IPM Irish Life&P.Gp

 

TIDMIPM 
 
RNS Number : 6003C 
Irish Life & Permanent PLC 
17 November 2009 
 

Irish Life & Permanent plc Interim Management Statement 
Tues 17th November 2009 - 7.00am 
 
 
Irish Life & Permanent plc (IL&P) issued the following update on the group's 
business. A conference call for analysts will be hosted by management at 9.30am 
today, the details of which are set out at the end of this statement. 
 
 
 
 
Group Overview 
 
 
The Group expects that 2009 will see the worst of the current economic downturn 
in Ireland with GDP forecast to fall by 7-8% and unemployment increasing to 
12-13%. The pace of the decline slowed considerably in the second half of the 
year and expectations for 2010 are for a 1-2% decline in GDP with unemployment 
expected to increase further to around 14%. 
 
 
Debt market conditions have improved significantly during the second half of the 
year with funding markets reopening, although the cost of funding - particularly 
deposits - remain well above what the Group considers to be normal levels. 
 
 
The economic environment has affected the Group with lower new business volumes 
and tighter margins across all businesses and, as expected in the banking 
business, rising impairments in its loan book. 
 
 
In response to these difficult conditions the Group has been cutting its cost 
base to reflect lower activity levels, improving the banking business funding 
mix and working with its customers to help manage their financial commitments as 
their disposable incomes have reduced. 
 
 
At the same time the Group has been making good progress on its strategy, 
including its reorganisation plan, with an EGM scheduled for 17 December next to 
approve the creation of a new holding company for the Group. 
 
 
 
 
 
 
Life & Pensions 
 
 
New business 
The Retail and Corporate divisions of Irish Life Assurance are both experiencing 
weaker demand but Irish Life Investment Managers (ILIM) continues to perform 
strongly. 
 
 
Overall life sales (APE basis) for the year are expected to be down by 
approximately 35% on 2008. Retail investors remain cautious with a low appetite 
for investment products while reduced SME profitability and cashflows have 
contributed to lower pension volumes. Employment growth and salary increases are 
the principal drivers of sales in the Corporate division and adverse trends in 
both of those drivers account for the expected reduction in sales in 2009. 
 
 
ILIM expects to receive gross inflows of about EUR1.7bn for the year reflecting 
its strong investment performance and its leading position in the market. 
 
 
The life new business margin (APE basis) for the year is expected to be in the 
range of 9-10% (2008:15.1%) with ILIM's margin at 6-7% (2008:11.4%). 
 
 
In-force 
As previously guided by the Group adverse persistency experience is expected to 
account for the majority of the expected negative variances on the in-force book 
for the year. Persistency trends in Retail are improving but are partly offset 
by some deterioration in Corporate business. The other significant negative 
variance relates to expenses, consisting of the cost of a voluntary severance 
scheme for staff and the cost borne in respect of the life policy levy imposed 
by the Government earlier this year. Risk experience continues to be strongly 
positive. 
 
 
Year end assumption changes will be made in respect of persistency (negative), 
expenses (positive) and risk (positive). 
 
 
The aggregate impact of experience variances and assumption changes for the year 
is expected to be between EUR60-70m negative. 
 
 
 
 
Embedded value 
The estimated impact in the year to date of Short Term Investment Fluctuations 
("STIFs") on the life business embedded value is EUR105m negative. As of 30 June 
2009 the impact was EUR80m negative. 
 
 
While policyholder funds have benefited from positive equity market 
movements, year to date, this has been offset by the steep declines in property 
funds. The overall average fund growth to date has been just ahead of embedded 
value assumptions. 
 
 
However the decline in property values has also directly impacted the value of 
shareholder owned and occupied property as well as the value of shareholder 
capital and commitments in property funds. The total of these property related 
STIFs is currently estimated at about EUR105m negative. 
 
 
The reduction in Irish Government bond yields since 30 June 2009 has 
been positive for the embedded value effect of economic assumption changes which 
are now estimated at EUR35m negative for the full year compared with a first half 
2009 impact of EUR89m negative. 
 
 
 
 
Banking 
 
 
Lending 
Lending demand in permanent tsb's core lending franchises - home mortgages and 
consumer finance - continues to be weak and new advances for the full year will 
be approximately 80% lower than in 2008. Redemption rates across the loan 
portfolio continue to be exceptionally low compared to previous years. Overall 
the bank's loan book is expected to decline modestly through 2009. 
 
 
Funding 
After a very difficult start to the year liquidity conditions have generally 
improved over recent months. Dependence on ECB drawings has been significantly 
reduced and currently amounts to EUR7bn, down from EUR12bn at the end of June 2009. 
 
 
The banking business has successfully pursued its policy of growing its deposit 
funding with retail deposits expected to grow approximately 20% for the year. 
Strong growth is also being recorded in Irish corporate deposits after the 
general outflow, out of Ireland, of overseas deposits, particularly UK, early in 
2009. The increased deposit funding has however come at a higher cost given the 
highly competitive nature of the deposit market at present. 
 
 
The bank has raised approximately EUR3bn in term funding this year and expects to 
return to funding in term debt markets once the new government Eligible 
Liabilities Guarantee (ELG) Scheme is in place. 
 
 
Margins 
Wholesale and deposit funding costs continue to be high while low base rates 
have reduced liability margins. The net interest margin for the full year is 
expected to be between 80 and 85 basis points. This is lower than previous 
guidance given by the Group and reflects the increased cost of deposits, both 
retail and commercial, and the reduction in the amount of lower cost ECB funding 
drawn in the second half of the year. 
 
 
Credit quality 
The trends in arrears in the bank's loan book are broadly in line with the 
position reported in the Group's 2009 Interim Report. 
 
 
In the Irish residential mortgage book arrears continue to rise but the rate of 
growth has moderated. Arrears cases, over 90 days due, increased by 3% in both 
September and October versus an average monthly increase of 8% to August. The 
amount of over 30 to 90 days due cases are broadly unchanged from June 2009. 
 
 
In the bank's UK residential mortgage business, Capital Home Loans ("CHL"), the 
over 3 months due arrears cases at the end of October were over 20% below the 
peak in March 2009 while the over 1 to 3 months due cases remain broadly flat. 
CHL's arrears experience to end September 2009 is consistent with, but better 
than, the buy-to-let sector as a whole. 
 
 
Impairment provisions for the second half of the year are expected to be broadly 
in line with the first half. This is higher than previously guided by the Group 
with the largest element of the increase being in respect of commercial property 
where values continue to decline. 
 
 
The higher level of provisioning in 2009 will add to the total impairment 
provisions for the three years to 2011, giving an estimated total of between 
EUR800m and EUR900m. 
 
 
 
 
Associate - Allianz Ireland 
 
 
Trading conditions remain challenging in the general insurance market in Ireland 
with difficulty in securing required rate increases and with customers reducing 
the amount of their insurance cover. The second half contribution from Allianz 
to the Group is expected to be in line with the first half of the year. 
 
 
 
 
Group 
 
 
Costs 
A range of cost reduction initiatives have been, and are being, taken across the 
group in response to the reduced levels of business and associated margin 
pressures. Underlying operating costs in the bank and life businesses are 
expected to decrease by over EUR50m in 2009, a reduction of around 10% compared to 
2008. Exceptional costs, including the costs of severance schemes and of the 
Group restructuring will however arise at both divisional and Group level in the 
year. 
 
 
Capital 
The group remains well capitalised with its Tier 1 capital ratio comfortably 
ahead of regulatory requirements. 
 
 
Restructure 
Good progress has been made on plans to restructure the group to provide it with 
greater financial flexibility. 
 
 
An EGM to approve the creation of a new holding company is scheduled for 17 
December 2009 with a target date for the listing of the new holding company's 
shares in mid-January 2010. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conference Call & Contact Details 
 
 
Kevin Murphy, Group CEO and David McCarthy, Group Finance Director, will host a 
conference call for analysts at 9.30am on Tuesday November 17th 2009. 
 
 
To join the conference call, please dial in to the relevant number below 5 
minutes before and ask for the Irish Life & Permanent call 
Ireland(01) 247 5352 
UK(0) 20 8609 0205 
Other +353 1 247 5352 
 
 
Pass code: 343073# 
 
 
The conference call will also be available via the LIVE<GO> service on Bloomberg 
and Thomson Reuters www.streetevents.com. 
 
 
Conference Call Replay 
Replay facility available until midnight 24 November 2009. The telephone numbers 
and access code are: 
 
 
Ireland    (01) 447 5559 
UK          (0) 20 8609 0289 
US          703 621 9126 
Other    +353 1 447 5559 
 
 
Pass code: 276472# 
 
 
 
 
 
 
 
 
Contact details 
 
 
David McCarthy, Finance Director 
Tel: +353 1 856 3050 
 
 
Barry Walsh, Head of Investor Relations 
Tel: +353 1 704 2678 
 
 
Orla Brannigan, Investor Relations 
Tel: +353 1 704 1345 
 
 
Ray Gordon, Gordon MRM 
Tel: +353 1 665 0450 
 
 
 
 
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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