scheme
ROI Mortgages - SVR increasing
by 50bps in H2 2012
August 2012 - Isle of Man
withdrew from ELG Scheme
74% reduction in liabilities
covered under ELG Scheme since
September 2008
ROI SME loan pricing reset to
reference actual cost of funds
ELG wholesale funding being repaid
Leading price reductions in ROI
deposits
1
Taking actions to fully disengage
from ELG
Non ELG deposits from
Corporate, Business and other
customers
ELG covers eligible deposits to the extent not covered by deposit protection schemes in the State (Deposit Guarantee Scheme) or any other jurisdiction
7
Asset profile at June 2012
Profile of total loans and advances to customers e98bn1
Impairment charges
E1.1bn
€3bn
ROI Mortgages
E0.31bn
UK Mortgages
E0.84bn
Non-property SME & corporate
E0.16bn
E0.94bn
E0.31bn
€17bn
€26bn
E0.25bn
Property & Construction
Consumer
E0.25bn
E0.22bn
n
n
n
n
Residential Mortgages
Property & Construction
Non-property SME & corporate
Consumer
€23bn
€29bn
E0.04bn
H1 2011
Geographic profile of total loans and advances to customers1
Republic of Ireland
Rest of World
51%
E0.51bn
E0.38bn
E0.03bn
H2 2011
E0.03bn
H1 2012
E0.39bn
AFS portfolio June 2012 - e11.3bn (ex NAMA bonds)2
Net incremental investment in 2012 of e1.5bn in Irish
bonds funded by ECB 3 year LTRO (total Irish Sovereign
holding e5.5bn)
Exposures to Spain and Portugal are substantially
covered bonds - all investment grade
49%
Italian exposures primarily short dated - e0.2bn will
mature within 1 year
No AFS exposures to Greece
1
2
Net of impairment provisions
NAMA Bonds e4.7bn June 2012
8
Irish residential mortgage book at June 2012
20112
Base/Stress
Full Year
2011
20122
Base/Stress
Forecast3
2012
GDP (%)
0.9/-1.6
1.4
1.9/0.3
1.0
GNP (%)
-1.5/-2.6
-2.5
0.8/-0.2
0.0
4,286
Unemployment rate (%)
13.4/14.9
14.4
12.7/15.8
14.7
125%
110%
Employment rate (%) -0.8/-2.5
-2.1
0.5/-1.1
0.0
35%
46%
40%
House prices (%)
-13.4/-17.4
-13.2
-14.4/-18.8
-13.34
7.03%
10.9%
13.99%
-
8.33%
-
Commercial property
(%)
-2.5/-22
-14.3
1.5/1.5
0.0
1,799
749
2,548
Inflation - HICP (%)
- CPI (%)
0.4/0.1
0.9/ 0.7
1.1
2.6
0.6/0.6
0.8/0.9
1.7
1.6
Retail Ireland
Owner
Occupier
Buy to Let
Total
Total mortgages
(gross) em
20,711
6,871
27,582
Paying principal and interest
88%
49%
79%
Neither past due
nor impaired
87%
74%
84%
Negative equity em
2,861
1,425
Weighted average
indexed LTV
106%
Coverage ratio1
Arrears >90 days past
due and/or impaired
- BOI (no. of cases)
- Industry (no. of cases)
Restructuring
arrangements em
Unemployment and affordability issues remain principal drivers
of arrears
Bank policy to re-underwrite mortgage credit for customers in
difficulty to assess sustainability
76% of negative equity neither past due nor impaired
Full implementation of CCMA – significant resources allocated
Interest Only – 79% of the mortgage book paying “principal
and interest”
Mortgage Arrears Resolution Strategy (MARS) sets out the
process to help the Group support customers through engagement, modifications and restructures, whilst maximising
recoveries
Restructures – 98% paying at least interest only or greater
New longer term restructure options agreed with Central Bank
of Ireland for implementation on a pilot basis
Impairment provisions as a % of loans where arrears are greater than 90 days past due and/or impaired
PCAR 2011 economic assumptions
3
Bank of Ireland Economic Research Unit
4
Reuters Consensus
1
2
Split mortgages
Trade up/down negative equity mortgage
9
Mortgage Arrears Resolution Strategy (MARS)
Formal restructuring arrangements
Short
Term
Interest only
Reduced payments (> interest only)
Full implementation of CCMA
Significant resources allocated and training undertaken
for collections and front line staff:
Each branch has key contact with specific
responsibility to deal with arrears/pre-arrears cases
Medium / Long
Term
Network Account Managers (NAMs) supporting
enhanced customer engagement
Term extension
Centralised Arrears Support Unit (ASU) established
Longer term forbearance options:
Use of Standard Financial Statement (SFS) to obtain
financial information for borrowers in arrears/pre-arrears
 Split mortgages
 Trade down negative equity
Interest only
Reduced payments (> interest only)
Focus on Mortgage Arrears Resolution Strategy (MARS)
New MARS unit established in Summer 2012 providing
singular focus and visibility to achieve MARS objectives
Use of external expertise to leverage off experiences in
the UK and US
Comprehensive suite of forbearance options in place
either on a temporary or permanent basis to facilitate
sustainable repayment plans
Increased focus on Buy to Let (BTL) arrears management
and recovery strategies - rent receivers appointed to 500
properties (June 2012)
10
Personal Insolvency Bill (draft)
Resolution options
DRN
(3 years)
Non-judicial
DSA
(up to 5 years)
PIA
(up to 6/7 years)
Judicial
Bankruptcy
Full write off of qualifying secured and unsecured
debt up to €20,000
Net disposable income after reasonable expenses to
be <€60 per month
Assets and cash to be €400 or less (subject to
certain exceptions)
Settlement structure for unsecured debts greater
than €20,000
No prospect of solvency in 5 years
Creditor(s) meeting to approve (65% votes required)
Settlement structure for secured and unsecured
debt where secured liabilities are less €3m
Must be co-operating with secured creditor(s)
regarding Principal Private Residence for at least
6 months under MARP
No prospect of solvency in 5 years
Creditor(s) meeting to approve (65% votes of all
creditors, 50% secured, 50% unsecured)
Threshold for debt >€20,000
Discharge from bankruptcy reduced to 3 years
If bankrupt does not co-operate or has hidden or
failed to disclose assets, court may extend this
period up to 8 years
Personal Insolvency Bill provides for judicial and three
non-judicial resolution options for consumers deemed
under the provisions of the draft legislation to have
unsustainable indebtedness levels
The Bill, as currently drafted, amends existing
bankruptcy provisions by reducing the timescale for
discharge from bankruptcy from twelve years to a
proposed three year period
The Bill also introduces three routes to debt resolution as
an alternative to bankruptcy namely:
Debt Relief Notice (DRN)
Debt Settlement Arrangement (DSA)
Personal Insolvency Arrangement (PIA)
The Bill provides for the establishment of the Insolvency
Service of Ireland to operate the new non-judicial debt
resolution processes
Personal Insolvency Practitioners propose solutions to
creditors on behalf of debtors
11
Funding position continuing to stabilise
Customer deposits
Customer deposits
E72bn
E71bn
E35bn
Key focus:
Further reduce the rate paid for deposits
Further reduce the level of deposits covered by ELG
E65bn
E35bn
E36bn
Strength of customer deposit franchise
Loan to deposit ratio of 136% at June 2012
E27bn
E29bn
E21bn
E8bn
E1bn
Dec 2010
E8bn
E8bn
Dec 2011
Jun 2012
n Retail Ireland
n Retail UK
n Corporate
n BOISS related
Wholesale funding profile
E53bn
E51bn
E23bn
E28bn
E17bn
E15bn
E20bn
E17bn
Dec 2010
n Monetary Authorities
n Private secured
Wholesale funding
Increase in wholesale funding primarily reflects the IBRC repo
transaction - €2.8bn
E70bn
E33bn
Post Office deposits have increased by £1bn since
December 2011. Enhanced Post Office relationship
demonstrates further endorsement and commitment
- existing contract extended by 3 years to 2023
E11bn
E10bn
Dec 2011
Jun 2012
Group made a net incremental investment of €1.5bn in
Irish Sovereign and Government Guaranteed debt as part of
the Group’s participation in the LTRO
No ELA since December 2011
Term of ECB drawings extended by 3 year LTRO - €10.8bn
(excluding €1.5bn Irish bonds)
n Private unsecured
12
Group’s funding strategy
Funding strategy
Proportion of Retail deposits has increased
20%
16%
39%
42%
49%
20%
11%
89%
84%
80%
61%
58%
51%
Sept 2008
80%
Dec 2009

The Group’s aim is to fund its loan portfolios substantially through
deposits and term funding while maintaining prudent capital and
liquidity ratios

Target a loan to deposit ratio of 120% by December 2014

Drive deposit strategies through the strength of our franchise and the
scale of our distribution

Deleveraging is reducing the reliance on wholesale funding
Jun 2010
Dec 2010
Jun 2011
Dec 2011
Jun 2012
2014 Targets

Customer deposits: E75bn - E80bn
n Retail deposits n Corporate deposits

Wholesale funding: E25bn - E30bn
Extension of maturity profile of wholesale funding
Term funding ratio
E85bn
E78bn
E70bn
E61bn
E61bn
E58bn
E51bn
E53bn
55%
56%
41%
36%
29%
32%
32%

€17bn or 69% of Private Market wholesale funding had a remaining
term to maturity of >1 year at June 2012
Unsecured term funding maturity profile
2012 - €0.4bn (during H2 2012)
31%
2013 - €2.6bn
Sept 2007 Sept 2008 Dec 2009
Jun 2010
n Total wholesale funding
1
Dec 2010
Jun 2011
Dec 2011
Jun 2012
2014 - €0.1bn
Term funding ratio1
Wholesale funding with a remaining term to maturity of greater than one year
13
Focused on medium term targets
Measure
2011
Jun 2012
€102bn
€98bn

c.€90bn
144%
136%

120%
Core tier 1 ratio
15.1%
14.9%
Core tier 1 ratio
(PCAR / EBA basis)
14.3%
14.0%

Buffer maintained
over regulatory
minimum
ELG covered liabilities
ELG fees
€42bn

Fully disengaged
€449m
€36bn
€212m
Net interest margin
1.33%
1.20%

>2.0%
Cost / income ratio
79%
92%

<50%
€1.9bn
€0.9bn

55bps - 65bps
Rebuilding
Profitability
Financial Stability
Loans and advances
to customers1
1
Group loan / deposit ratio
Target
Capital
Impairment charges
Progress
On track
for 2014
delivery
Timing will reflect
interest rates and
pace of economic
recovery
Loans and advances to customers are stated net of impairment provisions
D339 Oct 12
14