Interim Management Statement

RNS Number : 9999H
Irish Life & Permanent PLC
12 November 2008

Irish life & Permanent plc Interim Management Statement

12th November 2008

12.00pm

Irish Life & Permanent plc ("IL&P") issued the following update on the group's business and expected performance in 2008. A conference
call will be hosted by management at 14.30 GMT today, the details of which are set out at the end of this statement.

Overview

The deterioration in the economic environment and the continuing dislocation in credit markets have created a challenging environment
for banking businesses in Ireland and elsewhere. Chief among market concerns are funding, asset quality and capital adequacy.
Notwithstanding the clearly challenging environment IL&P considers that it is well placed to manage each of these issues.

The introduction of the funding guarantee scheme by the Irish government on September 30th, coupled with concerted actions by monetary
authorities have significantly eased the supply of funding for the group's banking business. The low risk nature of the group's banking loan
book - with almost 98% of lending secured and of which 88% consists of residential mortgage lending - greatly reduces the level of
impairment risk to which the group is exposed. And the combined capital strength and flexibility of the group's banking and life assurance
businesses ensures that it can continue to maintain its very strong capital position through the cycle.

Banking

Funding & Margins

IL&P is participating in the government guarantee scheme covering bank liabilities - retail, corporate and interbank deposits, senior
unsecured debt, covered bonds and dated subordinated debt - and which extends to September 2010. This intervention has improved access to
liquidity and creates the opportunity for the bank to pursue the objective of further diversifying its funding. In particular we have an
objective to increase the bank's deposit base and a number of initiatives are being implemented to create an expanded resource gathering
capability in Ireland and the UK for commercial and retail deposits. As of 31 October the combined deposit and long term funding amounted to
close to 70% of total funding.

Whilst access to liquidity has improved the cost of wholesale funding remains stubbornly high and well in excess of the historic spreads
over ECB base rates. This is the main contributor to the expected reduction in the full year net interest margin from 117bps in 2007 to 101
- 103bps for 2008, slightly ahead of previous guidance of 98 - 100bps. This reduction includes the incremental cost of the refinanced long
term debt in the second half of the year as well as the cost of the government guarantee scheme for the final quarter, but is mitigated by
the extended amortisation of mortgage acquisition costs due to the slowdown in redemption activity.

Asset Quality

permanent tsb bank has a low risk loan portfolio with no exposure to Corporate, SME or property development lending. As a result, the
level of through the cycle impairments likely to be incurred by the bank will be low compared with banks that have a material exposure to
these sectors. Our stress models, which we have updated to reflect the latest consensus forecasts for Irish and UK economic performance and
house price declines, point to an aggregate through the cycle (next three years) impairment charge of between 60 to 80 basis points as
previously indicated. The Group's strong capital position can comfortably accommodate this level of bad debt charge without requiring access
to external capital support.

Credit quality across the bank's loan book continues to be strong. However the economic slowdown and consequent rise in unemployment is,
as expected, beginning to manifest itself in an increase in arrears across the bank's loan portfolios albeit from a low base.

The number of Irish mortgage cases, over one month in arrears, has increased to 6,600 at the end September from the low of 5,700 as of
December 2007 out of a total portfolio of over 195,000 cases. Irish mortgage NPL cases (90+ days overdue and impaired) as of 30 September
2008 were 1.67% against 1.48% at 31 December 2007. The impairment charge for this book for 2008 will be low single digit basis points.

The UK property market is deteriorating as the economy weakens and house prices decline. The bank's UK subsidiary, Capital Home Loans
(CHL), has seen its three month plus arrears cases (including repossessions) in its buy-to-let (BTL) book increase from 77bps at end June to
115bps at end September. This compares with the UK Council for Mortgage Lenders BTL industry average for the end of June of 140bps. CHL's
focus on the professional investor sector and its minimal exposure to higher risk new build city centre apartments should see it continue to
out-perform. Affordability in the sector will benefit from the recent sharp reduction in UK rates which should moderate further developments
in arrears.

The consumer finance book has been impacted by the slowdown in the car market which has resulted in a fall in the value of second hand
cars generally. Lower recovery values have, in turn, led to a higher level of collective provisioning on this portfolio.

The increased provisioning in respect of the car finance loan book together with the assumption of a continuation of credit trends for
the remainder of the year is expected to result in a loan impairment charge for the full year of circa 11bps.

As previously announced the bank's Treasury portfolio of EUR2.3bn includes EUR92m net exposure on senior debt issued by the three
Icelandic banks which have been taken under government control. Given the uncertainty as to recovery an impairment charge for this amount
will most likely be made in 2008 and would be charged in full to the profit and loss account.

The Bank is a net debtor of the Lehman Brothers Group. It holds "out of the money" derivative positions which have defaulted and, in
line with market practice, have been closed. These derivatives more than cover an investment in Lehman Group bonds totalling EUR30m. The
Bank believes that it has good grounds for set off between the two amounts and, accordingly, has not created any impairment charge against
its investment. The Life company unit-linked funds hold an investment with Lehman Brothers valued at EUR19m and will set up reserves at the
year end to cover any potential loss.

Lending & new business

In the unprecedented liquidity conditions in the market ILP has adopted a cautious approach to new lending and balance sheet growth.
Loan growth for the full year is expected to be circa 5%. CHL has been closed to new lending since March and in Ireland commercial property
lending has been discontinued and residential investment property lending severely curtailed. The bank's lending priorities are mortgages
for home buyers and personal lending for bank customers. Total gross new lending for 2008 is expected to be down about 45% on 2007
reflecting the above actions and the sharp fall off in activity in the housing market.

The success of the bank in building its retail franchise and in attracting new current account customers continues apace and it is on
target to add a further 50,000 new customers in 2008.

Life & Pensions

New business

The diversity of Irish Life's business and its leading position in the Irish market put it in a strong position in the current
challenging market environment. The Corporate Pensions division is demonstrating its resilience and is expected to record steady growth in
its business and Irish Life Investment Managers should see institutional inflows of over EUR2bn for the year reflecting its dominant
position in the Irish market. The continued falls in investment and property markets coupled with the accelerated slowdown in the economy
have however dented investor confidence and impacted new business volumes in the Retail division where, not surprisingly, sales of
investment and savings products will be down sharply on 2007. Overall life sales (excluding investment sales by ILIM) for the year are
expected to be down between 20 - 25% on what was a record year in 2007, but still ahead of the 2006 sales, and ahead of the expected market
outcome for the year.

Lower than expected volumes will impact the life new business margin which is expected to be approximately 14 / 15%, as against previous
guidance of 16 / 17%. Given its business mix in 2008 ILIM expects to record an increase in its margin to just under 10%.

In-force

The in-force book continues to perform well. The combined return from the unwind of the risk discount rate and expected investment
return will see good growth in the year. However adverse persistency - primarily on investment and savings contracts in Retail - will more
than offset the continuing positive risk experience from both the Retail and Corporate books. Operating assumptions changes are expected to
be strongly positive reflecting both risk experience and reduced unit costs but off-set by changes in respect of persistency. The combined
experience variances and assumption changes are expected to be about EUR30m positive.

Embedded Value

The falls in investment markets and asset values recorded in the first half of the year have continued unabated into the second half
further impacting the embedded value of the life assurance business primarily through the reduction in the present value of future
management fee income and asset revaluation.

For the first half of 2008 short term investment fluctuations were a negative EUR230m and as of end of the last week were estimated at
circa EUR540m negative of which c.EUR360m comprised management fees, c.EUR80m shareholder property revaluations and EUR29m attributable to
the write-down of the remaining balance of the group's holding in the Sigma investment fund. Reducing interest rates will however have a
positive effect on economic assumptions in the region of EUR40m.

At this point, and assuming no further material changes, the year end embedded value of the group's insurance and investment business
would be in the region of EUR1.7bn [30 Jun'08: EUR1,900m] equivalent to over EUR6 per share.

Capital & Dividends

The group has a very strong and flexible capital position. The bank's total and Tier 1 capital at the end of June was 10.1% and the
expected position at the end of 2008 is estimated to be close to 10% including full year earnings and net of write-offs and interim dividend
payment.

As was indicated in our Interim results announcement the group has a substantial store of surplus capital which will be released as the
new Solvency 2 regime is implemented. It is possible to accelerate access to that store of capital through a number of mechanisms including
financial reinsurance and securitisation of a portion of the life in-force portfolio.

We have taken an important first step in the process of accessing this store of capital having finalised the terms of a financial
reinsurance treaty with Swiss Re which will release capital required in Irish Life Assurance of circa EUR100m in 2008 and will further
reduce future capital requirements over the next 2 / 3 years by between EUR100m and EUR150m depending on life new business volumes and
experience on the block reinsured.

The interim dividend of 22.5 cent per share, which was announced with our Interim results on the 27th August, is being paid today as
scheduled.

However, in the context of the extraordinary changes we have seen in financial markets generally in recent months including the
introduction of the Government Guarantee Scheme in Ireland and conscious of the approach being taken on this issue by financial institutions
both in Ireland and internationally, we do not propose to recommend the payment of a final dividend for 2008. This will, of course, further
reinforce our strong capital position.

Group pre-tax Operating Profit

In response to the slowdown in new business activity there has been an increasing focus on cost management across the group. Overall
group costs for 2008 will increase by about 2% and a range of further actions are being planned to reduce costs in 2009.

Life earnings are expected to be lower than previously guided due mainly to lower new business profits and negative operating variances.
Bank earnings, prior to any provision in respect of the Icelandic bank debt, are expected to be slightly ahead of previous guidance. Our
expected share of profits from our associate business, Allianz Ireland, remains unchanged.

Overall group pre-tax operating profit, including the impairment provision in respect of the Icelandic bank debt, is expected to be down
about 30% on the 2007 result.
Excluding this provision, the expected group operating profit for 2008 would reduce by 15% on 2007.

Analyst Conference Call Details

Denis Casey, Group Chief Executive and Peter Fitzpatrick, Group Finance Director, will host a conference call for analysts at 14.30 GMT
on Wed 12 Nov.

To join the conference call, please dial in to the relevant number below 5-10 minutes before and ask for the Irish Life & Permanent
call

Irish participant number (01) 486 0917
UK participant number (0) 20 7138 0813
US participant number 718 354 1359
Other participants +353 1 486 0917

The conference call will also be available via the LIVE service on Bloomberg and Thomson Reuters www.streetevents.com. A replay
facility will be available until midnight 18 November 2008 details of which are available on the group web site www.irishlifepermanent.ie

Contact details

David McCarthy, Group Chief Financial Officer
Tel: +353 1 856 3050

Barry Walsh, Head of Investor Relations
Tel: +353 1 704 2678

Ray Gordon, MKC Consultants
Tel: +353 1 6788099

Disclaimer - Forward Looking Statements
This document may contain forward-looking statements with respect to certain plans and current goals and expectations relating to the
future financial condition, business performance and results of the Irish Life & Permanent group. By their nature, all forward-looking
statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Irish Life
& Permanent group including, amongst other things, Irish domestic and global economic and business conditions, market related risks such as
fluctuations in interest rates and exchange rates, inflation, deflation, the impact of competition, changes in customer preferences, risks
concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or
other combinations within relevant industries, the policies and actions of regulatory authorities, the impact of tax or other legislation
and other regulations in the jurisdictions in which the Irish Life & Permanent group and its affiliates operate. As a result, the Irish Life & Permanent group's actual future financial
conditions, business performance and results may differ materially from the plans, goals, and expectations expressed or implied in these
forward-looking statements.

This information is provided by RNS
The company news service from the London Stock Exchange

END

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