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Strong recovery in Irish Life business but impairment provisions continue to drive losses at permanent tsb bank
| Group |
Irish Life |
permanent tsb bank |
| |
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| Group records operating loss of €197 million – in line with 2009 [€196m] |
Life Company secures very strong performance with rise in operating profits of 57% [to €160 million] |
Banking business losses increase by 36% [to €364 million] on back of larger impairment provisions. |
(Embedded Value basis)
Quote from Kevin Murphy, Group Chief Executive: “There were two very contrasting performances in the Group. On the plus side, our life & pensions and fund management businesses in Irish Life enjoyed a very successful year and operating profits rose by 57% to €160 million. Against that, we had further losses in the banking business where the cost of rising impairment provisions drove a loss of €364 million. Combine the two with some movements in other areas and we had an operating loss for the Group of some €197 million which was very close to the performance in 2009.”
Group Financial Performance:
The Group recorded an Operating Loss of €197 million [2009: €196 million]. Key factors here were a profit in the life business of €160 million [2009: €102 million] minus a loss in the banking business of €364 million [2009: €270 million].
The loss in the bank is directly linked to the large amount of provisions being set aside for impairment charges. In 2010 the bank made provisions of €420 million [2009: €376 million]. Of this figure €242 million is impairment provisions for Irish residential mortgages [2009: €154 million.] If the cost of impairments was stripped out, the bank would have recorded an Operating Profit of some €56 million for 2010.
Life Business:
The life assurance businesses [Irish Life and Irish Life Investment Managers] secured very positive results for the year.
Life Operating Profits were up 57% to €160 million [2009: €102 million]. This was driven by very strong growth in the value of existing business and a smaller growth in the value of new business. Existing business is benefiting from significant improvements in customer and policy retention levels [stronger persistency] and improved experience variances and assumption changes as well a positive flow through from a higher risk discount rate.
Improving persistency levels has been a priority for the Group for the past 18 months and we made important progress on this agenda throughout 2010. Our approach to this issue included revamping seller and distribution remuneration systems, changing our product features and actively managing the agenda with customers on a day-to-day basis.
Sales in the life business were 6% ahead of the figure for 2009 at €572 million on an APE basis. This was led by an outstanding performance in Irish Life Investment Managers where the business secured an additional €2.5 billion in money to manage. Sales in the Retail business were down 8% on the back of weaker demand for pensions while sales in Corporate Business were down 16% driven by flat salaries and reduced employee numbers in client companies.
Banking Business:
In permanent tsb bank, the key issue was impairment provisions. In light of the continuing weakness in the Irish property market and the likely impact of the recent austerity budget, we took the decision to increase impairment provisions by €100 million which raised the value of provisions made during 2010 to €420 million [2009: €376 million].
Excluding impairment provisions, the bank generated an operating profit of some €56 million [2009: €106 million].
Net Interest Income rose by 7% to €402 million [2009: €375 million] and the Net Interest Margin [excluding cost of ELG scheme] for the year was 86 bps [2009: 83 bps]. The results highlight the growing cost of the Government Guarantee which stood at €110 million - up from €29 million in 2009.
Funding
In respect of Funding, the results reveal that the bank successfully issued €5 billion on the debt markets in 2010 before markets effectively closed to Irish debt in the closing months of the year.
The bank again grew its retail deposit book in 2010 increasing by €1.1 billion to €11 billion. And last week the bank secured a further €3.6 billion in deposits from the Irish Nationwide Building Society.
As at the end of 2010, 52% of the bank’s funding came from stable sources (2009: 48%) and the loan to deposit ratio remained at 249% (2009: 246%). The addition of the Nationwide book, applied to the year end numbers, would have generated a stable funding ratio of around 60% and a loan to deposit ratio of approximately 200%.
There is no significant refinancing requirement of any note until 2013.
Arrears
Arrears in the Group’s UK Mortgage book and its Consumer Finance [including Car Finance] book in Ireland both declined during the year. In the Group’s Irish Mortgage Book, total arrears cases increased by 49%. Accounts in arrears for more than 90 days increased by 67% while arrears cases on accounts less than 90 days increased by just 18%. A continuation of this trend in early arrears [with no increase in case numbers in the second half of the year] will ultimately lead to a slow down in the growth of the longer than 90 days cases.
Please see full details of the results – and related commentary – on the Results centre page
Further Information:
Ray Gordon
Gordon MRM
Ph: + 353 1 6650452
Ph: + 353 87 2417373