Your Bank delivered another excellent performance in the six months to 31 March 2007. Record profits and earnings per share, record growth in customer lending, an expanded and enhanced funding base, excellent asset quality and the improvement in our cost to income ratio are the highlights of the period. These are the key factors which have contributed to the Bank’s consistent record of creating value for shareholders.
Underlying profits for the six months increased by 47% to €552 million, excluding a profit of €22 million on the disposal of our Isle of Man trust activities in December 2006. Including this one off gain, our reported profit grew by 53% to €574 million.
Financial highlights of your Group’s performance for the period include:
Strong profitability and shareholder value
- Reported pre-tax profit of €574 million and EPS of 63.6 cent
- Record underlying pre-tax profit of €552 million, an increase of 47%
- Record underlying EPS of 60.6 cent, up 45%
- Continued strong return on equity of 30%
- 20% increase in interim dividend to 6.48 cent
Outstanding operational performance
- Exceptional growth in customer lending of €9.3 billion, an increase of 19% on a constant currency basis
- Robust asset quality with impaired loans representing just 0.50% of closing customer loan balances
- Strong lending work in progress of €9.2 billion
- Improved cost to income ratio of 25%
- Total growth in funding of €13.6 billion, up 22%
- Strong Tier 1 capital ratio of 8.5%
It is particularly pleasing that all divisions have contributed so positively to the Bank’s excellent performance.
Dividend
The Board has again declared a strong increase in the Bank’s interim dividend of 20%, to 6.48 cent per ordinary share.
The dividend will be paid on 17 July 2007 to shareholders on the Bank’s register as at close of business on 18 May 2007. Withholding tax may apply on the dividend depending on the tax status of each shareholder.
Shareholders will be offered the opportunity of receiving dividends in the form of cash or shares.
Progress across the Group
Customer lending – controlled high quality growth
The six months to 31 March 2007 have produced exceptional growth in customer lending, the Bank’s core activity and key profit driver. Net loan growth of €9.3 billion, up 19% in constant currency terms, brings total customer lending balances to €59.2 billion including funding provided to customers under investment contracts. This level of growth, which was at the upper end of our expectations, reflects both the strength of the market during the period and the Bank’s expanding client franchise.
Lending growth was very strong across each of our geographical lending divisions – 18% in Ireland, 17% in the UK and 30% in North America. Most importantly, this performance has been achieved whilst maintaining excellent asset quality, the foundation of the Bank’s lending model. Impaired loans are low, representing just 0.50% of the total loan book. The Bank continues to adhere to its strict underwriting policies.
Margins once again remain stable notwithstanding the significant competition in each market. This reflects the strength of the Bank’s differentiated customer service, providing certainty of delivery to our clients rather than a solely price dependent offering.
The Bank anticipates strong lending growth in the six months to September 2007, although it may be imprudent to expect a repeat of the exceptional level of net lending recorded in the first half of the year. Looking out further we are confident that the Bank will continue to gain an increasing share of our target markets, particularly in the UK and North America. Above all, growth will continue to be premised on the Bank’s strict focus on maintaining the long-term asset quality of the loan book.
Treasury – a robust diversified funding platform
Our Treasury division delivered an outstanding funding performance during the first half of the year with total funding up €13.6 billion, 22% in constant currency terms, to €75.4 billion, at the end of March.
The Bank’s core strategy of diversifying and extending the duration of its funding base continues to strengthen the Group’s balance sheet. This is evidenced by the €8.5 billion growth in customer funding, driven in particular by the progress of our UK retail offering, with customer numbers up 75% during the half year to over 63,000. Our success in this sector of the market reflects our reputation for superior customer service and competitive, innovative product offerings.
A number of other milestones demonstrating the effectiveness of our funding strategy have been reached in recent months. In March, Standard & Poor’s, the international rating agency initiated coverage of the Bank with an ‘A’ long-term / ‘A-1’ short-term rating. This, together with our existing strong ratings from the other principal rating agencies - Fitch, Moody’s and Dominion Bond Rating Service - further enhances the Bank’s standing in global capital markets.
The Bank has just issued the capital market’s first covered bond transaction backed solely by UK commercial mortgages. The success of this €2 billion ‘Aaa’ rated innovative programme provides another valuable source of long-term funding to the Group.
Broadening and deepening our funding franchise provides opportunities to the Bank to select the most effective sources of funding from both a business and liquidity perspective. It provides for a highly robust and flexible balance sheet under all market conditions.
Among other highlights in the period, our corporate sales teams generated significant fee income by providing innovative interest rate and foreign exchange risk management solutions to customers.
Wealth Management
The strong performance from our Wealth Management division resulted in a 57% increase in profit to €47 million for the six months to 31 March 2007. All our locations – Ireland, Austria, Switzerland, Portugal and the UK contributed to this growth.
Private Banking in Ireland continues to be the key driver, confirming our position as Ireland’s leading provider of wealth management services to the high net worth segment of the market. In the past year we raised over €500 million of investor equity for a wide range of structured investment opportunities.
Our newly established UK Private Bank has enjoyed an encouraging start. We aim to replicate the success of our Irish business by providing a tailored and differentiated product offering, initially to our existing UK lending client base.
Continuing capital strength
In February, the Bank further enhanced its capital base through a 5% placement of ordinary equity shares, raising in excess of €540 million from a wide range of new and existing Irish and international institutional investors. This additional capital provides the platform for the Bank to realise the significant opportunities that exist in our core markets over the medium to long-term. This, together with the strong retentions of more than €400 million, added almost €1 billion to the Bank’s equity in the period.
Total shareholders’ funds now stand at over €3.6 billion, an increase of 35% since year end. The Bank’s robust capital position is reflected in a Tier 1 ratio of 8.5%.
Our people
It has been another period of significant investment. We now have 1,672 people which, allowing for the departure of 85 staff following the disposal of our Isle of Man trust activities, is an increase of 8% since September 2006. This continued emphasis on developing teams in our core businesses positions the Bank very well for future growth.
The quality and commitment of our people is central to the Group’s success and continued growth. The collective skill, knowledge and commitment of our employees underpins an exceptionally strong culture of delivery for customers - the key driver of our performance.
Board
Once again, I thank Paddy Wright who retired as a Non-executive Director following our recent Annual General Meeting. I would like to pay tribute to Paddy whose contribution to the development of the Bank since joining the Board in February 2000 was outstanding.
I also welcome Noël Harwerth who joined your Board in February 2007 as a Non-executive Director. Noël was Chief Operating Officer of Citibank International in Europe until 2003 and holds a number of non-executive directorships in financial services and other industries. Noël has extensive experience in international financial markets and we look forward to her contribution to the Bank’s next phase of growth.
A proven strategy
The Bank will continue its consistent strategy of controlled growth in each of its target markets through customised client offerings. As always, our risk appetite remains conservative and we will maintain our relentless focus on asset quality.
We have a coherent group of businesses - Lending, Treasury and Wealth Management - delivering high quality asset growth, a robust and diversified funding platform and a niche private banking service.
We will continue to grow organically and to focus on the significant growth opportunities that exist in each of our target markets.
Outlook – confidence in the future
The Board is confident of the Bank’s future prospects. The earnings momentum of our strong lending growth to date, a high quality asset base and work in progress of €9.2 billion at 31 March 2007 combine to ensure the continued delivery of superior profitability and shareholder value into the future.
The economic fundamentals in our core markets of Ireland, the UK and North America remain sound. We expect the rate of growth in the Irish economy to moderate to a more sustainable long-term level, but this market will continue to provide strong growth opportunities for the Bank. Our positioning in the UK and North America provides significant opportunity to expand our franchise and deliver quality long-term growth.
Your Board looks forward to delivering sustained above market performance through 2007 and beyond.
Sean FitzPatrick
Chairman
9 May 2007
