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Allied Irish Banks, p.l.c.
Report & Accounts
2004
AIB Group
Bankcentre
PO BOX 452
Dublin 4
Ireland
Tel. +353 (0) 1 660 0311
www.aibgroup.com
www.aibgroup.com/investorrelations
www.aibgroup.com/pressoffice
Contents
3
4
6
8
11
12
14
26
31
42
56
58
64
69
71
72
73
74
74
74
75
Financial highlights
Chairman’s statement
AIB Board/Executive Committee
Group Chief Executive’s review
Corporate Social Responsibility
AIB and its people
Performance review
Divisional Commentary
Financial review
Implementation of IFRS
Report of the Directors
Corporate Governance
Accounting policies
Consolidated profit and loss account
Consolidated balance sheet
Balance sheet Allied Irish Banks, p.l.c.
Consolidated cash flow statement
Statement of total recognised gains and losses
Reconciliation of movements in shareholders’ funds
Note of historical cost profits and losses
Notes to the accounts
149
Statement of Directors’ responsibilities in relation to the Accounts
150
Independent auditors’ report
152
Additional financial information
153
Accounts in sterling, US dollars and Polish zloty
154
Five year financial summary
156
Principal addresses
158
Additional information for shareholders
162
Financial calendar
163
Index
1
Forward-Looking Information
This document contains certain forward-looking statements within the meaning
of the United States Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations and business of the
Group and certain of the plans and objectives of the Group. In particular,
among other statements, certain statements in the Chairman’s statement, the
Group Chief Executive’s review, the Performance review and the Financial review
with regard to management objectives, trends in results of operations, margins,
risk management, competition and the impact of International Accounting
Standards are forward-looking in nature. By their nature, forward-looking
statements involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. There are a number
of factors that could cause actual results and developments to differ materially
from those expressed or implied by these forward-looking statements. These
factors include, but are not limited to, changes in economic conditions globally
and in the regions in which the Group conducts its business, changes in fiscal or
other policies adopted by various governments and regulatory authorities, the
effects of competition in the geographic and business areas in which the Group
conducts its operations, the ability to increase market share and control
expenses, the effects of changes in taxation or accounting standards and
practices, acquisitions, future exchange and interest rates and the success of
the Group in managing these events. Any forward-looking statements made
by or on behalf of the Group speak only as of the date they are made.
AIB cautions that the foregoing list of important factors is not exhaustive.
Investors and others should carefully consider the foregoing factors and other
uncertainties and events when making an investment decision based on any
forward-looking statement. In light of these risks, uncertainties and assumptions,
the forward-looking events discussed in this Report may not occur.
2
Financial highlights
for the year ended 31 December 2004
Results
Total operating income
Group profit before taxation
Profit attributable
Profit retained
Per € 0.32 ordinary share
Earnings – basic (note 21)
Earnings – adjusted (note 21)
Earnings – diluted (note 21)
Dividend
Dividend cover – times
Net assets
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity
Return on average ordinary shareholders’ equity - tangible(1)
Balance sheet
Total assets
Shareholders’ funds: equity interests
Loans etc
Deposits etc
Capital ratios
Tier 1 capital
Total capital
2004
€ m
3,264
1,418
1,047
477
122.9c
133.1c
122.4c
59.40c
2.0
628c
1.17%
20.2%
29.6%
102,240
5,399
67,156
83,630
2003
€ m
3,176
1,011
677
174
78.8c
109.5c
78.4c
54.00c
1.5
587c
0.90%
14.5%
20.0%
80,960
4,942
53,326
66,195
2002
€ m
3,927
1,372
1,034
560
119.1c
122.7c
117.9c
49.06c
2.4
471c
1.24%
23.7%
27.4%
85,821
4,180
58,483
72,190
7.9%
10.7%
7.1%
10.4%
6.9%
10.1%
(1) Tangible shareholders’ equity excludes capitalised goodwill of € 1.2 billion at 31 December 2004 (2003: € 1.4 billion;
2002: € 0.5 billion). In addition, profit attributable has been adjusted to exclude goodwill amortisation and impairment of
€ 90.4 million at 31 December 2004 (2003: € 72.6 million; 2002: € 31.7 million) in arriving at return on average ordinary
shareholders’ equity - tangible.
Allied Irish Banks, p.l.c.
Group Headquarters &
Registered Office
Bankcentre, Ballsbridge
Dublin 4, Ireland
Telephone (01) 6600311
Registered number 24173
3
Chairman’s statement
I am pleased to report that AIB achieved excellent
financial results in 2004. Our total shareholder
return in 2004 was 26% which puts us well ahead
of our peer group.
The fact that these results were achieved against
the backdrop of the foreign exchange charges
issue in the Republic of Ireland speaks eloquently
of the skill and commitment of the staff in all
divisions and the strength of our relationships
with our customers, as well as their loyalty and
understanding. I want to thank AIB’s staff and
management for their outstanding contribution
in 2004. I also want to thank AIB’s customers
across the group for their understanding during
what was at times a difficult year.
Regulatory issues arising in 2004
Uniquely among developed countries, banking
charges in Ireland are price regulated. In May
2004, the Irish Financial Services Regulatory
Authority (IFSRA) discovered that some charges
filed with them by AIB in the mid-1990s for
foreign exchange (FX) did not correspond with
the rates charged at the counter. Although the
rates charged at the counter were market rates
which as a matter of law we were entitled to
charge, we decided that we would refund the
difference between the charges as filed and
the actual charges applied.
We did this because filing inaccurately breached
our obligations to our regulator, IFSRA, and our
customers, each of whom should be able to trust
us without question on a matter such as this.
We took a €50 million charge in our 2004
accounts to cover refunds and costs relating to this
and some other smaller (non-FX) charging issues.
Out of the €50 million figure, €36 million has
been set aside for customer refunds, including
interest. €25.6 million (including interest) of this
was specifically for FX refunds with the balance
relating to other refunds. Associated costs, for
example those connected to the inquiries, made
up the remaining €14 million set aside.
So far, we have refunded more than €17 million
to customers. Despite serious efforts on our part,
both through our branch network and media
notices, to encourage FX refund claims, the flow
of these claims from customers is much lower than
we anticipated.The average refund per transaction
is less than €12.We will continue to honour
valid claims indefinitely.We aim to carry out full
refunds on the non-FX charges matters where
possible. Monies not claimed will be applied to
charitable purposes.
A separate matter concerned tax compliance
issues and some deal allocation practices
connected with an investment vehicle called
Faldor, which was set up in 1989 and terminated
in the mid-1990s. Upon discovery in September
2003, these issues were reported by AIB to IFSRA
and other relevant authorities including the
Revenue Commissioners.
The investigation that followed found that Faldor
was the only investment vehicle of this kind and
that it did not receive any advantage in deal
allocation to the disadvantage of other customers.
The financial impact on AIB of remedying the
matters investigated was not material.The inquiry
also found that high quality deal allocation
practices and standards have been in place in AIB
Investment Managers since 1997. (The Investment
Intermediaries Act of 1995 introduced formal deal
allocation rules in the Irish market.) The Revenue
Commissioners have stated that they have no matter
outstanding in relation to these issues with AIB.
The IFSRA reports on all of these matters were
issued on 23 July and 7 December.
4
Disciplinary action concerning people in our
employment in terms of the Faldor and the
FX charging matters is in progress. On my own
behalf, on behalf of the AIB Board and on behalf
of the company, may I express our sincere
apologies for these lapses.
AIB has reviewed the way staff can raise concerns.
A new Speak Up policy has been introduced
to enhance existing procedures.This gives
staff a choice of contacting AIB’s Regulatory
Compliance department, using confidential
helplines, taking their concerns directly to myself
or the Group CEO or contacting our regulator
directly. As a further alternative employees can
go to an external service provider in the
United Kingdom.
Corporate Governance
Good corporate governance and regulatory
compliance continues to be at the top of the
agenda for companies around the world. AIB,
in common with other banks and financial
institutions, has implemented the Combined Code:
Principles of Good Governance and Code of Best Practice.
This led to changes in our board committees. For
more information on this, see the full corporate
governance statement on page 58.
Board changes
There were changes in the composition of the
AIB Board in 2004. Carol Moffett left the board
after nine years of service. I want to thank her for
her committed service to AIB. In August, Jennifer
Winter and Kieran Crowley were appointed to
the AIB Board. Jennifer Winter is a scientist who
was Managing Director of SmithKline Beecham,
Ireland and Vice-President GlaxoSmithKline, UK,
before taking over as CEO of the Barretstown
Gang Camp, the children's charity. Kieran Crowley
is a chartered accountant and a former Chairman
of the Small Firms Association in Ireland.
Corporate Social Responsibility
AIB aims to be a good corporate citizen and it
was good to see that our CSR approach won a
Chambers of Commerce in Ireland award.
On page 11 you will find more details of AIB’s
achievements and activities in the corporate
social responsibility area.
Dividend
The AIB Board is recommending a final dividend
of EUR 38.5c per share payable on 28 April
2005 to shareholders on the company’s register
of members at the close of business on 4 March
2005.This dividend, when added to the interim
dividend of EUR 20.9c per share, amounts
to a total dividend of EUR 59.4c per share,
an increase of 10% on 2003. It means compound
growth in AIB’s dividend was 12% over the
last five years.
AIB has decided to suspend its dividend
reinvestment plan due to the increasing dilutive
impact on earnings per share growth.This means
the 2004 final dividend will be paid in cash to all
shareholders. A special low-cost dealing facility
will be made available to shareholders to enable
them to increase their holding should they wish.
Outlook
Looking ahead to the rest of 2005, the outlook
is very positive. AIB is focussing on balancing the
demands of continued business growth with the
requirements to carry out its operations in an
efficient, compliant and ethical manner.
Dermot Gleeson
Chairman
21 February 2005
5
The AIB Board and Executive Committee
Board of Directors
Dermot Gleeson BA, Ll M - Chairman
Barrister, and member of the Adjunct Law Faculty of University College Dublin. Former Attorney General of Ireland
and former member of the Council of State. Former Chairman of the Review Body on Higher Remuneration in the
Public Sector. Member of the Royal Irish Academy and Chairman of the Irish Council for Bioethics. Director of the
Gate Theatre and the Barretstown Gang Camp Limited. Joined the Board in 2000, and appointed Chairman in 2003.
(Age 56)
Michael Buckley* MA, LPh, MSI - Group Chief Executive
Former Managing Director, AIB Poland Division and of AIB Capital Markets Division. Former Managing Director,
NCB Group and public servant in Irish Government and EU.Was Chairman of the Review Body on Higher
Remuneration in the Public Sector from 1995 to 2001. Director of M&T Bank Corporation, Buffalo, New York State.
Joined the Board in 1995. (Age 59)
Adrian Burke B Comm, FCA - Audit Committee Chairman
Vice Chairperson of the Institute of European Affairs. Former president of the Institute of Chartered Accountants in
Ireland, former Managing Partner of Arthur Andersen in Ireland, and former Chairman of the Joint Ethics Board of the
Institutes of Chartered Accountants in Ireland, Scotland, and England and Wales. Joined the Board in 1997. (Age 63)
Kieran Crowley BA, FCA
Consultant. Founder of Crowley Services Dublin Ltd., which operates Dyno-Rod franchise in Ireland. Member
of IBEC National Executive Council and former Chairman of Small Firms Association. Joined the Board in
August 2004. (Age 53)
Colm Doherty* B Comm
Managing Director, AIB Capital Markets plc. Joined AIB International Financial Services in 1988, and became its
Managing Director in 1991. Appointed Head of Investment Banking in 1994, and assumed his present position in
1999. Member of the International Financial Services Centre Clearing House Group. Joined the Board in 2003.
(Age 46)
Padraic M Fallon BBS, MA, FRSA
Chairman of Euromoney Institutional Investor PLC and Director of Daily Mail & General Trust Plc in Britain.
Member of the Board of Trinity College Dublin Foundation. Joined the Board in 1988. (Age 58)
Don Godson BE, MIE, FIEI, C Eng
Chairman of Project Management Holdings Ltd. Board Member of the Michael Smurfit Graduate School of Business
at University College Dublin. Former Director and Chief Executive of CRH plc. Joined the Board in 1997. (Age 65)
Sir Derek Higgs BA, FCA
Chairman of Partnerships UK plc and a Senior Adviser to UBS Investment Bank. Deputy Chairman of The British
Land Company PLC, Director of Egg plc, and Jones Lang LaSalle Inc. Author of the “Review of the Role and
Effectiveness of Non-Executive Directors”, conducted at the request of the UK Government. Former Chairman of
S.G.Warburg & Co. Ltd. and former Director of Prudential plc. Joined the Board in 2000. (Age 60)
Gary Kennedy* BA, FCA
Group Director, Finance & Enterprise Technology. Joined AIB and appointed to the Board in 1997. Member of the
Board of the Industrial Development Agency and member of the Galway University Foundation. Director of M&T
Bank Corporation, Buffalo, New York State, and former Vice President Enterprise Networks Europe and Managing
Director, Northern Telecom (Ireland) Ltd. (Age 46)
John B McGuckian BSc Econ - Senior Independent Non-Executive Director
Chairman of Ulster Television plc, Irish Continental Group plc, and AIB Group (UK) p.l.c., and a Director of a
number of other companies in Ireland and the UK. Former Pro-Chancellor of The Queen's University, Belfast, and
former Chairman of The International Fund for Ireland and of the Industrial Development Board for Northern
Ireland. Joined the Board in 1977 and appointed Senior Independent Non-Executive Director in 2003. (Age 65)
6
Aidan McKeon* B Comm, MBS, M Sc (Mgt)
Managing Director, AIB Group (UK) p.l.c. Joined AIB in 1965 and worked in Branch Banking, Human Resources and
Corporate and Commercial Banking. Appointed General Manager, Commercial Banking, in 1989, General Manager,
Britain, in 1996 and to his present position in 1999. Member of the CBI Financial Services Council and of the Executive
Committee of Co-operation Ireland. Joined the Board in 2003. (Age 57)
Jim O’Leary MA, MSI
Lecturer in economics at the National University of Ireland, Maynooth. Former Chief Economist at Davy Stockbrokers,
and former Director of Aer Lingus, the National Statistics Board and Gresham Hotel Group. Joined the Board in 2001.
(Age 48)
Michael J Sullivan JD
Served as US Ambassador to Ireland from January 1999 to June 2001 and as Governor of the State of Wyoming, USA,
between 1987 and 1995. Director of Kerry Group plc, Sletten Construction Inc., Cimarex Energy, Inc., First Interstate
BancSystem, Inc., and a Trustee of the Catholic Diocese of Wyoming. Member of the Bar, State of Wyoming. Joined the
Board in 2001. (Age 65)
Robert G Wilmers
Chairman, President and Chief Executive Officer of M&T Bank Corporation ("M&T"), Buffalo, New York State.
Director of The Business Council of New York State, Inc., the Buffalo Niagara Partnership, and the Andy Warhol
Foundation. Served as Chairman of the New York State Bankers’ Association in 2002, and as a Director of the Federal
Reserve Bank of New York from 1993 to 1998. Joined the Board in 2003, on the acquisition by AIB of a strategic stake
in M&T. (Age 70)
Jennifer Winter BSc
Chief Executive, the Barretstown Gang Camp Limited. Former Vice President GlaxoSmithKline Pharmaceuticals UK and
former Managing Director of SmithKline Beecham, Ireland. Joined the Board in August 2004. (Age 44)
* Executive Directors
Board Committees
Information concerning membership of the Board’s Audit, Nomination & Corporate Governance, Remuneration, and
Corporate Social Responsibility Committees is given in the Corporate Governance statement on pages 58 to 63.
Group Executive Committee
Michael Buckley – Group Chief Executive
Shom Bhattacharya – Group Chief Risk Officer
Gerry Byrne – Managing Director, AIB Poland Division
Colm Doherty – Managing Director, AIB Capital Markets
Donal Forde – Managing Director, AIB Bank (RoI)
Gary Kennedy – Group Director, Finance & Enterprise Technology
Mike Lewis – Head of Group Strategic Human Resources
Aidan McKeon – Managing Director, AIB Group (UK) p.l.c.
7
Group Chief Executive’s Review
AIB’s financial performance in 2004 was a story
of strong, broadly-based growth across all our
markets.This was all the more remarkable for
being achieved despite the many challenges faced
by the group during the year, especially in the
Republic of Ireland.
The FX charging issue and other regulatory
matters are dealt with in greater detail in the
Chairman’s Statement.
I would like to make two points about these
matters.We have agreed a detailed Management
Action Plan with our Irish regulator, the Irish
Financial Services Regulatory Authority. This
plan, which will be implemented vigorously, aims
to improve and simplify product delivery processes
in the Republic of Ireland, as well as further
strengthen enterprise-wide quality assurance, risk
and compliance functions.This will build on the
work started in 2002 in the areas of risk,
compliance and internal audit.
Research undertaken at the height of the public
scrutiny showed an understandable fall-off in
employee morale. But our staff survey in October
indicated that morale was recovering.This survey
also found that AIB remains ahead of the Global
ISR Financial Services norms in terms of staff
attitudes in 11 out of the 13 categories examined.
For more on this, see pages 12 and 13.
Business Performance
The events of 2004 reaffirmed the strengths of
our people in managing customer relationships.
I want to acknowledge the contribution of all our
employees to this excellent business performance.
Growth was the keyword in terms of our 2004
results. AIB’s adjusted earnings per share for 2004
rose by 13% when compared to a 2003 base of
EUR 118.0 cent which excludes restructuring
and early retirement costs. Our tangible return on
equity was 29.6%. Asset quality remained strong
and our capital position was strengthened with
Tier 1 now at 7.9%.
We had strong income growth of 11%. Our cost
growth was well contained at 7%, of which 1%
was due to the investigation costs. As a result,
we materially improved our productivity and
our tangible cost income ratio fell 2% to 56.3%.
So what were the reasons behind our strong 2004
performance? In many ways, this was due to the
improvements we have made in recent years in
organising ourselves to provide a distinctive
proposition to our customers.
There are three main elements to this work.
Firstly, we have a cadre of dedicated relationship
managers based in our branches. Secondly, we
have regional business banking centres, staffed by
experienced business developers backed by
localised credit support teams. Finally, we have
centrally-based teams with specialist sectoral
expertise as well as a well-developed direct
banking service.
This structure supports AIB’s distinctive and
traditional strengths in relationship building. It is
important that we continue to invest in
infrastructure and technology - and that we
continue to develop the skills and professionalism
of our people.
8
I am happy that we continue to make real
progress in winning market share across all our
markets.These gains were achieved in intensely
competitive sectors such as mortgages, deposits,
business and personal lending, stockbroking and
investment products.
Our goals for 2004 included volume growth
in our businesses in the Republic, the UK and
the US and stronger bottom-line performance
from our Poland division. I am pleased that we
achieved these objectives. AIB is operating in
strongly growing economies - and each of
our divisions delivered impressive profit
growth performance.
AIB Bank Republic of Ireland division saw its
profit rise by 11% - this would have been 19% if
the €50 million charge for the FX and related
matters was excluded.The Irish economy was
back on a fast growth track in 2004 and the
division generated loan and deposit growth well
ahead of the overall market. Loans increased by
30%. Deposit growth was a particular focus in the
year with an increase of 16%, compared with 9%
in the previous year. Business banking, mortgage
and credit card businesses also did particularly
well. AIB Bank in the Republic also achieved
improved productivity and had a reduced bad
debt provision charge.
Profit increased by 16% in AIB Bank GB and NI.
First Trust made market share gains in Northern
Ireland in both business banking and mortgages.
Overall loans grew by 23% and deposits grew by
10%. In Great Britain we have recruited over 90
experienced business development managers in
the last two years. Five new business development
offices and two full business banking branches were
also opened during 2004. GB’s loan book grew by
33% and deposits by 19%. For the sixth time in a
row, Allied Irish Bank (GB) won the Forum of
Private Business Best Business Bank award.
AIB Capital Markets had a very good year,
with the profit contribution growing by 30%.
Corporate Banking, which accounts for about
half of the division's profits, saw 32% loan growth,
with customer demand strong both domestically
and internationally.This was an exceptional
performance. Global Treasury and Investment
Banking business was also substantially ahead
of 2003.
Our Poland division recovered well after a
difficult 2003. Profit on a local currency basis
increased by 135% with good growth recorded in
deposits, mortgages, commercial leasing and credit
cards. Income growth was 8%, with strong cost
management resulting in a reduction in costs of
9%. Fee income growth was very good, thanks
to fine performances from the division’s asset
management, brokerage and international
payments businesses.We now have five specialised
business banking centres in operation in Warsaw,
Krakow,Wroclaw, Poznan and Gdansk.These will
drive our business lending in the years to come.
The operation in Poland is now regarded as one
of the best-managed banks in the country.
M&T’s contribution to AIB on a local currency
basis of US $243 million increased by 15%
relative to our US regional banking interests in
the previous year.This is the latest in a long line
of fine performances and underscores the ability
of M&T’s management to drive growth from
a variety of income sources, depending on
market conditions.
9
Well-managed growth is the theme of our
objectives for 2005.
We are striking a balance between four main aims.
These are:
• continuing strong business growth
• completion of our investment in our enterprise
control infrastructure
• delivery of the regulatory projects to meet new
international standards
• achieving operational excellence improvements.
During 2005 we will be recruiting a Director of
Operations.This role will take ownership of all
operational support activities across the enterprise
and will focus on improving efficiency and service
as well as reducing operational risk.
AIB’s relationship with its customers, its
engagement with its employees – and its wider
contribution to the communities in which it
operates – remain at the heart of everything we do.
Michael Buckley
AIB Group Chief Executive
21 February 2005
Implementing New Regulatory Standards
The volume and frequency of regulatory change
continued apace in 2004.The industry is facing
new requirements under Basel II, Sarbanes Oxley
and International Financial Reporting Standards
as well as a number of directives created by the
EU Financial Services Action Plan, and some
very demanding new Irish corporate governance
legislation and regulatory codes.
During 2004 we saw an increase in the
amount of resources devoted to implementing
new systems and processes to meet these
compliance requirements and, where possible,
deliver business benefits to us.We continue to
regard these projects as strategic imperatives and I
am confident that we will meet these new
regulatory requirements.
Strategy
There is a set AIB approach to doing things that
allows us to deliver a distinctive customer
proposition, wherever we operate.We want to
bring to our customers a distinctive combination
of best products (using third party suppliers where
appropriate to meet customer needs), best service
(with dependability at its heart), best relationships
(built by knowledgeable and engaging employees)
and finally, best delivery (with a wide range of
channels available to our customers accessing
our services).
Looking to 2005
AIB is positioned in high growth economies.We
are seeing very good business momentum to date
in 2005. Our guidance for adjusted earnings per
share growth in 2005, on an Irish GAAP basis,
would be for a range of EUR 142c to EUR
144c. In our home market, the Irish economy is
in a very healthy state, growing at about 5% per
annum. Employment growth in 2004 was 2.8%
and is expected to be broadly similar in 2005.
10
Corporate Social Responsibility
Being a responsible corporate
citizen is very important to AIB,
wherever we operate.We support
the voluntary approach to
corporate social responsibility
and follow best industry practices.
A sub-committee of the main
AIB Board – the Corporate Social
Responsibility Committee –
assists the company in discharging
its social responsibilities.
In November 2004, AIB Bank
in the Republic received the
Chambers of Commerce of
Ireland CSR Award.This
recognised AIB’s development
of flexible workplace practices –
about 14% of AIB staff in the
Republic have a family friendly
working arrangement – as well
as its involvement in community
projects through the Better
Ireland programme.
Business in the Community
AIB takes an active role in
Business in the Community in
both the Republic and Northern
Ireland. BITC is a unique
movement of companies
committed to continually
improving their positive
impact on society.
In Northern Ireland, a
number of First Trust Bank
employees took part in the
BITC’s Ready for Change
initiative, completing short-term
secondments in community and
voluntary organisations. First Trust
Bank Managing Director Dennis
Licence is chairman of BITC
Northern Ireland.
First Trust Bank is also in the
BITC Percent Club, investing at
least 1% of pre-tax profit back
into the community.
Environment
More than 300 AIB and First
Trust Bank branches have
connected to green electricity
since the start of 2004.This
environmentally friendly
electricity is generated from
renewable resources such as
wind, low-impact hydroelectric
developments and biomass energy.
AIB plans to connect head
office locations in the Republic to
another form of environmentally
friendly electricity called brown
energy generated from resources
such as natural gas.These
locations cannot use green energy
due to the very high demand for
power day and night.
First Trust Bank won a Tidy
Belfast Platinum Award for its
head office buildings and branch
locations in Belfast city centre.
Community
AIB supports a wide variety of
groups in its local communities.
One major initiative is the
AIB Better Ireland Programme.
It focuses on three main issues
affecting children in Ireland –
drug and alcohol abuse,
poverty and its affect on
education, and homelessness.
The programme has donated
almost €9 million to 650 projects
since it began three and a half
years ago. In 2004, €2.84 million
was donated. One of the main
elements of the programme is the
Schoolmate project which was
developed in partnership with
Barnardos, the Irish Society for
the Prevention of Cruelty to
Children and Focus Ireland.
Schoolmate is about improving
the lives of children most at risk
of missing school by supporting a
range of measures aimed at
preventing school failure and
educational disadvantage.
Better Ireland also supports
other groups working in the area
of the three causes as well as staff
involvement.The AIB Partnership
Fund recognises staff commitment
to various charities and projects
by matching any funds they
raise or by making a payment
to the organisation to recognise
the personal time given by
the employee.
Research from Amarach
Consulting conducted in July
2004 found that 45% of Irish
adults identified AIB as the
company most associated
with corporate giving.
AIB Bank in the Republic
launched a website in September
2004 for five to ten year olds.
The site aims to promote financial
literacy through games, guides
and financial information.
Allied Irish America supports
community development by
providing grants to low income
housing organisations. AIA is
also involved in the Painted Turtle
Camp in California which is
affiliated to the Hole in the Wall
Gang camps founded by actor
Paul Newman.
In 2004, BZWBK launched
the Bank of Children’s Smiles.
This focuses on providing
support to children from poor
or unemployed families and last
year helped more than 20,000
children with a donation of more
than PLN 1 million (€240,000).
The AIB Prize is an
annual award which provides
an opportunity for emerging
artists by supporting a first solo
exhibition for the winner.
11
The AIB Code of Business Ethics
Honesty, integrity and fairness are
at the heart of AIB's relationship
with its shareholders, its customers
and other stakeholders. A new
Code of Business Ethics, jointly
sponsored by the Chairman
and the Group Chief Executive,
was launched in January 2004.
The Code sets out our ethical
standards for doing business and
is mandatory for all employees.
The code can be viewed on
the AIB website.
The Code is a central
governance document and
forms the basis for AIB policies,
including a new Speak Up policy.
A Leadership Code for senior
executives was introduced in
October 2004.
AIB is committed to reviewing
the effectiveness of the Code of
Business Ethics on an ongoing
basis to ensure that it is appropriate
to the needs of the business and is
being followed.This was done in
the early part of 2005 and
concluded that staff now have a
high awareness of the ethical
standards required in their job and
that the code is generally well
understood.Work is continuing to
fully embed the Code.
AIB encourages its staff to
speak up through the channels
provided.
BZWBK’s affinity credit card
with the Polish Humanitarian
Organisation continued to raise
funds to provide at least one hot
meal every school day to children
in need. More than 112,000
dinners were provided in 2004.
More than 60 AIB employees
took part in Junior Achievement,
teaching primary and second level
schoolchildren about the world
of business.
Allied Irish Bank (GB) has
a range of sponsorships in the
public sector and with faith-based
charities including the City &
Guilds Bursary, Coleg Gwent,
Epsom College, the Girls
School Association and the State
Boarding Schools Association. It
also has an on-going commitment
to the Duke of Edinburgh’s Award.
In September 2004, First Trust
Bank won the overall award from
the Northern Ireland Council for
Voluntary Action Link Awards.
This award recognised the bank’s
staff charity support for
ChildLine Northern Ireland in
2003. First Trust Bank’s staff
charity for 2004 is the Sargent
Cancer Care for Children.
AIB launched the Staff
Tsunami Fund in partnership
with the aid agency GOAL in
early 2005 in response to the
emergency in South East Asia.
Staff across the group have already
raised more than €800,000 –
which is being matched on a
three to one basis by AIB.The
total is expected to reach €4
million and will be donated to
GOAL for long-term
regeneration projects in Sri Lanka.
AIB and its people
AIB surveys its employees – one
of its most important stakeholders
– with the aim of improving
business performance. By
identifying the key issues for
staff, AIB can focus on improving
those aspects of their working
lives that have maximum impact
on employee engagement,
and therefore on productivity.
In Ireland and the UK AIB
has surveyed staff annually for
a number of years.This survey,
which has voluntary response
rates of over 80%, provides
management with insights on
the views of employees and
informs HR strategy, processes
and practices.This survey
approach was also introduced in
AIB Poland in 2004.
The staff survey has
shown strong and continuous
improvement in most aspects
of working life in AIB in recent
years. Perhaps not surprisingly
given the difficult events of last
year, the 2004 findings show a
reversal in this trend.
However, when AIB is
compared to its peer companies
in the financial services sector,
the employee’s experience of
working life is relatively positive.
Particular AIB strengths include
performance evaluation, training,
goal and role clarity, and
effectiveness of line management.
Teamwork also remains a key
strength of the AIB culture.
While these aspects remain
strong against the ISR Global
High Performance norm, there
are less impressive ratings on
other aspects.
12
Employee Information – AIB Group
Total employees
Number of countries staff employed
2004
23,834
10
2003
23,902
9
Permanent/Temporary Staff (%)
92%(P)/8%(T)
92%(P)/8%(T)
Male/Female employees (%)
34%(M)/66%(F)
34%(M)/66%(F)
Voluntary attrition rate (%)
Participation rate: Employee profit
sharing share scheme (ROI & UK only)
4.8%
90%
4.29%
90%
A number of initiatives have been
put in place in the last six months
to address the issues identified by
staff in the survey.
These include:
•
a commitment to a balanced
approach to pursuing well-
managed growth, ensuring
the right balance between
regulation/control and
empowerment,
reviews of product delivery
processes and procedures,
realignment of a range of
responsibilities through
organisational restructuring,
a substantial Management
Action Programme addressing
the compliance and regulatory
issues that were identified
in 2004.
•
•
•
* All data as at year end
The survey findings in the Poland
division show a very high sense
of capability and role clarity
among all staff.This reflects the
success of the major change
programmes which have taken
place over the past four years.
The findings indicate that
a concentration on line
management people skills will
bring benefits, and that there is
still some way to go in regard to
further training and development
of staff in Poland.
How does AIB compare to external norms?
Percentage point diff. vs. ISR
Global Financial Services Norm
Percentage point diff. vs. ISR
Global High Performance Norm
Performance Evaluation & Coaching
Training & Skills
Goals & Objectives
Local Management
PFI
Teamwork
Leadership
Culture & Climate
Commitment & Loyalty
Work Organisation and Workload
Performance Management & Reward
Values and Ethics
Customer Focus
-1
-3
-20
5
5
4
4
4
4
4
4
2
2
2
-10
0
10
20
4
1
4
0
2
N/A
-10
0
10
20
-2
-8
-3
-6
-1
-7
-6
-20
AIB Group 2004 (N=11,780)
ISR Global Financial Services Norm (N=149,828)
ISR Global High Performance Norm (N=144,522)
Shaded difference bar denotes a statistically significant difference:AIB
Group 2004 vs relevant benchmark
Specific questions on the Code of
Business Ethics were included as
part of the 2004 Staff Survey in
an effort to measure how well the
Code is understood by employees.
This discovered that staff have a
clear understanding of the ethical
standards required in their job and
regard it as relevant to their work.
However, perceptions of its relev-
ance and its help in the working
day varies across the group.
Employees have the
opportunity to raise issues locally
and with senior management
through the group's Speak Up
policy launched in 2004.The
Speak Up policy also provides an
additional external helpline
manned by the charity Public
Concern at Work.
AIB Group employees
nominated more than 15,000
of their colleagues for recognition
awards last year with over
2,000 people honoured.The
Recognition Programme aims
to acknowledge individuals who
actively demonstrate AIB’s key
internal behaviours.
13
Performance review
Translation of foreign
locations’ profits
Approximately 50% of the Group’s
earnings are denominated in
currencies other than the euro. As a
result, movements in exchange rates
can have an impact on earnings
growth. In 2004, the US dollar and
Polish zloty average accounting
rates weakened relative to the euro
by 9% and 3% respectively and
sterling strengthened relative to the
euro by 1% compared with the year
to December 2003.These rate
movements, coupled with hedging
profits of € 28 million in the year
to December 2003 (€ 1 million in
2004) had a 4% negative impact on
the adjusted earnings per share
growth rate in the year to
December 2004.The average
effective rates including, the impact
of currency hedging activities, were
as follows:
€ 1 : US$ 1.17 (2003 : US$ 1.01);
€ 1 : Stg£ 0.70 (2003 : Stg£ 0.67);
€ 1 : PLN 4.58 (2003 : PLN 4.28).
Critical accounting policies
AIB’s financial statements are
prepared under the historical cost
convention as modified by the
revaluation of certain financial
instruments held for dealing
purposes, assets held in the long-
term assurance business and certain
properties.The accounts comply
with Irish statute and with Irish
Generally Accepted Accounting
Principles (‘Irish GAAP’) as well as
general practices followed by the
financial services industry in Ireland
and the UK, except as described in
Note 63 of the Notes to the
accounts. In the preparation of its
financial statements the Group
adopts the accounting policies and
estimation techniques that the
Directors believe are most
appropriate in the circumstances for
the purpose of giving a true and
fair view of the Group’s state of
affairs, income and cashflows.
However, different policies,
estimation techniques and
assumptions in critical areas could
lead to materially different results.
The following are estimates
which are considered to be the
most complex and involve
significant amounts of management
valuation judgements, often in areas
which are inherently uncertain.
Provisions for bad and
doubtful debts
The estimation of potential loan
losses is inherently uncertain and
depends upon many factors,
including loan loss trends, portfolio
grade profiles, local and
international economic climates,
conditions in various industries to
which AIB Group is exposed and
other external factors such as legal
and regulatory requirements. For
example, should the expectation of
loss within a portfolio increase, then
this may result in an increase to the
required general loan loss provision
level.
A specific provision is made
against problem loans when, in the
judgement of management, the
estimated repayment realisable from
the obligor, including the value of
any security available, is likely to fall
short of the amount of principal
and interest outstanding on the
obligor’s loan or overdraft account.
The amount of the specific
provision made in AIB Group’s
consolidated financial statements is
intended to cover the difference
between the balance outstanding on
problem loans and estimated
recoveries.The management process
for the identification of loans
requiring provision is underpinned
by independent tiers of review.
Credit quality and loan loss
provisioning are independently
monitored by head office personnel
on a regular basis. A groupwide
system for grading advances
according to agreed credit criteria
exists with an important objective
being the timely identification of
vulnerable loans so that remedial
action can be taken at the earliest
opportunity. Grading is fundamental
to the determination of
provisioning in AIB Group; it
triggers the process which results in
the creation of a specific provision
on individual loans where there is
doubt on recoverability.
General provisions are also
maintained to cover loans, which
are impaired at balance sheet date
and, while not specifically
identified, are known from
14
14
experience to be present in any
portfolio of loans.
General provisions are maintained
at levels that are deemed appropriate
by management having considered:
credit grading profiles and grading
movements, historic loan loss rates,
changes in credit management,
procedures, processes and policies,
levels of credit management skills,
local and international economic
climates, portfolio sector
profiles/industry conditions and
current estimates of expected loss in
the portfolio.
Estimates of expected loss are
driven by the following key factors;
– Probability of default i.e. the
likelihood of a customer defaulting
on its obligations over the next 12
months,
– Loss given default i.e. the fraction
of the exposure amount that will be
lost in the event of default, and
– Exposure at default i.e. exposure is
calculated by adding the expected
drawn balance plus a percentage of
the unused limits.
Our grading systems have been
internally developed and are
continually being enhanced, e.g.
externally benchmarked, to help
underpin the aforementioned factors
which determine the estimates of
expected loss. Estimated expected loss
is only one element in assessing the
adequacy of our allowances.
All AIB divisions assess and
approve their provisions and
provision adequacy on a quarterly
basis.These provisions are in turn
reviewed and approved by the AIB
Group Credit Committee on a
quarterly basis with ultimate Group
levels being approved by the Group
Audit Committee and the Group
Board of Directors.
Fair value of financial
instruments
Some of the Bank’s financial
instruments are carried at fair value,
including derivatives and debt
securities held for trading purposes.
Financial instruments entered into as
trading transactions, together with
any associated hedging thereof, are
measured at fair value and the
resultant profits and losses are
included in dealing profits.
Financial instruments are either
priced with reference to a quoted
market price for that instrument or
by using a valuation model.Where
the fair value is calculated using
financial-markets pricing models, the
methodology is to calculate the
expected cash flows under the terms
of each specific contract and then
discount these values back to a
present value.These models use as
their basis independently sourced
market parameters including, for
example, interest rate yield curves,
equities and commodities prices,
option volatilities and currency rates.
Most market parameters are either
directly observable or are implied
from instrument prices. However,
where no observable price is available
then instrument fair value will
include a provision for the
uncertainty in the market parameter
based on sale price or subsequent
traded levels.The calculation of fair
value for any financial instrument
may require adjustment of quoted
price or model value to reflect the
cost of credit risk (where not
embedded in underlying models or
prices used), hedging costs not
captured in pricing models and
adjustments to reflect the cost of
exiting illiquid or other significant
positions.This would also include an
estimation of the likely occurrence of
future events which could affect the
cashflows of the financial instrument.
The valuation model used for a
particular instrument, the quality and
liquidity of market data used for
pricing, other fair value adjustments
not specifically captured by the
model and market data are all subject
to internal review and approval
procedures and consistent application
between accounting periods.
Goodwill
In accordance with Financial
Reporting Standard 10 ‘Goodwill
and Intangible Assets’, purchased
goodwill arising on acquisition of
subsidiary and associated
undertakings, occurring after January
1, 1998, is capitalised as an asset on
the balance sheet and amortised to
the profit and loss account over its
estimated useful economic life.The
useful economic life of goodwill is
determined at the time of
acquisition, taking into consideration
factors such as the nature of the
business acquired, the market in
which it operates and its position in
that market. In all cases goodwill is
subject to a maximum life of 20 years
and is subject to review in
accordance with Financial Reporting
Standard 11 ‘Impairment of Fixed
Assets and Goodwill’.
Determining the period over
which to amortise goodwill involves
judgement.The profile of the
amortisation of goodwill would be
different if a useful economic life
longer or shorter than the existing
AIB policy of a maximum of 20
years was used.
15
impairment and equity shares
require the use of estimation
techniques that involve making
assumptions about future market
conditions which could impact on
the timing and amounts
recognised in the consolidated
profit and loss account and the
consolidated balance sheet.
Performance review
Retirement benefits
AIB Group prepares its financial
statements in accordance with
Financial Reporting Standard 17
‘Retirement Benefits’.The Group
provides a number of defined
benefit and defined contribution
retirement benefit schemes in
various geographic locations, the
majority of which are funded. In
relation to the defined benefit
schemes, a full actuarial valuation
is undertaken every three years
and is updated to reflect current
conditions in the intervening
periods. Scheme assets are valued
at market value. Scheme liabilities
are measured on an actuarial basis,
using the projected unit method
and discounted at the current rate
of return on a high quality
corporate bond of equivalent term
and currency to the liability.
Actuarial gains and losses are
recognised immediately in the
statement of total recognised gains
and losses.
In calculating the scheme
liabilities and the charge to the
profit and loss account, the
directors have chosen a number of
assumptions within an acceptable
range, under advice from the
Group’s actuaries.The impact on
the consolidated profit and loss
account and the consolidated
balance sheet could be materially
different if a different set of
assumptions were used.
Long term assurance
Changes in the net present value
of the profits inherent in the in-
force policies of the long-term
assurance business are included in
the profit and loss account. In
estimating the net present value of
the profits inherent in the in-force
policies, the calculations use
assumed economic parameters
(future investment returns, expense
inflation and risk discount rate),
taxation, mortality, persistency,
expenses and the required levels of
regulatory and solvency capital.
The returns on fixed interest
investments are set to market
yields at the period end.The
expense inflation assumption
reflects long-term expectations of
both earnings and retail price
inflation.
The risk discount rate is set to
market yields on Government
securities plus a margin to allow
for the risks borne.The mortality,
persistency and expenses
assumptions are chosen to
represent best estimates of future
experience and are based on
current business experience.There
is an acceptable range in which
these estimates can validly fall, and
the income recognised in the
accounts could be significantly
altered if different estimates had
been chosen.
The application of other
accounting policies, for example,
16
Divisional information
The business of AIB Group is
operated through four major
operating divisions as described
below:
AIB Bank ROI division
The AIB Bank ROI division, with total
assets of € 43.1 billion at 31
December, 2004 encompasses the
Group’s retail and commercial banking
operations in Ireland, Channel Islands
and Isle of Man; AIB Finance &
Leasing; Card Services and AIB’s life
and pensions subsidiary, Ark Life
Assurance Company Limited. AIB
Bank ROI provides banking services
through a distribution network of some
281 locations (190 branches and 91
outlets), and in excess of 682 automatic
teller machines (‘ATMs’). AIB
cardholders also have access to over
53,960 LINK ATMs in the UK as well
as 855,000 Visa Plus serviced ATMs
worldwide. AIB has an agency
agreement with An Post, the national
post office network, which enables AIB
customers to carry out basic
transactions at over 1,000 post office
locations nationwide. A debit card
‘Laser’ is operated jointly with other
financial institutions in Ireland.In
addition, the division offers telephone
and internet banking for the routine
transactions of personal customers
through which they can pay bills,
transfer money between accounts,
search for cheques and view and order
statements. Telephone and internet
banking is also suitable for sole trader
business customers. For other business
customers, an internet based banking
service called iBusiness Banking is
available. It offers secure internet
banking and a comprehensive cash
management solution, including
domestic and cross-border payment
functionality.
Branch banking services are
provided across the range of customer
segments, including individuals, small
and medium sized commercial
customers, farmers and the corporate
sector.Through the branch network,
the division provides a variety of
savings and investment products, loans
and overdrafts, home loans, home
improvement loans, foreign exchange
facilities, a full range of money
transmission services and issues Visa®
and Mastercard® credit cards. AIB
Bank ROI manages its loan portfolio in
accordance with set policies, best
practice guidelines, procedures and
lending criteria. In this regard, specific
policies are in place for significant
portfolios, including Building,
Construction & Property and Home
Mortgages.The division competes
aggressively in the personal market with
home mortgages and credit cards
through highly visible customer value
and rate-led marketing campaigns.
AIB Finance & Leasing is AIB’s
asset financing arm in Ireland. It
markets its services through the AIB
branch network and through
intermediaries with whom it has
established relationships, such as motor
dealers, equipment suppliers, brokers
and other professionals, including
lawyers, accountants and estate agents.
It also lends directly to customers. Its
lending services include vehicle,
equipment and fleet leasing, retail and
investment property loans, vehicle and
equipment hire purchase, insurance
premium financing and personal loans.
AIB’s life assurance subsidiary, Ark
Life Assurance Company Limited,
provides a wide range of financial
planning services including life
assurance, savings and investment
instruments, pensions and inheritance
tax planning. In Ireland, home and
travel insurance products are sold in the
branch network through alliances with
partners in the insurance industry.
AIB Bank GB & NI division
The AIB Bank GB & NI division,
with total assets of € 15.1 billion,
operates in two distinct markets,
Great Britain and Northern Ireland,
with different economies and
operating environments. AIB Group
(UK) p.l.c., registered in the UK and
regulated by the FSA (Financial
Services Authority), operates as the
legal entity for the division.
Great Britain
In this market, the division operates
under the trading name Allied Irish
Bank (GB) from 32 full service
branches and 12 business
development offices.The Divisional
Head Office is located in Uxbridge,
west of London, with significant back
office processing undertaken at a
Divisional Centre in Belfast.
A full service is offered to
business and personal customers,
although there is a clear focus on
relationship banking to the mid-
corporate business sector,
professionals, and high net worth
Individuals.
Corporate Banking services are
offered from London, Birmingham,
and Manchester, with particular
expertise in the education, health and
charity sectors.
For the sixth consecutive time,
Allied Irish Bank (GB) has won the
title of ‘Britain’s Best Business Bank’
from the Forum of Private Business,
being ranked top for customer
service and maintaining its lead over
other major banks.
Northern Ireland
In this market, the division operates
under the trading name First Trust
Bank from 57 full service branches
throughout Northern Ireland.The
First Trust Bank Head Office is
located in Belfast, together with the
Divisional Processing Centre.
17
Performance review
A full service is offered to
business and personal customers,
across the range of customer
segments, including personal
customers, small and medium sized
enterprises, and the corporate
sector.
Specialist services, including
mortgages, credit cards, invoice
discounting and asset finance are
based in Belfast and delivered
throughout the division.
First Trust Independent
Financial Services provides sales and
advice on regulated products and
services, including protection,
investment and pension
requirements to the whole of the
division.
Capital Markets division
AIB Capital Markets, with total
assets of € 32.4 billion at 31
December, 2004, manages the
Investment Banking, Asset
Management, Stockbroking,
Corporate Banking and Global
Treasury Services of the Group
(with the exception of the
International Banking Services in
BZWBK).
The activities of the Capital
Markets division are delivered
through the following main
business units: Global Treasury,
Investment Banking, AIB
Corporate Banking and Allied Irish
America (AIA).
Global Treasury through its
treasury operations manages, on a
global basis, the liquidity and
funding requirements and the
interest and exchange rate exposure
of the Group. In addition, it
undertakes proprietary trading
activities, and provides a wide range
of treasury and risk management
services to the corporate,
commercial and retail customers of
the Group. International Banking
activities include import and export
financial services.
Investment Banking provides a
comprehensive range of services
including corporate finance
through AIB Corporate Finance
Limited, corporate finance and
stockbroking through Goodbody
Stockbrokers, structuring cross-
border financing transactions and
provides sophisticated back-office
services through AIB International
Financial Services Limited, and
custodial, trustee and fund
administration services through
joint ventures with The Bank of
New York. At 31 December, 2004,
the AIB/The Bank of New York
joint venture, AIB/BNY Fund
Management (Ireland) Ltd., had
€ 99 billion of funds under
administration. AIB/BNY Trust
Company Limited had assets under
custody of € 84 billion.
Investment Banking services also
include the provision of alternative
asset management activities (i.e.
hedge funds), venture capital funds
and property fund activities
(principally property in Poland).
Asset management is provided
through AIB Investment Managers
Limited (AIBIM) in the Republic
of Ireland.The company manages
assets principally for institutional
and retail clients with € 9.9 billion
of funds under management.
AIB Corporate Banking
provides a fully integrated,
relationship-based banking service
to top-tier companies, both
domestic and international, financial
institutions and Irish commercial
state companies. AIB Corporate
Banking has a dedicated unit
focusing on developing and
arranging acquisition and project
finance principally in Ireland, the
UK and Continental Europe, and
has established Mezzanine Finance
funds and CDO funds. AIB
Corporate Banking operates in
Ireland, the UK, the US and
Continental Europe.
AIA’s core business activity is
within the not for profit sector,
operating principally from New
York, with offices in a number of
other principal US cities. The
operations also include associated
fund raising businesses based in the
US and in Canada.
AIB Capital Markets is
headquartered at Dublin’s
International Financial Services
Centre. It also operates from a
number of other Dublin locations,
and operates AIB’s treasury
operations in London, New York
and Poland, a corporate banking
office in Frankfurt and Paris, and
offices managed by AIB
International Financial Services
Limited in Budapest, Zurich and
Luxembourg.
Poland division
Poland division, with total assets of
€ 6.7 billion at 31 December, 2004
comprises Bank Zachodni WBK
(BZWBK) in which AIB has a
70.5% shareholding, together with
its subsidiaries and associates.
(BZWBK Wholesale Treasury and
share of Investment Banking
subsidiaries results are reported in
Capital Markets division). AIB
completed the merger of its Polish
operations in 2001, forming
BZWBK, Poland’s fifth largest
bank.
BZWBK’s registered office is
located in Wroclaw in south-
western Poland. Key support
functions are also located in offices
based in Poznan and Warsaw. At the
end of 2004, the Bank had total
18
assets of PLN 26.2 billion, operated
through 387 branches and outlets
and 578 ATMs. It employed
approximately 7,470 staff, including
subsidiaries. BZWBK offers
comprehensive services to retail and
corporate customers. Apart from
core banking products and services,
the Bank’s offering include
mortgages, credit cards, retail bonds,
mutual funds, treasury and capital
market products, leasing and
factoring facilities, foreign trade
services and asset management. In
providing many of its specialised
services the Bank is supported by its
subsidiaries. BZWBK operates
mainly in the western part of the
country and also has a significant
presence in major urban areas across
Poland such as Warsaw, Krakow,
Gdansk and Lodz.The Bank now
has over 40 outlets in the Warsaw
market.
BZWBK Corporate Business
Centers based in Poznan,Warsaw,
Wroclaw, Krakow and Gdansk
provide direct and comprehensive
relationship-based services to large
and mid-sized corporates with
credit exposures in excess of PLN 4
million. It is the aim of these
Centers to provide a top quality
customer service proposition and at
the same time ensure the highest
standards of credit underwriting.
This relationship approach is
expected to continue to provide real
benefits both for the customer and
BZWBK.
19
Performance review
Summary Profit and Loss Account
Net interest income
Other finance income
Other income
Total operating income
Staff and other administrative expenses
Restructuring costs in continuing businesses
Depreciation and amortisation
Total operating expenses
Group operating profit before provisions
Provisions for bad and doubtful debts
Other provisions
Total provisions
Group operating profit
Share of operating profits of associated
undertakings
Share of restructuring and integration costs in
associated undertaking
Amortisation of goodwill on acquisition of
associated undertaking
Profit on disposal of property
Profit/(loss) on disposal of businesses
Group profit on ordinary activities before taxation
Taxation on ordinary activities
Group profit on ordinary activities after taxation
Minority interests and non-equity dividends
Group profit attributable to ordinary shareholders
Continuing
activities
€ m
Discontinued(1)
activities
€ m
2004
€ m
2,036
18
1,210
3,264
1,713
9
164
1,886
1,378
116
19
135
1,243
201
1,840
14
1,124
2,978
1,597
72
170
1,839
1,139
142
25
167
972
143
–
(20)
(52)
9
17
1,418
336
1,082
35
1,047
(42)
32
(142)
943
299
644
15
629
2003
Total
€ m
1,934
12
1,230
3,176
1,709
72
179
1,960
1,216
152
25
177
1,039
143
(20)
(42)
32
(141)
1,011
318
693
16
677
94
(2)
106
198
112
–
9
121
77
10
–
10
67
–
–
–
–
1
68
19
49
1
48
(1)The discontinued activities in 2003 relate to the income and expense of Allfirst Financial Inc. from 1 January 2003 to 31 March 2003
(see note 2 to the accounts).
The following commentary on profit and loss account headings covers continuing activities, which exclude Allfirst in
2003, and is based on underlying percentage growth adjusting for the impact of exchange rate movements on the
translation of foreign locations’ profit and excludes the transfer of Ark Life’s sales force to AIB’s payroll (resulted in
higher payroll costs which were previously recorded as a deduction in other income as part of Ark Life profit).
Allfirst, which was merged with M&T Bank Corporation (‘M&T’) on 1 April 2003, is a discontinued activity.
20
Investigation related charges referred to in the following commentary relate primarily
to the application of prices to foreign exchange products without regulatory approval.
AIB provided € 50 million for investigation related charges and costs with € 12
million charged to net interest income, € 24 million charged to other income and
€ 14 million of costs included in other administrative expenses.
Total income
Total income increased by 11% to € 3,264 million in 2004.
Total operating income
Net interest income
Other finance income
Other income
Total operating income
Year
2004
€ m
2,036
18
1,210
3,264
Year
2003
€ m
1,840
14
1,124
2,978
Underlying
% Change
2004 v 2003
11
28
11
11
A comment on net interest income and other income follows.
Average interest earning assets
- continuing activities
Year
2004
€ m
Year
2003
€ m
%
Change(1)
2004 v 2003
Average interest earning assets
84,288
68,270
23
(1) This particular analysis is not adjusted for the impact of exchange rate movements.
Net interest margin
- continuing activities(2)
Net interest margin
Business margin
Technical margin
Year
2004
%
2.42
Year
2003
%
2.70
Basis
Points
Change
-28
-20
-8
(2) The net interest margin for AIB Group for the year to December 2003 is included
in note 61 to the accounts.
Domestic and foreign margins
- continuing activities
Domestic
Foreign
Net interest margin
Year
2004
%
2.19
2.90
2.42
Year
2003
%
2.54
2.98
2.70
Basis
Points
Change
-35
-8
-28
Net interest income
Net interest income increased by
11% to € 2,036 million after
incurring € 12 million of
investigation related charges.
Strong loan and deposit growth
in Republic of Ireland and GB &
NI divisions as well as exceptional
loan growth in Corporate
Banking were the key factors
generating the increase. Loans to
customers increased by 28% and
customer accounts increased by
14% on a constant currency basis
since December 2003 (details of
loan and deposit growth by division
are contained on page 24).
As disclosed in our interim
results announcement, AIB
introduced a new policy in
respect of the investment of its
capital funds. This action
increased our balance sheet debt
securities with a corresponding
reduction in off balance sheet
derivatives, the effect of which
has increased reported average
interest earning assets with no
impact on net interest income
except for any reduction in yield.
This technical factor reduced the
reported net interest margin by 8
basis points.
The domestic margin for the
year, adjusted for the technical
factor, was down 24 basis points
compared with 2003 and the
foreign margin decreased by 8
basis points. The domestic
margin in the second half was 2
basis points lower than the first
half and the foreign margin
declined 18 basis points on the
first half.
AIB Group manages its
business divisionally on a product
margin basis with funding and
groupwide interest exposure
centralised and managed by
Global Treasury. While a
domestic and foreign margin is
calculated for the purpose of
statutory accounts, the analysis of
net interest margin trends is best
explained by analysing business
factors as follows:
The Group net interest
margin was 2.42% in 2004, with
the business margin reducing by
20 basis points on 2003.The
margin reduction was due to a
21
Performance review
continuation of trends evident in
2002 and 2003 with loans
increasing at a stronger rate than
deposits, higher growth in mid-
market loans in the Republic of
Ireland and the United Kingdom,
a changing mix of products, growth
in our international corporate
operations and the impact of low
interest rates on deposit margins
and capital income.
Average loans increased at
over double the rate of deposits
compared with 2003 and was the
largest factor in the margin
reduction. While this strong
lending growth generated good
incremental profit, the funding
impact resulted in a reduction in
the overall net interest margin
calculation when net interest
income is expressed as a
percentage of average earning
assets.
While it is difficult to
disaggregate trends in product
margins between mix and
competitive factors, competitive
pricing behaviour did have some
impact on deposit margins in
Ireland and the United Kingdom.
Our new business lending
continued to meet our targeted
return on economic capital
hurdles. The full year impact in
2004 of ECB and Polish interest
rate cuts in 2003 also had a
negative impact on retail deposit
margins.
The structural effect of loans
growing faster than deposits and
changes in business mix are
expected to be continuing
features with consequent impact
on the net interest margin
calculation. Our expectation is
that the Group net interest
margin will again reduce by
around 20 basis points in 2005.
22
Other income
Other income at € 1,210 million
was up 11%.
Banking fees and commissions
increased by 6%, or 9% excluding
€ 24 million of investigation
related charges and amounted to
over 70% of other income. The
strong growth reflects increased
business volumes and strong
growth in lending related fees in
Republic of Ireland, GB & NI
and Corporate Banking. In
Poland there was good growth in
international payment fees and
credit card income.
Investment banking revenues
were higher due to particularly
strong growth in Goodbody
Stockbrokers and a good increase
in AIB Corporate Finance. Asset
Management revenues were
lower following the sale, in
November 2003, of Govett to
Gartmore Investment
Management p.l.c.
Ark Life profit was € 72
million compared with the 2003
profit of € 60 million. The profit
increase included € 12 million
Other income
Dividend income
Banking fees and commissions
Asset management and investment
banking fees
Fees and commissions receivable
Less: fees and commissions payable
Dealing profits
Contribution of life assurance company
Profit on termination of off-
balance sheet instruments
Other
Other operating income
Hedging profits
from a reduction in the discount
rate used in the calculation of its
embedded value profit after
providing for the solvency
margin. The discount rate was
reduced from 10% to 7.5% in the
fourth quarter.
Included in other income was
a gain of € 36 million from
closing out capital invested
positions in January 2004
resulting from the introduction of
a new policy in respect of the
investment of AIB’s capital funds.
Dividend income increased
significantly reflecting a very
strong increase in Poland.
The other income as a
percentage of total income
reduced from 38.2% to 37.6%.
Year
2004
€ m
27
873
158
1,031
(131)
95
72
36
79
187
1
Year
2003
€ m
15
830
128
958
(117)
103
60
–
81
141
24
Underlying
% Change
2004 v 2003
80
6
23
8
12
-6
18
–
–
34
–
11
Total other income
1,210
1,124
Total operating expenses
Operating expenses increased by
7% compared with 2003,
(excluding restructuring and early
retirement costs in both years and
the Ark Life sales force
reorganisation in 2003).
The increase of 7% includes
€ 14 million of costs relating to
the investigation. Excluding these
costs the increase was 6%.The
growth of 6% should be viewed
in the context of significantly
higher business volumes and
buoyant revenue growth.
Staff costs were up 5% due to
higher business activity levels and
normal salary increases partly
offset by some benefits from the
early retirement programme
provided for in 2003. Other costs
increased by 13%, or 11%
excluding investigation related
charges. The 11% increase
includes consultancy and other
costs to facilitate AIB’s
preparation for Basel II, Sarbanes
Oxley and IFRS, strengthening of
compliance and internal audit
structures and investment in
growth businesses.
Depreciation and amortisation
decreased by 3% reflecting lower
depreciation in Poland following
branch rationalisations in 2003
and the sale of AIB’s IFSC
property in 2003.
Productivity improved
significantly with the tangible
cost income ratio reducing to
56.3% from 58.3% in 2003.
Operating expenses
Staff costs
Other costs
Depreciation and amortisation
Operating expenses before restructuring/
early retirement costs
Early retirement costs
Restructuring costs in continuing businesses
Total operating expenses
Year
2004
€ m
Year
2003
€ m
Underlying
% Change
2004 v 2003
5
13
-3
7
1,132
1,082
581
164
515
170
1,877
1,767
–
9
62
10
1,886
1,839
Provisions
Total provisions decreased from € 167 million in 2003 to € 135 million
in 2004.
Provisions
Bad and doubtful debts
Contingent liabilities and commitments
Amounts (written back)/written off fixed asset investments
Year
2004
€ m
116
20
(1)
135
Year
2003
€ m
142
9
16
167
Total provisions
The provision for bad and
doubtful debts was € 116 million
compared with € 142 million in
2003, representing a charge of
0.20% of average loans compared
with 0.30% in 2003. The
reduction reflected strong asset
quality across divisions and
favourable economic
environments in 2004. There was
a reduction in non-performing
loans as a percentage of total
loans from 1.4% at 31 December
2003 to 1.2% at 31 December
2004 and provision coverage for
non-performing loans was 87%.
Asset quality was strong in
AIB Bank Republic of Ireland
where non-performing loans
reduced to 0.6% of average loans
from 0.8% in 2003. There was
also a reduction in the provision
charge as a percentage of average
loans from 0.24% to 0.14% in
2004. The provision benefited
from recoveries with all portfolios
proving robust.
In AIB Bank GB & NI,
provision experience was
particularly good with the bad
debt charge reducing from 0.21%
to 0.11% in 2004. Non-
performing loans increased from
0.8% to 1.0% at 31 December
2004 but underlying trends
remained positive.
Asset quality in Capital
Markets was strong with non-
performing loans remaining at
0.8% and the provision charge at
0.27% of average loans.
In Poland, the provision
charge reduced to 0.9% of loans
from 1.0% in 2003 including a
23
Performance review
€ 4 million general provision
release. Asset quality continued
to improve with non-performing
loans continuing a downward
trend and as a percentage of loans
declined to 8.4% from 10.9%.
Provisions for contingent
liabilities and commitments
increased from € 9 million in
2003 to € 20 million in 2004
while provisions for amounts
(written back)/written off fixed
asset investments decreased from
€ 16 million to a net credit of
€ 1 million in 2004.
Share of operating profits of
associated undertakings
The operating profit in 2004 was
€ 201 million compared to
€ 143 million in 2003 and
mainly reflects AIB’s 22.5% share
of the income before taxes of
M&T Bank Corporation, under
Irish GAAP, for the year 2004
and the period from 1 April 2003
to 31 December 2003.
Risk weighted assets, loans to customers and customer accounts (excluding
money market funds and currency factors)
% change December 2004
v December 2003
Risk weighted
assets
% change
Loans to
customers
% change
Customer
accounts
% change
AIB Bank Republic of Ireland
AIB Bank GB & NI
Capital Markets
Poland
AIB Group
29
25
25
16
26
30
29
31
6
28
16
15
6
10
14
The divisional commentary on pages 26 to 30 contains additional comments on key
business trends in relation to loans to customers and customer accounts.
Balance sheet
Total assets amounted to € 102
billion at 31 December 2004
compared to € 81 billion at 31
December 2003. Adjusting for
the impact of currency, total assets
and loans to customers were up
26% and 28% respectively since
31 December 2003 while
customer accounts increased by
14%. Risk weighted assets
excluding currency factors
increased by 26% to € 79 billion.
Assets under
management/
administration and
custody
Assets under management in the
Group amounted to € 13 billion
and assets under administration
and custody amounted to € 183
billion at 31 December 2004.
Taxation
The taxation charge was € 336
million compared with
€ 318 million in 2003. The
effective tax rate was 23.7%
compared with 31.4% in 2003
(24.0% having adjusted for
taxation arising on the Allfirst /
M&T transaction and the sale of
Govett). The effective tax rate is
influenced by the geographic mix
of profits which are taxed at the
rates applicable in the foreign
jurisdictions.
Return on equity and
return on assets
The tangible return on equity
increased to 29.6% compared to
20.0% in 2003. The basic return
on equity increased to 20.2%
from 14.5% in 2003 and the
return on assets was 1.17%, up
from 0.90% in 2003.
Capital ratios
The Group was strongly
capitalised at 31 December 2004
with the Tier 1 ratio at 7.9% and
the total capital ratio at 10.7%.
These ratios include the € 1.0
billion of perpetual preferred
securities issued in December
2004.
24
Commentary on half-year
December 2004
performance
Adjusted earnings per share
increased by 7% in the half-year to
December 2004 compared with
the half-year to June 2004. There
was strong business momentum in
the second half with all divisions
performing well. Loan and deposit
volumes increased by 29% and
18% respectively on an annualised
basis since 30 June 2004.
Capital Markets performed
very well and enjoyed a very
strong fourth quarter performance.
In Ark Life, there were
technical adjustments, including a
reduction in the discount rate used
in the calculation of its embedded
value profits from 10% to 7.5%
generating profit of € 12 million,
after providing for the solvency
margin.
In the second half the effective
tax rate was lower, benefiting from
some taxation provision releases.
The strong business
momentum coupled with the
above mentioned items delivered a
particularly strong second half
adjusted earnings per share of
EUR 68.7c.
Outlook
Accounts for 2005 will be
prepared under IFRS for the first
time. This will also result in a
restatement of 2004 results in line
with IFRS. To facilitate
shareholders the following outlook
is prepared on the traditional Irish
Generally Accepted Accounting
Principles (‘IR GAAP’) basis, as it
allows the use of these 2004
accounts as a reference base.
Adjusted earnings per share
amounted to EUR 133.1c in
2004. This outcome benefited
from some taxation provision
releases and technical adjustments
in Ark Life.
Our business is expected to
continue to perform very strongly
and we are anticipating another
year in 2005 of buoyant loan and
deposit growth. The decline in the
US dollar will affect the euro
translation of these profits, with an
overall negative impact of
approximately 1% to 2% in
earnings per share growth terms
anticipated from currency
translation of earnings. Based on
these factors our guidance for
adjusted earnings per share growth
in 2005 on an Irish GAAP basis
would be for a range of
EUR 142c to EUR 144c.
Cashflow
As reflected in the consolidated
cash flow statement, there was a
net increase in cash of € 60
million during the year ended 31
December 2004. Net cash inflow
from operating activities was
€ 3,168 million, of which
€ 1,625 million arose from trading
activities. Cash inflows from
financing were € 1,744 million.
The issue of preferred securities
and subordinated liabilities
generated cash inflows of € 990
million and € 733 million
respectively. Cash outflows from
taxation were € 317 million while
cash outflows in relation to equity
dividends were € 340 million.
Cash outflows as a result of capital
expenditure and financial
investment were € 4,130 million,
due primarily to net increases in
debt securities of € 4,044 million
and expenditure on property and
equipment of € 112 million.
Statement of total
recognised gains and
losses (‘STRGL’)
The total recognised gains relating
to the year amounted to € 780
million compared to recognised
gains of € 667 million in 2003.
Profit for the year ended 31
December 2004 was € 1,047
million compared to € 677
million in 2003. At 31 December
2003 the unrealised element of the
gain recognised on the disposal of
Allfirst of € 489 million was
included and this is not repeated
in 2004. Currency translation
adjustments amounted to € 69
million negative compared to
€ 457 million negative in 2003.
The currency translation difference
relates to the change in value of
the Group’s net investment in
foreign subsidiaries arising from
the weakening of the US dollar
and the strengthening of the Polish
zloty against the euro.
The actuarial loss in retirement
benefit schemes during 2004
charged to the STRGL, net of
deferred tax of € 33 million,
amounted to € 197 million
compared to € 50 million in
2003.The actuarial loss included
€ 179 million from a reduction in
discount rates and an experience
loss on liabilities of € 150 million
offset by a € 99 million
experience gain on the pension
scheme assets.The net pension
scheme liability on funded
schemes recognised within
shareholders’ funds was € 652
million compared with a net
pension liability of € 485 million
at 31 December 2003.
25
Divisional commentary
On a divisional basis profit is measured in euro and consequently includes the impact of currency movements. The underlying percentage
change is reported in the divisional profit and loss accounts adjusting for the impact of exchange rate movements on the translation of foreign
locations’ profit. The profit segments by division for 2003 have been restated to reflect a change in the allocation of pension costs across
business segments. Previously business segments accounted for the normalised pension contribution rate appropriate to individual pension
schemes. The full impact of FRS 17 (Retirement Benefits) is now charged to each operating division. Each division now accounts for the
full service cost, the expected return on pension scheme assets and the interest on pension scheme liabilities.
AIB Bank Republic of Ireland profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Share of operating losses of associated undertakings
Profit on disposal of property
Profit on ordinary activities before taxation
Year 2003
before early
retirement
costs
€ m
Early
retirement
costs
€ m
Year
2003
as reported Underlying
€ m % change(1)
1,016
17
389
1,422
747
–
747
675
62
613
–
13
626
–
–
–
–
–
40
40
(40)
–
(40)
–
–
(40)
1,016
17
389
1,422
747
40
787
635
62
573
–
13
586
11
22
1
8
8
–
8
9
-29
12
–
–
11
Year
2004
€ m
1,126
20
399
1,545
812
–
812
733
44
689
(1)
7
695
(1) Excludes currency movements and the impact of the transfer of the Ark Life sales force to AIB’s payroll.
AIB Bank Republic of
Ireland profit was up 11%.
AIB Bank Republic of Ireland
Retail and commercial banking operations
in Republic of Ireland, Channel Islands
and Isle of Man; AIB Finance and
Leasing; Card Services; and AIB’s life and
pensions subsidiary Ark Life Assurance
Company.
The divisional profit increase of 11%
included € 50 million of investigation
related charges. The profit was up 19%
before these charges. Operating
income and operating expenses were
both up 8%. Excluding the
investigation related charges these
growth rates were 11% and 6%
respectively, demonstrating a strong
operating income/cost gap.
Banking operations performed
strongly with profit increasing by 19%.
Particularly strong loan and deposit
growth, higher productivity and a
reduced bad debt provision charge
were the key performance drivers.
Loans increased by 30% and deposits
performed particularly well with a 16%
increase since 31 December 2003.
Operating expenses were up 6%
excluding the transfer of the Ark Life
sales force to AIB’s payroll and
investigation related costs. Higher
levels of business volumes and
customer activity coupled with normal
salary increases were the main drivers
of the 6% increase. The cost income
ratio was 52.5% and was impacted by
the € 50 million investigation related
charges, excluding these the ratio
decreased to 50.4%.
There was a particularly good
increase in AIB Card Services profit
resulting from higher loan volumes, a
21% increase in merchant turnover,
good growth in fee income reflecting
higher consumer spending and a lower
bad debt charge. In AIB Finance and
Leasing, profit was higher reflecting a
17% increase in loan volumes and a
lower bad debt charge. Ark Life
reported profit of € 72 million, an
18% increase compared with the 2003
profit of € 60 million. The profit
increase included € 12 million from a
reduction in the discount rate used in
the calculation of its embedded value
profit after providing for the solvency
margin. The discount rate was reduced
from 10% to 7.5% in the fourth
quarter. While Annual Premium
Equivalent (APE) sales marginally
decreased from € 104 million to
€ 100 million, there was a significant
increase of 30% in new pension APE
sales.
26
AIB Bank GB & NI profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Profit on disposal of property
Profit on ordinary activities before taxation
Year 2003
before early
retirement
costs
€ m
Early
retirement
costs
€ m
Year
2003
as reported
Underlying
€ m % change
364
(5)
165
524
261
–
261
263
19
244
2
246
–
–
–
–
–
15
15
(15)
–
(15)
–
(15)
364
(5)
165
524
261
15
276
248
19
229
2
231
12
8
14
12
11
–
11
13
-35
17
–
16
Year
2004
€ m
411
(6)
191
596
295
–
295
301
13
288
1
289
and home mortgage lending
activity, resulting in increased
market share. The cost income
ratio was maintained at 49%.
Automation of delivery channels
and improving marketing and
customer relationship systems will
further enhance productivity in
2005.
AIB Bank GB & NI profit
was up 16%.
AIB Bank GB & NI Retail and
commercial banking operations in Great
Britain and Northern Ireland.
AIB Bank GB & NI continued its
strong business performance in the
year to 31 December 2004 with
profit before taxation increasing by
16%. Loans and deposits increased
by 29% and 15% respectively since
31 December 2003. Other income
increased by 14%, mainly due to
higher levels of arrangement fees,
reflecting the growth in the loan
book. While investment continued
in future business development
capability and regulatory driven
projects, the cost income ratio
reduced to 49.5%. Credit quality
also remained robust and was
reflected in a 35% decrease in the
bad debt provision charge
compared to 2003.
Allied Irish Bank (GB),
primarily a business bank, achieved
very significant profit growth of
21% to €149 million in 2004.
There was very substantial
expansion in our business base
with loans and deposits increasing
by 33% and 19% respectively.
Significant growth was achieved in
niche corporate markets, in line
with strategic targets and this focus
has now been extended to include
the hotel and healthcare sectors.
Future business capacity continues
to be enhanced with five business
development offices and two full
business banking branches opened
in the year. For the sixth
consecutive occasion, ‘Britain’s Best
Business Bank’ award from the
Forum of Private Business was
won by Allied Irish Bank (GB)
with the improved score reflecting
growing out-performance in
customer satisfaction, relative to
our competitors.
First Trust Bank, a retail bank in
Northern Ireland, also reported
good profit growth with a 12%
increase to € 140 million. Loans
and deposits were buoyant, up 23%
and 10% respectively with strong
growth emanating from corporate
27
Year 2003
before loss on
disposal of
Govett/early
retirement
costs
€ m
Loss on
disposal of
Govett/early
retirement
costs
€ m
Year
2003
as reported
Underlying
€ m % change
312
2
365
679
391
–
391
288
46
242
7
7
256
–
–
–
–
–
3
3
(3)
–
(3)
–
(153)
(156)
312
2
365
679
391
3
394
285
46
239
7
(146)
100
16
38
9
12
5
–
5
22
-37
34
-26
–
30
each of these businesses.
The tangible cost income ratio
reduced substantially from 57% in
2003 to 52% in 2004. Operating
expenses were 5% higher than
2003 reflecting a substantial
investment in the growth of our
business internationally and a
higher level of variable costs.
Total provisions declined due to
a lower credit related charge,
reflecting the strong quality of our
credit portfolio together with a
significantly reduced level of equity
investment write-downs compared
to 2003.
Divisional commentary
Capital Markets profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Early retirement costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Share of operating profits of associated undertakings
Profit/(loss) on disposal of businesses
Profit on ordinary activities before taxation
Year
2004
€ m
359
3
389
751
403
–
403
348
29
319
6
4
329
Capital Markets profit was
up 30%.
Capital Markets Global Treasury,
Corporate Banking, Investment
Banking and Allied Irish America
(‘AIA’).
Profit before taxation increased by
30% reflecting a very strong
performance across each business
area.
Corporate Banking performed
exceptionally with operating profit
up 30% and pre-tax profit up 54%
on the comparative period. We
experienced significant customer
loan growth in both the domestic
and international businesses leading
to a 32% increase in advances in
2004. International businesses
continued to experience substantial
profit growth, notably in
acquisition finance, structured
finance, United Kingdom and US
banking units. We retain a rigorous
approach to credit risk
management and continue to seek
to optimise value in a quality loan
portfolio.
Global Treasury profit was 20%
ahead of the comparative period.
Our wholesale business performed
very strongly, despite having
exceptionally low trading risk
limits at work during the year. We
were well positioned to take
advantage of movements in interest
rates and credit spreads and
generated substantial value from
our trading activities. Our
customer business continued to
perform very well.
Investment Banking profit was
substantially ahead of 2003. Strong
profit growth experienced in
stockbroking services, equity
trading, and corporate advisory
work was underpinned by
substantial market share gains across
28
Poland profit and loss account
Net interest income
Other income
Total operating income
Operating expenses
Restructuring costs
Total operating expenses
Operating profit before provisions
Provisions
Operating profit
Share of operating profit of associated undertakings
Profit on disposal of property
Profit on disposal of business
Profit on ordinary activities before taxation
Year 2003
before
restructuring
costs
€ m
Restructuring
costs
€ m
Year
2003
as reported
Underlying
€ m % change(1)
175
170
345
298
–
298
47
31
16
–
–
4
20
–
–
–
–
10
10
(10)
–
(10)
–
–
–
175
170
345
298
10
308
37
31
6
–
–
4
2
13
8
-9
–
-9
67
-4
119
–
–
–
(10)
10
135
Year
2004
€ m
174
188
362
268
–
268
94
29
65
1
1
13
80
(1) Percentage growth excludes restructuring costs and currency movements. As goodwill is a euro denominated asset, goodwill
amortisation is excluded when calculating trends on a constant currency basis.
Poland profit was € 80
million, up 135%.
Poland Bank Zachodni WBK
(‘BZWBK’), in which AIB has a
70.5% shareholding, together with its
subsidiaries and associates.
BZWBK Wholesale Treasury and
share of Investment Banking
subsidiaries results are reported in
Capital Markets division.
The profit before taxation was
€ 80 million in 2004 compared
with € 10 million in 2003.
Excluding restructuring costs of
€ 10 million in 2003, the profit on
a local currency basis increased by
135%.
Net interest income increased
by 2% with increased volumes in
both loans and deposits offset by
lower deposit margins. Demand
for lending products improved
with performing loans up 10%
since 31 December 2003. Growth
was recorded in key strategic
products, namely mortgages,
commercial leasing and credit
cards. Business loans performed
well in a difficult environment
when overall demand for credit in
the market declined in the period.
Customer deposits performed
strongly, particularly in the second
half year benefiting from higher
interest rates and better economic
climate and were up 10% on 31
December 2003.
Other income growth of 13%
was driven by exceptional dividend
income, strong growth in
international payment fees, asset
management and distribution fees
and brokerage revenues.
Operating expenses were lower
by 9%. This reflects the ongoing
focus on strong cost management
together with the realisation of
benefits of previous restructuring.
Staff numbers have decreased by
over 3,500 since the merger of
WBK and Bank Zachodni in 2001
and now stand at approximately
7,500 in December 2004 (7,800 in
December 2003). Staff costs
reduced by 5%, operating costs by
8% and depreciation by 19%.
The provision experience
across the portfolio improved
considerably in the year, with the
exception of provisions raised on a
very small number of corporate
cases. The charge as a percentage
of average loans declined from
1.0% in 2003 to 0.9% in 2004
including a € 4 million general
provision release. The downward
trend in non-performing loans
continued with non-performing
loans as a percentage of total loans
declining from 10.9% to 8.4%.
The profit on disposal of
business relates to the sale in April
2004 of CardPoint S.A., a
merchant acquiring business
responsible for card payment
processing.
29
Divisional commentary
Group profit and loss account
Net interest income
Other finance income
Other income
Total operating income
Operating expenses
Restructuring and early retirement costs
Total operating expenses
Operating loss before provisions
Provisions
Operating loss
Share of operating profits of associated undertaking - M&T
Share of restructuring and integration costs in
associated undertaking - M&T
Amortisation of goodwill on acquisition of
associated undertaking - M&T
Profit on disposal of property
Profit on disposal of business
Profit on ordinary activities before taxation
Year 2003
before early
retirement
costs
€ m
Early
retirement
costs
€ m
Year
2003
as reported
€ m
(20)
–
38
18
66
–
66
(48)
8
(56)
136
(20)
(42)
17
1
36
–
–
–
–
–
4
4
(4)
–
(4)
–
–
–
–
–
(4)
(20)
–
38
18
66
4
70
(52)
8
(60)
136
(20)
(42)
17
1
32
Year
2004
€ m
(34)
1
43
10
99
9
108
(98)
20
(118)
195
–
(52)
–
–
25
Group
Group includes interest income earned
on capital not allocated to divisions, the
funding cost of certain acquisitions,
hedging in relation to the translation of
foreign locations’ profit, unallocated
costs of enterprise technology and
central services, and the contribution
from AIB’s share of approximately
22.5% in M&T Bank Corporation
(‘M&T’).
Group reported profit of € 25
million for 2004 compared with a
profit of € 32 million in 2003
(€ 36 million excluding early
retirement costs).
Net interest income decreased
due to lower capital income as a
result of lower investment yields.
Other income included gains of
€ 36 million (€ 23 million net of
loss of yield) made in relation to
closing out capital invested
positions. Other income in 2003
included € 28 million hedging
profits in relation to foreign
currency translation exposure
compared to a profit of
€ 1 million in 2004.
Operating expenses were
higher facilitating AIB’s preparation
for Basel II and Sarbanes Oxley.
During 2004 there were costs
relating to preparation for IFRS,
strengthening of compliance and
internal audit structures and higher
pension service costs and corporate
donations.
Restructuring costs were
€ 9 million in 2004 relating to a
write-down of property values at
Group level. There were early
retirement costs of € 4 million in
2003.
Provisions increased from
€ 8 million in 2003 to € 20
million in 2004.
AIB’s share of M&T profit in
2004 amounted to € 195 million,
before goodwill amortisation. On
a local currency basis M&T’s
contribution to AIB of US$ 243
million increased by 15% relative
to the Allfirst quarter March 2003
combined with M&T nine months
to December 2003 contribution of
US$ 212 million excluding
restructuring costs. M&T reported
its full year results on 11 January
2005, showing strong earnings
growth with US GAAP-basis
diluted earnings per share up 21%
to US$ 6.00 from US$ 4.95 in
2003. Diluted net operating
earnings per share, which excludes
the amortisation of core deposit
and other intangibles and merger
related expenses, was US$ 6.38, up
12% from US$ 5.70.
In 2003 there was a profit of
€ 17 million from the sale of AIB’s
IFSC property.
30
Financial review
CAPITAL MANAGEMENT
It is the Group’s policy to maintain
a strong capital base and to utilise
it efficiently in its development as
a diversified international banking
group. As part of the Group’s
capital management activities, the
Group manages its mix of capital
by currency in order to minimise
the impact of exchange rate
fluctuations on the Group’s key
capital ratios.
The table opposite shows AIB
Group’s capital resources at 31
December 2004 and 2003.
Capital resources increased by
€ 2.1 billion during the year
ended 31 December 2004.
The increase arose primarily
as a result of the issue of
€ 1 billion perpetual preferred
securities and an increase in
capital notes. In addition
shareholders’ equity increased
arising from net retentions offset
by pension plan actuarial losses
and exchange rate movements.
In December 2004 AIB issued
€ 1 billion of perpetual preferred
securities.This issue qualifies as
Tier 1 capital and is included as
non-equity minority interests.
The US dollar weakened by
7% and the Polish zloty
strengthened by 15%, while the
value of Sterling remained neutral
relative to the euro, resulting in a
negative foreign currency
translation adjustment of € 51
million. Shareholders’ equity
benefited from net retentions of
€ 536 million and the issue of
shares for dividend reinvestment
and staff incentive schemes of
€ 205 million.The actuarial
losses in the Group’s retirement
Shareholders’ funds equity
Shareholders’ funds non-equity
Equity and non-equity minority interests
Reserve capital instruments
Undated capital notes
Dated capital notes
Total capital resources
benefit schemes, which are
recognised directly in
shareholders’ equity under FRS
17 – Retirement benefits,
amounted to € 197 million.
There was a net increase in
capital notes reflecting the issue
of US$400 million and € 400
million offset by the redemption
of € 32.2 million in subordinated
capital.
Capital ratios
In carrying out the Group’s
overall capital resources policy, a
guiding factor is the supervisory
requirements of the Irish
Financial Services Regulatory
Authority (‘IFSRA’), which applies
a capital/risk assets ratio
framework in measuring capital
adequacy.This framework analyses
a bank’s capital into three tiers.
Tier 1 capital, comprises mainly
shareholders’ funds, minority equity
interests in subsidiaries and reserve
capital instruments. It is the
highest tier and can be used to
meet trading and banking activity
requirements.Tier 2 includes
perpetual, medium-term and
long-term subordinated debt,
general provisions for bad and
doubtful debts and fixed asset
revaluation reserves.Tier 2 capital
can be used to support both trading
2004
€ m
5,399
182
1,212
497
345
1,923
9,558
2003
€ m
4,942
196
158
497
357
1,276
7,426
and banking activities.Tier 3
capital comprises short-term
subordinated debt with a
minimum original maturity of
two years.The use of tier 3 capital
is restricted to trading activities
only and it is not eligible to
support counterparty or settlement
risk.The aggregate of tiers 2 and
3 capital included in the risk asset
ratio calculation may not exceed
tier 1 capital. AIB does not
currently use tier 3 capital in its
capital calculation.The capital
adequacy framework also applies
risk weightings to balance sheet
and off-balance sheet exposures,
reflecting the credit and other
risks associated with broad
categories of transactions and
counterparties, to arrive at a
figure for risk weighted assets. An
internationally agreed minimum
total capital (to risk weighted assets)
ratio of 8% and a minimum tier 1
capital (to risk weighted assets) ratio
of 4% are the base standards from
which the IFSRA sets individual
capital ratios for credit institutions
under its jurisdiction.
The EU Capital Adequacy
Directive (CAD) distinguishes the
risks associated with a bank’s
trading book from those in its
banking book.Trading book risks
are defined as those risks
31
Financial review
Capital base
Tier 1
Paid up ordinary share capital
Eligible reserves
Equity and non equity minority interests
in subsidiaries
Non-cumulative preference shares
Reserve capital instruments
Less: supervisory deductions
Total tier 1 capital
Tier 2
Fixed asset revaluation reserves
General provisions
Subordinated perpetual loan capital
Subordinated term loan capital
Total tier 2 capital
Gross capital
Supervisory deductions
Total capital
Risk weighted assets
Banking book:
On balance sheet
Off-balance sheet
Trading book:
Market risks
Counterparty and settlement risks
Total risk weighted assets
Capital ratios
Tier 1
Total
2004
€ m
294
4,885
1,212
182
497
(850)
6,220
547
277
273
1,562
2,659
8,879
(469)
8,410
61,718
10,960
72,678
5,149
712
5,861
78,539
7.9%
10.7%
2003
€ m
290
4,280
158
196
497
(970)
4,451
490
316
278
1,355
2,439
6,890
(389)
6,501
48,831
8,602
57,433
4,566
616
5,182
62,615
7.1%
10.4%
undertaken in order to benefit
in the short-term from
movements in market prices such
as interest rates, foreign exchange
rates and equity prices.The
remaining risks, relating to the
normal retail and wholesale
banking activities, are regarded as
banking book risks.
The table opposite shows the
components and calculation of
the Group’s tier 1 and total capital
ratios at December 31, 2004 and
2003.
The Group was strongly
capitalised at 31 December 2004
with the tier 1 ratio improving to
7.9% and the total capital ratio at
10.7%. Risk weighted assets
increased by € 15.9 billion
reflecting strong loan growth
across the Group.
Tier 1 capital increased by
€ 1.8 billion to € 6.2 billion.
This increase was as a result of
the issue of € 1 billion of
perpetual preferred securities in
December 2004 and the positive
impact of net retentions.
Tier 2 capital increased by
€ 220 million primarily as a
result of subordinated debt issues.
In calculating the capital ratios
for the Group the subordinated
capital that was redeemed in
January 2005, US$ 250 million
and € 200 million, has not been
included as capital.
Supervisory deductions
increased by € 80 million,
primarily reflecting the increase
in long-term assurance business
attributable to shareholders.
32
RISK MANAGEMENT
Risk-taking is inherent in
providing financial services and
AIB assumes a variety of risks in
its ordinary business activities.
These include credit risk, market
risk, liquidity risk and operational
risk.The role of Risk Management
is to ensure that AIB continues to
take risk in a controlled way in
order to enhance shareholder
value. AIB’s risk management
policies are designed to identify
and analyse these risks, to set
appropriate risk limits and to
monitor these risks and limits
continually. AIB continually
modifies and enhances its risk
management practices to reflect
changes in markets, products and
evolving best practice.
Primary responsibility for risk
management lies with line
management.Within AIB, line
management is supported by
a risk management function that
sets standards, policies, limits and
measurement methods and
provides independent oversight
with a direct reporting line to the
Group Chief Executive (‘CEO’)
and the Audit Committee of the
Board. The Board of Directors
formally approves the overall
strategy and the direction of the
business on an annual basis. It
regularly monitors the Group’s
financial performance, reviews
risk management activities and
controls and has responsibility for
approving the Group’s risk appetite.
The Group Executive Committee
(‘GEC’), comprising the Group
CEO, Group Director, Finance &
Enterprise Technology, Group
Chief Risk Officer (‘CRO’),
Group Director of HR and the
four Divisional Managing
Directors, manages the strategic
business risks of the Group. It sets
the business strategy within which
the risk management function
operates and oversees its activities.
The Group Risk Management
Committee (‘RMC’) is chaired by
the Group CRO and has
Governance responsibility for
identifying, analysing and
monitoring exposure, adopting
best practice standards and
directing risk management
activities across the Group. It is
supported by the Group Credit
Committee (‘GCC’), the Group
Operational Risk Management
Committee (‘ORMCO’) and the
Group Market Risk Committee
(‘MRC’). The Group Asset and
Liability Management Committee
(‘Group ALCO’) is chaired by the
Group Chief Financial Officer
and has responsibility for the
Group’s capital, funding and
liquidity management activities.
The Group CRO has
responsibility for the Enterprise
Risk Management framework,
which includes:
– Policies, instructions and
guidelines
– Identification of risk
– Risk analysis
– Risk measurement
– Credit and Market risk limits
– Monitoring and control, and
– Reporting.
Each of the four operating
divisions have dedicated risk
management functions, with
Divisional CRO’s reporting
directly to the Group CRO. In
addition, the Group Chief Credit
Officer (‘CCO’) and the Group
Head of Operational Risk
Management have functional
responsibility for these risks at the
centre and these also report
directly to the Group CRO. Each
Division has dedicated credit risk
management and operational risk
management functions. The
Divisional CCO chairs the credit
committee in each Division. Each
Division has an ORMCO that
reports into the Group
ORMCO.The CRO for Capital
Markets Division has functional
responsibility for market risk for
the Group.
Two other functions play very
important roles in overseeing the
risk control environment.These
are Group Internal Audit and
Regulatory Compliance &
Business Ethics.
Group Internal Audit provides
reasonable assurance to the Board
Audit Committee on the
adequacy, effectiveness and
sustainability of the governance,
risk management and control
processes throughout the Group.
A secondary objective is to
influence the strengthening of
governance, risk management and
control processes through the
sharing of best practices.
In undertaking its
responsibilities, internal audit
adopts a risk-based approach,
which translates into a
comprehensive programme of
work that provides an
independent assessment of key
governance, risk management and
control processes. Included in its
work are reviews of the self-
assessments of operational risks
and controls undertaken by the
businesses. There is also an
ongoing review of risk
33
Financial review
identification standards and risk
management methodologies
which includes testing of the risk
mitigators adopted by
management.
Regulatory Compliance &
Business Ethics (‘RC & BE’)
has responsibility for co-ordinating
the compliance functions across
all Divisions and for the
development of Group policy on
ethical matters. Divisional
compliance departments together
with management, develop policies
and procedures to ensure
compliance with applicable law,
regulation and codes of practice
with respect to the conduct of
business.
RC & BE reports
independently to the Audit
Committee on the compliance
framework in operation across the
Group and on management
attention to compliance matters.
Credit risk
Credit risk is the risk that a
customer or counterparty will be
unable or unwilling to meet a
commitment that it has entered
into and that the pledged
collateral does not cover AIB’s
claims.The credit risks in AIB
arise primarily from lending
activities to customers but also
from guarantees, derivatives and
securities.
Credit management and
control
Credit risk is managed and
controlled throughout AIB on the
basis of established credit
processes and within a framework
of credit policy and delegated
authorities based on skill and
experience. Credit grading,
scoring and monitoring systems
accommodate the early
identification and management of
deterioration in loan quality. In
addition, the credit management
process is underpinned by an
independent system of credit
review.
The Board determines the
credit authority for the Group
Credit Committee and approves
the Group’s key credit policies. It
also approves divisional credit
authorities and reviews credit
performance on a regular basis.
The GCC considers and
approves, within the parameters
of the Group Large Exposure
Policy, credit exposures which are
in excess of divisional credit
authorities.The GCC comprises
senior divisional and Group-based
management and is chaired by
the Group Chief Credit Officer.
The Group CCO sets
Groupwide standards for best
practice including credit grading
and scoring methodologies and
exposure measurement. Divisional
management approves divisional
credit policy with the
involvement of the risk
management function. Material
divisional credit policies are
referred to the Group RMC.
Credit risk on derivatives
The credit risk in derivative
contracts is the risk that AIB’s
counterparty in the contract
defaults prior to maturity at a
time when AIB has a claim on
the counterparty under the
contract. AIB would then have to
replace the contract at the current
market rate, which may result in a
loss.
Derivatives are used by AIB to
meet customer needs to reduce
interest rate risk, currency risk
and in some cases credit risk as
well as for proprietary trading
purposes. Derivatives affect both
credit and market risk exposures.
The credit exposure is treated in
the same way as other types of
credit exposure and is included in
customer limits.
The total credit exposure
consists partly of current exposure
and partly of potential future
exposure.The potential future
exposure is an estimation, which
reflects possible changes in market
values during the remaining
lifetime of the individual
contract. AIB uses a simulation
tool to estimate possible changes
in future market values and
computes the credit exposure to a
high level of statistical
significance.
Country risk
Country risk is the risk that
circumstances can arise in which
customers and other
counterparties within a given
country may be unable, unwilling
or precluded from fulfilling their
obligations to AIB due to
deterioration in economic or
political circumstances.
Country risk is managed by
setting appropriate maximum risk
limits to reflect each country’s
overall credit worthiness.
Independent credit information
from international sources,
supported by visits to relevant
countries, is used to determine
34
the appropriate risk limits. Risks
and limits are monitored on an
ongoing basis.
Settlement risk
Settlement risk is the risk of loss
arising in situations where AIB
has given irrevocable instructions
for a transfer of a principal
amount or security in exchange
for receiving a payment or
security from a counterparty,
which defaults before the
transaction is completed.
The settlement risk on
individual counterparties is
measured as the full value of the
transactions on the day of
settlement. It is controlled
through settlement risk limits.
Each counterparty is assessed in
the credit process and clearing
agents, correspondent banks and
custodians are selected with a
view to minimising settlement
risk.
Rating methodologies
Internal Rating models, which
comprise both grading and
scoring systems, lie at the heart of
credit management within AIB.
They are used to differentiate
between credits on the basis of
estimated probability of default.
In conjunction with the
preparations for Basel II, a
significant review and upgrade of
all of these models has been
carried out with a view to
ensuring appropriate quality and
standards are maintained in line
with best practice.
In our consumer businesses,
where there are large numbers of
customers, credit decisions are
largely informed by statistically
based scoring systems. Both
application scoring for new
customers and behavioural
scoring for existing customers are
used to measure risk and facilitate
the management of these
portfolios.
In our commercial and
corporate businesses the grading
systems utilise a combination of
objective information (primarily
financial data) and subjective
assessments of non-financial risk
factors (such as quality of
management). The combination
of expert lender judgment and
statistical methodologies varies
according to the size and nature
of the portfolio and default
experience.
Systems are in place to ensure
that all of these models are
continuously reviewed and
validated.
The ratings influence the
management of individual loans.
Special attention is paid to lower
quality graded loans and, when
appropriate, loans are transferred
to specialist units to help avoid
default and assist recoveries.
Provisioning for bad &
doubtful debts
AIB provides for bad and
doubtful debts in a prompt and
conservative way across the credit
portfolios.The rating models
provide a systematic discipline in
triggering the need for
provisioning on a timely basis.
There are two types of provisions
i.e. specific and general.
Specific provisions arise when
the recovery of a specific loan is
in significant doubt.The amount
of the specific provision will
reflect the financial condition of
the borrower and the net
realisable value of any security
held for the loan.
General provisions are also
maintained to cover loans which
are impaired at balance sheet date
and, while not specifically
identified, are known from
experience to be present in any
portfolio of loans.
Whilst provisioning is an
ongoing process, all AIB divisions
formally review provision
adequacy on a quarterly basis and
determine the overall provision
need.These provisions are in turn
reviewed and approved by the
Group Credit Committee on a
quarterly basis with ultimate
Group levels being approved by
the Group Audit Committee.
Credit performance
measurement framework
AIB continues to refine its
methodology of measuring the
risk adjusted profitability of its
credit business. Economic Value
Added (‘EVA’) is now the
primary measure of performance.
EVA represents the value added
having deducted all costs,
including expected bad debt loss
and a charge for the economic
capital required to support the
facility.
The most important inputs
into the determination of the
expected bad debt loss and the
economic capital are the
probability of default (‘PD’), the
loss given default (‘LGD’) and the
exposure at default (‘EAD’).The
rating grades produced by the
rating models are translated into a
PD, which is a key parameter
when measuring risk. LGD is
measured taking into account the
security held by AIB. EAD for
35
Financial review
many products is equal to the
outstanding exposure but for
some products, such as credit lines
and derivative contracts, the EAD
may be higher than the
outstanding exposure. The
methodology used in determining
economic capital is in line with
emerging best practice.
This framework is used to
guide the pricing of risk across
the credit spectrum and to
influence the deployment of
capital to maximise shareholder
value.
Further information on
credit risk
Further information on credit
risk can be found within this
report on the following notes;
– Amounts written off/(written
back) fixed asset investments
(Note 12)
– Loans and advances to banks
(Note 23)
– Loans and advances to
customers (Notes 24, 25)
– Provision for bad and doubtful
debts (Note 26)
– Securitised assets (Note 27)
– Debt securities (Note 28)
– Provisions for liabilities and
charges (Note 40)
– Memorandum items -
contingent liabilities and
commitments (Note 49)
Market risk
Market risk is the exposure to
loss arising from adverse
movements in interest rates,
foreign exchange rates and equity
prices. It arises in trading
activities as well as in the natural
course of transacting business, for
example in the provision of fixed
rate loans or equity linked tracker
bonds to customers.
Risk management and control
The principal aims of AIB’s
market risk management activities
are to limit the adverse impact of
interest rate, exchange rate and
equity price movements on
profitability and shareholder value
and to enhance earnings within
defined limits. Market risk
management for AIB is
centralised in Capital Markets
Division. Interest rate, foreign
exchange rate and equity risks
incurred in retail and corporate
banking activities are transferred
into Global Treasury where they
are managed.The basic principle
is that these risks are eliminated
by matching the market risk
characteristics of assets, liabilities
and off-balance sheet items.
Global Treasury has the discretion
to run a small mismatch, subject
to strict limits and is also responsible
for AIB’s investment and liquidity
management activities.
Market risks are managed by
setting limits on the amount of
the Group’s capital that can be
put at risk.These limits are based
on risk measurement
methodologies described below.
The Board delegates authority
to the Group CRO to allocate
these limits on its behalf.The
limits for Global Treasury are set
in accordance with its business
strategy and are reviewed
frequently.The Managing Director
of Global Treasury allocates these
limits to the various dealing desks
who supplement these with more
detailed limits and other risk
reducing features such as stop-loss
rules.Within Global Treasury,
there is a dedicated risk
management team charged with
the responsibility to ensure that
the risk measurement
methodologies used are appropriate
for the risks being taken and that
appropriate monitoring and control
procedures are in place.The Market
Risk Committee (‘MRC’)
reviews market risk strategy. It
approves policies and promotes
best practice for measurement,
monitoring and control.
Measurement methods
There is no single risk measure
that captures all aspects of market
risk. AIB uses several risk measures
including Value at Risk (‘VaR’)
models, sensitivity measures and
stress testing.
VaR
The aim of VaR is to estimate the
probable maximum loss in fair
value that could arise in one month
from a ‘worst case’ movement in
market rates.This is computed
using statistical analysis of market
rate movements setting a
confidence level at 99%.This
means that there is a one in one
hundred chance that the potential
loss could be greater than that
estimated from the data used.VaR
figures are quoted using one-day
and one-month holding periods.
AIB’s market risk exposure is
spread across a range of
instruments, currencies and
maturities.The VaR for a portfolio
of market risk positions will not
be the sum of the VaRs for each
financial instrument included in
the portfolio.The VaR for a
portfolio is lower because it is
unlikely that the ‘worst case’
scenario occurs in all instruments,
currencies and maturities
simultaneously.
36
Sensitivity measures
The limitations of VaR
techniques are well known to
banks.They stem from the need
to make assumptions about the
spread of likely future price and
rate movements. AIB supplements
its VaR methodology with
sensitivity measures. Dealers in
Global Treasury know how much
the value of their positions could
change for a given change in rates
and/or prices.This sensitivity is
monitored at desk and
management level and reported
on by the Global Treasury risk
management unit.These measures
can also be used to decide on
hedging activities. Decisions can
be taken to close out positions
when the level of sensitivity
combined with the likelihood
of a rate or price change exposes
AIB to too high a loss in value.
Stress testing
AIB’s VaR and sensitivity measures
provide estimates of probable
maximum loss in normal market
conditions. Stress tests are used to
supplement these measures by
estimating possible losses that may
occur under extreme market
conditions.These measures feed
into the estimate of economic
capital for market risk.
Interest rate risk
Global Treasury manages the
Group’s exposure to interest rate
risk.The risk is that changes in
interest rates will have adverse
effects on earnings and on the
value of AIB’s assets and liabilities.
This risk is managed by setting
limits on the earnings at risk and
the value at risk (‘VaR’) from the
The following table illustrates the VaR figures for interest rate risk for the
years ended 31 December 2004 and 2003.
Interest rate risk
1 month holding period:
Average
High
Low
31 December
1 day holding period:
Average
High
Low
31 December
Trading
Non-trading
2004
€ m
2003
€ m
2004
€ m
2003
€ m
7.0
10.3
4.0
7.0
1.6
2.3
0.9
1.6
9.3
11.6
6.4
8.1
2.1
2.6
1.4
1.8
18.5
26.4
11.8
13.6
4.1
5.9
2.6
3.0
25.9
49.6
12.8
18.9
5.8
11.1
2.9
4.2
open interest rate risk positions
of the Group. Stop loss limits are
also used to close out loss making
positions.
In managing interest rate risk,
a distinction is made between
trading and non-trading activities.
Trading activities are recorded in
the trading book. Interest rate risk
associated with AIB’s retail,
corporate and commercial
activities is managed through the
non-trading book.The reported
interest rate VaR figures above
represent the average, high, low
and year end probable maximum
loss in respect of both trading and
non-trading book positions held
in Global Treasury.
Trading book
The interest rate trading book
includes all securities and interest
rate derivatives that are held for
trading purposes in Global
Treasury.These are revalued daily
at market prices (marked to
market) and any changes in value
are immediately recognised in
income. During 2004, trading
book interest rate risk was
predominantly concentrated in the
euro, sterling and the US dollar.
Non-trading book
AIB’s non-trading book consists
of its retail and corporate deposit
books, Global Treasury’s cash
books and the Group’s investment
portfolios. AIB’s retail businesses
have a substantial level of free
current accounts, equity and
other interest-free or fixed rate
liabilities and assets. Unless
carefully managed, the net
income from these funds will
fluctuate directly with short-term
interest rates. AIB manages this
volatility by maintaining a
portfolio of assets with interest
rates fixed for several years. In
designing this strategy, care is
taken to ensure that the
management of the portfolio is
not inflexible as market
conditions and customer
37
Foreign exchange rate risk -
trading
Global Treasury manages AIB’s
exposure to foreign exchange rate
risk arising from unhedged
customer transactions and
discretionary trading.The risk is
that adverse movements in
foreign exchange rates will result
in losses.This risk is managed by
setting limits on the earnings at
risk and the value at risk (‘VaR’)
from the open foreign exchange
rate positions of the Group. Stop
loss limits are also used to close
out loss making positions.The
table below sets out the VaR
figures for trading foreign
exchange rate risk for the years
ended 31 December 2004 and
2003.
2004
€ m
2003
€ m
Foreign exchange rate risk-trading
1 month holding period:
Average
High
Low
31 December
0.9
1.7
0.4
1.3
1 day holding period:
Average
High
Low
31 December
0.2
0.4
0.1
0.3
0.6
0.9
0.3
0.5
0.1
0.2
0.1
0.1
Financial review
requirements can bring about a
need to alter the portfolio. Group
ALCO sets the framework and
reviews the management of these
activities.
AIB’s net interest rate
sensitivity as at 31 December
2004 is illustrated in note 52.
Foreign exchange rate risk
AIB is exposed to foreign
exchange rate risk through its
international operations and
through Global Treasury activities
in foreign currencies.
Foreign exchange rate risk -
structural
Structural foreign exchange rate
risk arises from the Group’s
non-trading net asset position in
foreign currencies. Structural risk
exposure arises almost entirely
from the Group’s net investments
in its sterling, US dollar and
Polish zloty-based subsidiaries.
The Group prepares its
consolidated financial statements
in euro. Accordingly, the
consolidated balance sheet is
affected by movements in the
exchange rates between these
currencies and the euro.
It is normal Group practice to
match material individual foreign
currency investments in overseas
subsidiaries, associated
undertakings and branches, with
liabilities in the same currency.
However, Polish investments are
recorded in euro. Because of the
Group’s diversified international
operations, the currency profile of
its capital may not necessarily
match that of its assets and risk
weighted assets. Under Board-
approved policy, a sub-committee
of Group ALCO has delegated
responsibility for hedging this
structural mismatch against
adverse exchange rate
movements.
The Group does not maintain
material non-trading open
currency positions other than the
structural risk exposure discussed
below.
At 31 December 2004 and
2003, the Group’s structural
foreign exchange position was as
follows:
US dollar
Sterling
Polish zloty
2004
€ m
1,458
1,309
254
2003
€ m
1,499
1,008
129
3,021
2,636
This position indicates that a 10%
movement in the value of the
euro against these currencies at
31 December 2004 would result
in an amount to be taken to
reserves of € 302 million.
The Group may choose to
hedge all or part of its projected
future foreign currency earnings,
thereby fixing a translation rate
for the amount hedged.The
purpose of these hedges is to
minimise the risk of significant
fluctuations in the reported euro
values of the Group’s separate US
dollar, sterling and Polish zloty
earnings. A discussion on the
impact of hedging profits is
included in ‘translation of foreign
locations’ profit’ on page 14 of
this report.
38
Equity risk
Global Treasury manages the
equity risk arising on its
convertible bond portfolio and
from stock market linked
investment products (tracker
bonds) sold to customers.
Goodbody Stockbrokers manage
the equity risk in its Principal
Trading Account.The risk is that
adverse movements in share, share
index or equity option prices will
result in losses for the Group.This
risk is managed by setting limits
on the earnings at risk and the
value at risk (‘VaR’) from the
open equity positions of the
Group. Stop loss limits are also
used to close out loss making
positions.The table below sets out
the VaR figures for equity risk for
the years ended 31 December
2004 and 2003.
Trading
2004
€ m
2003
€ m
Equity risk
1 month holding period:
Average
High
Low
31 December
20.7
26.2
14.6
18.4
1 day holding period:
Average
High
Low
31 December
4.6
5.9
3.3
4.1
14.5
19.3
11.6
18.1
3.2
4.3
2.6
4.1
Off-balance sheet financial
instruments
AIB uses off-balance sheet
financial instruments, including
derivatives, to service customer
requirements, to manage the
Group’s market risk exposures
and for trading purposes.
Credit commitments
Contingent liabilities and
commitments to extend credit are
outlined in note 49.The Group’s
maximum exposure to credit loss
in the event of non-performance
by the other party, where all
counterclaims, collateral or
security prove valueless, is
represented by the contractual
amounts of these contracts.
Derivative instruments
Derivative instruments are
contractual agreements between
parties whose value reflects
movements in an underlying
interest rate, foreign exchange
rate, equity price or index.The
table on page 40 shows the
notional amount and gross
replacement cost for trading and
non-trading interest rate,
exchange rate and equity
contracts at 31 December 2004
and 2003.While notional
principal amounts are used to
express the volume of these
transactions, the amounts subject
to credit risk are much lower.
This is because most derivatives
involve payments based on the
net differences between the rates
expressed in the contracts and
other market rates.
The Group is exposed to
interest rate risk when assets and
liabilities mature or reprice at
different times or in differing
amounts. Interest rate derivatives
are used to manage interest rate
risk in a cost-efficient manner.
Similarly, foreign exchange and
equity derivatives are used to
manage the Group’s exposure to
foreign exchange and equity risk,
as required.
The values of derivative
instruments can rise and fall as
market rates change.Where they
are used to hedge on-balance
sheet assets or liabilities, the
changes in value are generally
offset by the value changes in the
hedged items.
Derivative transactions entered
into for hedging purposes are
accounted for in accordance with
the accounting treatment for the
item or items being hedged.
Futures contracts are designated
as hedges when they reduce risk
and there is a high correlation
between the futures contract and
the item being hedged, both at
inception and throughout the
hedge period. Swaps, forward rate
agreements and option contracts
are generally used to manage the
interest rate risk of balance sheet
items and are linked to specific
assets or groups of similar assets
or specific liabilities or groups of
similar liabilities.Where a
transaction originally entered into
for hedging purposes no longer
represents a hedge, its value is
restated at fair value and any
subsequent change in value is
taken to the profit and loss
account immediately.
The following is a brief
description of the derivative
instruments that account for the
major part of the Group’s
derivative activities:
Interest rate swaps are
agreements between two parties
to exchange fixed and floating
rate interest by means of periodic
payments based upon notional
principal amounts and interest
39
Financial review
Interest rate contracts
Trading
Non-trading
Exchange rate contracts
Trading
Non-trading
Equity contracts
Trading
Non-trading
Notional
amount
€ m
2004
Gross
replacement
cost
€ m
2003
Gross
replacement
cost
€ m
Notional
amount
€ m
109,372
31,695
141,067
765
294
1,059
72,736
27,045
99,781
736
294
1,030
15,870
599
14,753
–
–
812
15,870
599
15,565
3,575
–
3,575
112
–
112
2,445
–
2,445
464
37
501
73
–
73
rates defined in the contract.
The Group uses interest rate
swaps to manage the impact on
income and shareholder value of
interest rate changes on variable
and fixed rate assets. In addition,
swaps are used to hedge the
Group’s funding costs.
Currency swaps are interest
rate swaps where one or both of
the legs of the swap is payable in
a different currency.They are
used by both customers and
Global Treasury to convert fixed
rate assets or liabilities to floating
rate or vice versa, or to change
the maturity or currency profile
of underlying assets and liabilities,
as required.
Forward rate agreements are
individually negotiated contracts
under which an interest rate is
agreed for a notional principal
amount covering a specified
period in the future. At the
settlement date, if interest rates for
the future period are higher than
the agreed rate, the seller pays the
buyer the difference between the
contract rate and the rate
prevailing. If interest rates are
lower, the buyer pays the seller.
These contracts are used by
customers to fix the rates for
future short-term borrowing or
deposits.
Financial futures are exchange
traded contracts to buy or sell a
standardised amount of the
underlying item at an agreed
price on a set date. Interest rate
futures contracts are available in
all of the major currencies.
Foreign currency and equity
index futures are also available.
Financial futures are used to
hedge the Group’s exposures
arising from the sale of forward
rate agreements or guaranteed
equity products.They are also
used to manage the interest rate
risks arising in the Group’s debt
securities portfolio.
Options are contracts that
give the purchaser the right, but
not the obligation, to buy or sell
an underlying asset e.g. bond,
foreign currency, or equity index,
at a certain price on or before an
agreed date.These provide more
flexible means of managing
exposure to changes in interest
rates, exchange rates and equity
index levels. Foreign exchange
rate options are used to hedge
income and expenses arising from
non-euro denominated assets and
liabilities and to manage the
impact of exchange rates on the
reported euro value of non-euro
earnings. Foreign exchange rate
options are also used to hedge
exposures arising from customer
transactions.
Interest rate caps/floors are
series of options that give the
buyer the ability to fix the
maximum or minimum rate of
interest. A combination of an
interest rate cap and floor is
known as an interest rate collar.
Forward foreign exchange
contracts are agreements to buy or
sell a specified quantity of foreign
currency, usually on a specified
date, at an agreed exchange rate.
These contracts are used by
customers to fix the exchange
rates for future foreign exchange
transactions.They are also used by
the Group to hedge non-euro
income and expenses and to
manage the impact of exchange
rates on the reported euro value
of non-euro earnings.
Credit derivatives are
contracts, the value of which are
determined by the credit
worthiness of some underlying
borrower or borrowers.They are
used in the industry to increase
(take a position in) or decrease
(hedge) an exposure to credit
40
lessons learned process to ensure
that, once identified, control
deficiencies are communicated
and remedied across the Group.
The lessons learned from the
investigations relating to foreign
exchange and other issues in
2004, have been used to
strengthen operational risk
management processes in AIB.
The role of Group ORMCO
is to co-ordinate operational risk
management activities across the
Group through setting policy,
monitoring compliance and
promoting best practice
disciplines.
risk. AIB currently makes little
use of credit derivatives.
Operational risk
Within AIB, operational risk is
defined as the exposure to loss
from inadequate or failed internal
processes, people and systems or
from external events. It is the risk
of direct or indirect loss, or
damaged reputation, due to
deficiencies or errors in the
Group’s internal operations which
may be attributable to employees,
the organisation, control routines,
processes or technology, or due
to external events and relations.
Operational risks are inherent in
all activities within the
organisation, in outsourced
activities and in all interaction
with external parties.
Strong internal control and
quality management, consisting of
a risk management framework,
leadership and skilled personnel,
is the key to successful
operational risk management.
Each business area is primarily
responsible for managing its own
operational risks. Risk
management develops and
maintains the framework for
identifying, monitoring and
controlling operational risks and
supports the business in
implementing the framework and
raising awareness of operational
risks.
An element of AIB’s
operational risk management
framework is ongoing monitoring
through self-assessment of control
deficiencies and weaknesses, the
tracking of incidents and loss
events and the use of a structured
41
Implementation of IFRS
AIB’s primary financial statements for the year ended 31 December 2004 are prepared in accordance with Irish
generally accepted accounting principles (‘IR GAAP’) which differ in certain significant respects from
International Financial Reporting Standards (‘IFRS’). Arising from the adoption of a regulation by the European
Commission, from 1 January 2005, the Group accounts of all listed companies incorporated in the European
Union (‘EU’) are required to be prepared on the basis of IFRS as endorsed by the EU. In its implementation of
IFRS, AIB intends also to comply fully with IFRS as issued by the International Accounting Standards Board
(‘IASB’). AIB’s date of transition to IFRS for statutory reporting purposes is 1 January 2004. Certain standards
are not applicable to the comparative periods as discussed below. As a result, further transition adjustments arise at
1 January 2005.
A Group wide programme has been in place since 2003 to ensure full compliance with IFRS in 2005.The
significant deliverables included the necessary adjustments to the Group accounting policies, addressing the
business impacts and making the necessary adjustments to the Group’s accounting and reporting systems,
including replacement where necessary. Progress is monitored by a Group level steering committee.
AIB’s first results prepared under IFRS will be published in the interim report for the six months to 30 June
2005. It is intended that audited comparative data for 2004 will be filed with the Irish and London Stock
Exchanges in the second quarter of 2005.
The discussion below has been prepared on the basis of IFRS expected to be in effect for the year ending 31
December 2005.The IFRS in effect at that date may differ due to decisions that may be taken by the EU on
endorsement, interpretative guidance issued by the IASB/International Financial Reporting Interpretations
Committee (‘IFRIC’) and the requirements of companies legislation.This could have an effect on the 2005
financial statements. In addition, the impact that the new accounting treatments will have on the calculation of
regulatory capital is not fully known and this could have an effect on the Group’s capital requirements and
resulting ratios.
The Group continues to evaluate the balance sheet and income statement effects of adopting IFRS and
therefore the audit of the impact of transition to IFRS has not been completed at the date of this report. Until
this work has been finalised, it is possible that further effects not discussed herewith will be identified.
Implementation of IFRS – accounting policy choices
IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (‘IFRS 1’) provides first time
adopters of IFRS with certain exemptions. IFRS 1 also allows or requires a number of other exceptions to its
general principle that the standards in force at the reporting date should be applied retrospectively. AIB has availed
of certain exemptions as set out below:
- AIB intends not to present comparative information in accordance with IAS 32 ‘Financial Instruments:
Disclosure and Presentation’ (‘IAS 32’), IAS 39 ‘Financial Instruments: Recognition and Measurement’
(‘IAS 39’) and IFRS 4 ‘Insurance Contracts’ (‘IFRS 4’). Accordingly, comparative information for 2004 in
respect of financial instruments and insurance contracts will be prepared on the basis of the Group’s current
accounting policies under IR GAAP.
- AIB intends to implement the requirements of IFRS 2 ‘Share Based Payments’ to all share based payments
granted after 7 November 2002 that have not vested by 1 January 2005.
- AIB intends to retain its existing carrying value of occupied properties at 1 January 2004 to be used as
deemed cost.
- AIB has elected to deem cumulative exchange differences on the net investments in foreign branches and
subsidiaries as zero at 1 January 2004, as permitted by IFRS 1.
- AIB intends to continue to recognise the actuarial gains and losses upon transition, and for future periods in
the statement of recognised income and expense, in the period in which they arise, as permitted under the
revised IAS 19 ‘Employee Benefits’.
- AIB has elected not to apply IFRS 3 ‘Business Combinations’ to business combinations prior to 1 January
2004.
42
- AIB will implement IAS 39 such that it complies with the full IAS 39 as published by the IASB. It will
comply with the hedge accounting requirements of the unamended IAS 39 and will not implement the
option provided under the EU ‘carved out’ version of IAS 39. AIB will comply with the fair value
requirements of the EU ‘carved out’ version which will mean not availing of the option to measure certain
liabilities at fair value.
As a result of availing of the above exemptions certain changes will apply from 1 January 2004 followed by further
changes (due to IAS 32, IAS 39 and IFRS 4) to apply from 1 January 2005.The discussion below deals with these
changes on the basis of the date from which they become applicable.
AIB expects the main differences arising on transition to IFRS reporting to be as follows:
Applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that
date)
- Consolidation - line-by-line consolidation of life assurance subsidiary;
- Associated undertakings – change in presentation on the face of the profit and loss account;
- Finance leases – tax effects are no longer taken into account when allocating finance lease income;
- Software development costs - classified as intangible assets and some reclassification impact on profit and
loss;
- Retirement benefits – presentation change on the face of the profit and loss account;
- Deferred tax – overall increase in deferred tax liabilities;
- Foreign currency - presentation changes within equity;
- Goodwill – ceasing to amortise goodwill, separate recognition of intangibles going forward;
- Dividends – dividends proposed but not declared are no longer recognised as a liability at the balance sheet
date;
- Share based payments – recognition of an expense in relation to the fair value of employee share options;
- Employee benefits - presentation change on face of profit and loss account.
Applying from 1 January 2005 (and to the IFRS balance sheet at that date)
- Loan origination – change in the income recognition profile for interest related fee income and costs;
- Loan impairment – lower balance sheet carrying value of provisions for losses on loans not specifically
identified as impaired;
- Debt securities - mainly classified as available for sale, and carried at fair value in the balance sheet;
- Derivatives – the inclusion of all derivatives in the balance sheet at fair value;
- Netting – Gross up of the balance sheet due to revised rules on netting;
- Long term assurance business - delayed recognition of income from life assurance;
- Acceptances - Gross up of the balance sheet with no impact on equity;
- Financial liabilities – the presentation of certain preference shares as liabilities.
43
Implementation of IFRS
Changes applying to comparatives from 1 January 2004 (and to the IFRS balance sheet at that date)
IR GAAP
IFRS
Basis of consolidation
In order to reflect the different nature of the
shareholders’ and policyholders’ interests in the long-
term assurance business, the value of long-term
assurance business attributable to shareholders and the
long-term assurance assets and liabilities attributable to
policyholders are classified under separate headings in
the consolidated balance sheet.
IAS 27 ‘Consolidated and separate financial statements’
requires that all entities are consolidated on a line by
line basis.The assets and liabilities of the life assurance
subsidiary will be consolidated on a line by line basis
and all intra group transactions will be eliminated.The
income and expense of the life assurance subsidiary
will be shown within each relevant line item of the
income statement whereas under IR GAAP it was
shown as a one line item.
IFRS impact:
This is principally a change in presentation on the face of the income statement and balance sheet.The balance
sheet will also reduce slightly due to the elimination of intra group transactions.
Interests in associated undertakings
The attributable share of income of associated
undertakings, based on accounts made up to the end
of the financial year, is included in the consolidated
profit and loss account using the equity method of
accounting.
The Group share of tax of associates is included
within the Group’s tax charge in the Group profit and
loss account and disclosed separately in the notes to
the accounts.
IAS 1 ‘Presentation of Financial Statements’ requires
the Group to include its share of the income of
associated undertakings as a single item on a net of tax
basis in the consolidated income statement.
IFRS impact:
This is principally a change in presentation. Profit before taxation will reduce, and the taxation charge will
reduce, with no impact on earnings per share.
Finance leases
Income from finance leasing transactions is
apportioned over the primary leasing period on an
after tax basis in proportion to the net cash investment
using the investment period method.
Rentals received in advance but not yet amortised
to the profit and loss account are included in other
liabilities.
Under IAS 17 ‘Leases’, income from finance leasing
transactions is apportioned over the primary leasing
period at a rate calculated to give a constant rate of
return on the investment in the lease, without taking
into account the taxation flows generated by the lease.
Finance lease receivables are stated in the balance
sheet at the gross rentals receivable, less income
allocated to future periods and provisions for
impairment.
IFRS impact:
There will be a change in the income recognition profile for individual transactions, but the overall impact on
the income statement is not expected to be significant.
The reclassification of rentals received in advance from liabilities to assets will reduce the size of the balance
sheet.
44
Changes applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that date)
IR GAAP
IFRS
Tangible fixed assets
The Group adopted the transitional arrangements of
FRS 15 ‘Tangible Fixed Assets’ and chose to retain the
book amounts of previously revalued assets in its
accounting records.
IFRS impact:
None
Software and software development
costs
Operating software and application software are
capitalised with computer hardware within tangible
fixed assets.
AIB capitalises software development costs under
FRS 15, when it leads to the creation of a definable
software asset, subject to a de-minimis limit.
AIB intends to adopt the cost model under IAS 16
‘Property, Plant and Equipment’ whereby fixed assets
are carried at cost less any accumulated depreciation
and any accumulated impairment losses. IFRS 1
permits the carrying value at date of transition to
IFRS (including where properties have been revalued)
to be used as deemed cost in certain circumstances
IAS 38 ‘Intangible assets & system development costs’
requires capitalisation of computer software
development costs as an intangible asset, where the
entity will generate future economic benefits from the
asset, that will flow to the entity, and the cost of the
asset can be measured reliably. Capitalised costs are
amortised over the software’s estimated useful life.
IFRS impact:
The classification criteria of IFRS will lead to reclassification from tangible fixed assets to intangible assets, being
the carrying value of previously recognised operating software.
The recognition requirements within IAS 38 will generate an increase in equity due to an increase in
capitalised assets. The impact on the income statement is not expected to be material but will be dependent on
the level of internal expenditure on computer software development in any period. There will be some
reclassification impact as administrative expenses will be lower with an increase in the depreciation/amortisation
charge.
Retirement benefits
AIB implemented FRS 17 ‘Retirement Benefits’ in the
preparation of its accounts for the year ended 2001.
The current service cost and past service cost of
the defined benefit schemes is charged to operating
profit and the expected return on assets, net of the
change in the present value of the scheme liabilities
arising from the passage of time, is credited to other
finance income.
The net pension scheme liabilities are shown in the
balance sheet net of deferred taxation.
The approach within IAS 19 ‘Employee Benefits’ is
similar to FRS 17. AIB will continue to recognise the
actuarial gains and losses directly in equity through the
statement of recognised income and expense.
The cost of providing pensions and post retirement
benefits will be shown within employee costs and
analysed in the notes to the accounts.
Deferred taxation relating to the recognition of the
net pension scheme liabilities is shown within deferred
taxation.
45
Implementation of IFRS
Changes applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that date)
IR GAAP
Retirement benefits (continued)
IFRS
IFRS impact:
This is a presentation change on the face of the income statement with a reduction in operating expenses due to
the recognition of other finance income as a part of the employee benefit expense.
The change in the manner in which deferred tax on the net pension scheme liabilities is presented will give
rise to a gross up of deferred tax assets and pension scheme liabilities.
Deferred taxation
Subject to certain exceptions, deferred taxation is
recognised in full in respect of timing differences that
have originated but not reversed at the balance sheet
date. Deferred tax is not provided on timing
differences arising:- on the revaluation of property
when no commitment has been made to sell the asset;
when a taxable gain on the sale of an asset is rolled
over into replacement assets; or on the potential
additional tax that may be payable on the payment of a
dividend by a subsidiary or associated undertaking
where no commitment has been made to pay a
dividend.
Under IAS 12 ‘Income Taxes’ deferred tax liabilities
and assets are generally recognised in respect of all
temporary differences, subject to assessment of the
recoverability of deferred tax assets. Deferred tax assets
are recognised, only to the extent that it is probable
that sufficient taxable profits will be available against
which these differences can be utilised.
Unremitted earnings from subsidiary and associated
companies may result in a deferred tax liability unless
the Group entity is able to control the timing of
remittances and it is probable that the earnings will
not be remitted in the foreseeable future.
IFRS impact:
Additional deferred tax balances will arise on transition in respect of temporary differences not previously
recognised. These include temporary differences relating to the revaluation of properties and the roll over of
taxable gains and the additional tax that may arise on unremitted profits of associated and subsidiary companies.
There will be income statement implications from IAS 12, particularly the requirement to reflect the
additional tax that would be payable on the remittance of profits by associated companies.
Foreign currency
Exchange adjustments arising from the retranslation of
net investments, net of hedging profits and losses, are
recognised in the statement of total recognised gains
and losses.
The profit on disposal of a foreign operation is
calculated based on the carrying value of the operation
at the date of disposal. Previous exchange translation
gains and losses remain in shareholders’ equity.
IAS 21 ‘The Effects of Changes in Foreign Exchange
Rates’ requires that all exchange differences arising on
the retranslation of a foreign operation with a different
functional currency than the Euro, should be
recognised in a foreign exchange reserve as a separate
component of equity.
On disposal of a foreign operation the exchange
differences previously recognised in reserves relating to
that foreign operation are reversed and recognised in
the income statement in arriving at the profit or loss
on disposal.
IFRS 1 permits companies to deem cumulative
exchange differences as zero at 1 January 2004.
46
Changes applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that date)
IR GAAP
Foreign currency (continued)
IFRS
IFRS impact:
This will primarily be a presentational change within shareholders’ funds. In addition, gains on any future
disposals of subsidiaries will be higher or lower depending on whether the functional currency of the subsidiary
has appreciated against the Euro since the later of 1 January 2004 or date of the acquisition or recognition of the
increase in the investment through profits retained in the foreign operation.
Intangible assets and goodwill
Goodwill and intangible assets arising on acquisitions
of subsidiary and associated undertakings prior to 1
January 1998 have been written off to reserves in the
year of acquisition.
Goodwill, arising on the acquisitions of subsidiary
and associated undertakings since 31 December 1998,
is capitalised as an asset on the balance sheet.
Purchased goodwill is the excess of cost over the fair
value of the Group’s share of net assets acquired.
Intangible assets were not identified as a separate
component of goodwill on acquisitions arising prior to
December 31 2004.
Goodwill is amortised to the profit and loss
account over its estimated useful economic lives.The
useful economic life of goodwill is determined at the
time of acquisition, taking into consideration factors
such as the nature of the business acquired, the market
in which it operates and its position in that market.
In all cases goodwill is subject to a maximum life of
20 years and is subject to an impairment review in
accordance with FRS 11 ‘Impairment of Fixed Assets and
Goodwill’.
On the disposal of subsidiary or associated
undertakings, any unamortised goodwill together with
goodwill previously written off directly to reserves is
included with the Group’s share of net assets of the
undertaking disposed, in the calculation of the profit
or loss on disposal.
Under FRS 7 ‘Fair values in Acquisition
Accounting’ the acquirer is permitted, in certain
circumstances, to finalise the fair value adjustments in
the period after the one in which the acquisition was
completed. Any necessary adjustments to those
provisional fair value adjustments and the
corresponding adjustment to goodwill are recognised
in the financial statements for that period.There is no
IFRS 1 ‘First-time adoption of International Financial
Reporting Standards’ does not require the
reinstatement of goodwill previously written off to
reserves.
The book value of goodwill existing at 31
December 2003 under IR GAAP is carried forward
under IFRS 1 from 1 January 2004, subject to two
adjustments. If there are previously unrecognised
intangible assets that meet the recognition criteria
under IAS 38 ‘Intangible Assets’, these are reported
separately to the extent that they are included in
goodwill at the date of transition. In addition, any
adjustments to provisional fair values (and hence
goodwill) made during the first twelve months after an
acquisition are reflected in the comparative
information.
Under IFRS 3, ‘Business Combinations’ intangible
assets are identified separately from purchased goodwill
on acquisitions of subsidiary and associated
undertakings. Intangible assets are capitalised as assets
on the balance sheet and amortised over their
expected lives and subject to regular impairment
reviews. Goodwill is capitalised as an asset, without
amortisation but with impairment reviews carried out
at least on an annual basis in accordance with IAS 36
‘Impairment of Assets’. AIB will apply IFRS 3 to all
acquisitions occurring after 1 January 2004.
At the date of disposal of subsidiary or associated
undertakings, the related amount of goodwill is
included in the calculation of the gain or loss on
disposal. Goodwill charged directly against reserves
under previous GAAP is not recognised in any profit
or loss arising on disposal under IFRS 3.
Under IFRS 3, the acquirer shall only recognise
adjustments to the provisional fair values of assets and
liabilities acquired in a business combination within 12
47
Implementation of IFRS
Changes applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that date)
IR GAAP
Intangible assets and goodwill
(continued)
adjustment to the prior year information.
IFRS
months of the acquisition date, with a corresponding
adjustment to goodwill.These adjustments are reflected
as if they had occurred at the acquisition date, by way
of an adjustment to the comparative information.
IFRS impact:
From 1 January 2004, there will be no amortisation of Goodwill recorded at 31 December 2003 (after adjusting
for intangible assets required to be recognised under IFRS and any adjustments made to provisional fair values on
acquisitions).
The cessation of goodwill amortisation will have a positive impact on the income statement. However,
goodwill will be the subject of impairment testing at least annually under IFRS. In the event of impairment, the
absence of previous amortisation would lead to larger impairment charges than would have been necessary under
IR GAAP.
Goodwill previously written off to reserves prior to 1998 is not taken into account in the calculation of profit
or loss on disposal of subsidiary or associated undertakings.This will generate a higher profit, or lower loss, on
disposal of subsidiary or associated undertakings acquired prior to 1998, under IFRS.
Dividends
Equity dividends declared after the balance sheet date
but before the accounts are approved by the Directors
are treated as a deduction on the face of the profit and
loss account and as a liability at the balance sheet date.
Dividends on preference shares are included in the
profit and loss account on an accruals basis in
accordance with FRS 4 ‘Capital Instruments’.
Under IAS 10 ‘Events after the balance sheet date’
dividends declared after the balance sheet date are not
recognised as a liability at the balance sheet date.
In respect of preference shares recognised as
shareholders’ equity, dividends are accounted for as a
movement in shareholders’ funds and as a charge
against earnings per share when they are declared.
IFRS impact:
There will be an increase in shareholders’ funds on transition as no liability will be recorded in respect of the
final dividend.Where dividends on preference shares are paid annually, in the second half of the year, the
distribution is a charge against EPS only in the second half of the year.
Share based payments
No expense is recognised for grants of options under
the share option schemes. Under these schemes the
options are granted with a strike price equal to the
market value of the underlying share at the date of
grant.
An expense is recognised for grants awarded under
the Long term incentive plan schemes, equivalent to
the intrinsic value of the shares awarded.This is
charged to the profit and loss account over the vesting
period, based on the number of options that are
expected to vest.
IFRS 2 ‘Share-based Payment’ requires a fair value
based method of accounting for all share-based
payments.This value is determined using an options
pricing model.
The expense is recognised over the period in
which the options are expected to vest. Actual expense
recognised over the vesting period will be determined
by the meeting of the vesting conditions and the
options that remain outstanding at the end of the
vesting period.
48
Changes applying to comparatives from 1 January 2004 (and to the IFRS opening balance sheet at that date)
IR GAAP
IFRS
Share based payments (continued)
An expense is recognised in respect of Save-As-
You-Earn schemes.The expense equates to the
discount given to the employees on the market price
of the shares, and is charged to profit and loss over the
savings period.
Shares awarded under the profit sharing schemes, as
a bonus for previous service, are expensed immediately.
If an award is made in respect of service in the past
but an employee must complete a further specified
period of service before entitlement to the award (the
vesting period), the expense is spread from the date of
commencement of the service period, to which the
reward relates, to the vesting date.
IFRS impact:
AIB will elect to apply IFRS 2 to all share based payments occurring after 7 November 2002 that have not
vested by 1 January 2005.
Applying IFRS 2 to AIB’s share based payment schemes will give rise to a higher expense than that arising
under IR GAAP. It will also give rise to some changes in the timing of recognition of the expense with a
transition adjustment at 1 January 2004.
Employee benefits
The cost of providing employees with benefits such as
subsidised loans and preferential rates on deposits is
charged to net interest income.
Under IAS 19, the cost of providing staff benefits
should be accounted for within staff costs.
IFRS impact:
This is a presentation change on the face of the income statement within an increase in net interest income and
an increase in administrative expenses.
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
Loan origination - interest income and
expense recognition
Interest income and expense is recognised in the profit
and loss on an accruals basis over contract lives except
in respect of non-performing loans where interest is
not taken to the profit and loss account when recovery
is doubtful. Fees which are considered to increase the
yield on transactions are spread over the lives of the
underlying transactions on a level yield basis. All costs
associated with mortgage incentive schemes are
charged in the period in which the expense is
incurred. Fees and commissions received for services
provided are recognised when earned. Fees and
commissions payable to third parties in connection
with lending arrangements are charged to the profit
and loss account as incurred.
Interest income and interest related fees and costs, are
recognised at a constant rate to the expected maturity
date.
Costs associated with mortgage incentives are
accrued to interest income so as to give a constant rate
to expected maturity on the mortgage.
Fees and commissions received on the completion
of a significant act are recognised immediately.
49
Implementation of IFRS
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
IFRS
Loan origination - interest income and
expense recognition (continued)
IFRS impact:
On transition, certain fees receivable, and fees and commissions payable that had previously been taken to the
profit and loss account are treated as deferred income and deferred costs and shown within loans and receivables.
This will give rise to a small reclassification from liabilities and a transition adjustment to equity. These deferred
fees and costs will be amortised on an effective interest basis to the profit and loss account over the expected
residual lives of the financial instruments.
The change in policy will also lead to a reclassification from fee income/fee expense and administrative
expenses to interest income with an impact on the net interest margin.
Revisions of expected maturity of loans could generate income volatility.
Loan impairment - allowance and
provision for losses
Specific provisions are made when, in the judgement
of management, the recovery of the outstanding
balance is in serious doubt.The amount of the specific
provision is intended to cover the difference between
the balance outstanding on the loan or advance and
the estimated recoverable amount. In certain
portfolios, provisions are applied to pools of loans on a
formula driven basis depending on levels of
delinquency.
General provisions are also made to cover loans
which are impaired at balance sheet date, and while
not specifically identified, are known from experience
to be present in any portfolio of bank advances.The
Group holds general provisions at a level deemed
appropriate by management taking into account a
number of factors including:- the credit grading
profiles and movements within credit grades; historic
loan loss rates; local and international economic
climates and portfolio sector profiles/industry
conditions.The level of general provisions is reviewed
quarterly to ensure that it remains appropriate.
Interest is not taken to profit when recovery is
doubtful.
Under IAS 39, impairment provisions are recognised
on an incurred loss basis if there is objective evidence
that the Group will be unable to collect all amounts
due on a loan according to the original contractual
terms.
Individual credit exposures are evaluated based
upon the borrower’s character, overall financial
condition, resources and payment record, the prospects
for recovery from the realisation of collateral or the
calling in of guarantees where applicable.
The estimated recoverable amount is the present
value of expected future cash flows, which may result
from restructuring or liquidation. Impairment is
measured and allowances for credit losses are
established for the difference between the carrying
amount and the estimated recoverable amount.
IAS 39 allows collective assessment of impairment
for individually insignificant items. Smaller value
impaired loans are grouped together in homogeneous
pools sharing common characteristics and impairment
is measured by reference to the loss history experience
of the asset pool.
Where no objective evidence of impairment exists
for an individual asset but there are indications of
incurred losses in the portfolio, IAS 39 permits the
creation of provisions for credit losses on an incurred
loss basis.
Upon impairment the accrual of interest income
based on the original terms of the claim is
discontinued, but the increase of the present value of
50
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
Loan impairment - allowance and
provision for losses (continued)
IFRS
impaired claims due to the passage of time is reported
as interest income.
IFRS impact:
Application of the IFRS incurred loss model to AIB will result in a reduction in the overall level of provisions
carried at the balance sheet date and a transition adjustment to equity.
The incurred loss model under IFRS will lead to a more volatile impairment charge in the income statement.
In addition, on recognition of individual impairment, the impairment loss will be higher than that recorded
under current GAAP due to the requirement to discount the recoverable cash flows.
The higher impairment loss will be offset by the recognition of income in the net recoverable amount due to
the passage of time.
Debt securities
Debt securities held as financial fixed assets are
accounted for on a historic cost basis.These debt
securities are stated in the balance sheet at cost,
adjusted for the amortisation of any premiums or
discounts arising on acquisition and provisions for
impairment. Profits and losses on disposal of securities
held for investment purposes are recognised
immediately in other operating income. Profits and
losses on disposal of securities held for hedging
purposes are amortised over the lives of the underlying
transactions and included in net interest income.
Debt securities held for trading purposes are stated
in the balance sheet at market value. Both realised and
unrealised profits on trading securities are taken
directly to the profit and loss account and included
within dealing profits.
Under IAS 32 and 39, all debt securities and equity
shares are classified and disclosed within one of the
following three categories: held-to-maturity; available-
for-sale; or held as fair value through profit or loss.
Held-to-maturity
Financial instruments are designated as held-to-
maturity when they are debt securities held on a
continuing use basis by the Group for which the
Group has the ability and intention to hold to
maturity.These debt securities are stated in the balance
sheet at cost, adjusted on an effective interest basis for
the amortisation of any premiums or discounts arising
on acquisition and provisions for impairment.The
amortisation of premiums and discounts is included in
net interest income. Provisions for impairment are
included in earnings.
Available-for-sale
Available-for-sale financial instruments are stated in
the balance sheet at fair value with unrealised holding
gains and losses reported net of applicable taxes as a
separate component in shareholders equity.Where
impairment arises on an available-for-sale security, the
cumulative loss that has been recognised in equity is
removed and the impairment is recognised in the
profit and loss account.When the conditions that
created the requirement for a provision no longer
exist, the provision for debt securities may be reversed
through the profit and loss account. No reversal of
provisions for impairment on available for sale equity
51
Implementation of IFRS
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
Debt securities (continued)
IFRS
securities is allowed until the security has been
disposed of. Profits and losses on available for sale debt
securities are recognised in the profit and loss account
based on the amortised cost of the security.
Held as fair value through profit and loss
Debt securities held as fair value through profit and
loss are stated in the balance sheet at market value
with unrealised gains and losses recognised
immediately in profit and loss.
IFRS impact:
Almost all of AIB’s debt securities, which were previously held as financial fixed assets, will be classified as
available-for-sale on transition to IFRS.This will give rise to an adjustment to equity on transition.
Derivatives
Non-trading derivative transactions comprise
transactions held for hedging purposes as part of the
Group’s risk management strategy against assets,
liabilities, positions or cash flows, themselves accounted
for on an accruals basis.The gains and losses on these
instruments (arising from changes in fair value) are not
recognised in the profit and loss account immediately
as they arise. Derivative transactions entered into for
hedging purposes are recognised in the accounts on an
accruals basis consistent with the accounting treatment
of the underlying transaction or transactions being
hedged. A derivative will only be classified as a hedge
where it is designated as a hedge at its inception and
where it is reasonably expected that the derivative
substantially matches or eliminates the exposure being
hedged.
Except as described below in respect of hedges of
the income stream on Group capital, upon early
termination of derivative financial instruments
classified as hedges, any realised gain or loss is deferred
and amortised to net interest income over the life of
the original hedge as long as the designated assets or
liabilities remain. Upon early termination of derivative
transactions classified as hedges of the income stream
on Group capital, any realised gain or loss is taken to
the profit and loss account as it arises.
IAS 39 ‘Financial instruments: recognition and
measurement’ requires all derivatives be recognised as
either assets or liabilities in the balance sheet at their
fair value.The accounting for changes in the fair value
of a derivative depends on the intended use of the
derivative and the resulting designation as described
below. Derivative transactions entered into for hedging
purposes are classified as ‘fair value hedges’ if they
hedge exposures to changes in the fair value of a
recognised asset or liability or firm commitment.
Derivative transactions entered into for hedging
purposes are classified as ‘cash flow hedges’ if they are
hedging the exposure to variable cash flows of a
recognised asset or liability or of a highly probable
forecast transaction.
Interest income and expense on derivatives
classified as hedges is recorded within interest income
or expense as appropriate.
The mark to market of derivatives classified as fair
value hedges is recognised in the income statement
within other financial income.The hedged item in a
fair value hedge is fair valued with respect to the risk
being hedged only as long as the hedge remains
effective and the mark to market of the hedged item is
recorded in other financial income.
The mark to market of derivatives designated as
cash flow hedges is accounted for in equity, net of the
deferred tax impact. Subsequently it is released into
52
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
Derivatives (continued)
IFRS
the income statement in line with the income
statement recognition of the element of the hedged
asset, liability or highly probable forecast transaction.
Any ineffective portion is reported within other
financial income in the income statement as it arises.
Where a derivative originally classified as a fair
value hedge no longer meets the effectiveness tests, or
the hedge relationship has ceased for any reason, the
underlying hedged position is no longer marked to
market.The fair value adjustment of the hedged item
is amortised to the profit and loss account on an
effective interest rate basis from the date the hedging
relationship ceases.
Where a cash flow hedging instrument expires or
is sold, terminated or exercised, the cumulative gain or
loss on the instrument, that remains recognised directly
in equity from the period when the hedge was
effective, is released from equity in line with the
income statement recognition of the underlying
hedged position.
IFRS impact:
AIB will implement IAS 39 such that it complies with the full IAS 39 as published by the IASB. It will comply
with the hedge accounting requirements of the IASB unamended IAS 39 and will not implement the option
provided under the EU ‘carved out’ version of IAS 39.
The effectiveness rules within IAS 39 have a stricter definition of qualifying hedges and this will result in the
recognition of current hedging derivatives at fair value with no matching offset where the associated hedging
relationship does not meet the IAS 39 hedging requirements.There will also be an impact on transition due to
fair value movements on derivatives in existing hedge relationships, that will be allowable as cash flow hedges,
being taken to the cash flow hedging reserve in equity.
There may be some additional volatility in earnings as a result of a stricter definition of a qualifying hedge
relationship under IFRS, the effectiveness of hedging strategies and the resulting recognition of hedge
ineffectiveness in the income statement.The amount of this additional volatility in income will depend, in part,
on the extent to which the fair value option for liabilities available within IAS 39, but carved out in the EU
adopted version of IAS 39, is ultimately endorsed by the EU.
In addition to the classification of derivatives as fair value hedges, AIB intends, where possible, to hedge its
interest rate exposure using cash flow hedging.This will give rise to volatility in equity.
Netting
Under IR GAAP where the amounts owed by the
Group and the counterparty are determinable and in
freely convertible currencies and where the Group has
the ability to insist on net settlement which is assured
beyond doubt and is based on a legal right to settle net
that would survive the insolvency of the counterparty,
Under IAS 32 ‘Financial instruments: disclosure and
presentation’, netting is only allowed if the entity
currently has a legally enforceable right to set off the
recognised amounts and intends either to settle on a
net basis, or to realise the asset and settle the liability
simultaneously.
53
Implementation of IFRS
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
IFRS
Netting (continued)
the amounts are shown in the balance sheet as net
assets or net liabilities as appropriate.
IFRS impact:
It is expected that there will be some gross up of the balance sheet as a result of the requirement to show
positions on the balance sheet gross unless there is the intention to settle net.The impact of qualifying netting
agreements will be disclosed in the notes to the accounts.
Long term assurance business
Under IR GAAP the value placed on the Group’s
long-term assurance business attributable to
shareholders represents a valuation of the policies in
force together with the net tangible assets of the
business including any surplus retained in the long-
term business fund which could be transferred to
shareholders.The value of the in force business is
calculated by projecting future surpluses and other net
cash flows attributable to the shareholder arising from
business written by the balance sheet date and
discounting the result at an appropriate discount rate.
Movements in the value placed on the Group’s
long-term assurance business attributable to
shareholders, grossed up for taxation, are included in
other operating income.
The definition of Insurance under IFRS 4 ‘Insurance
Contracts’ restricts the use of embedded value
accounting by the Group to products with significant
insurance risk.
Investment type products that do not meet the
definition of insurance contracts must be accounted
for under IAS 39.The inclusion of a valuation of the
discounted future earnings expected to emerge from
the business currently in force will no longer be
possible for such contracts. Any investment
management element of such contracts will be
accounted for under IAS 18 ‘Revenue’.This requires
that investment management fees (and incremental
directly attributable costs) be spread over the period in
which services are provided.
IFRS impact:
Accounting for contracts meeting the IFRS definition of insurance business is not impacted by IFRS 4.
Accounting for investment products under IAS 39 serves to delay the recognition of income for a number of
reasons. There is a narrower definition of costs that can be deferred on the sale of investment products. Initial
charges on sale of investment products are deferred and accrued in over the expected life of the product.There is
no opportunity to account for the future surpluses on an embedded value basis.
As a consequence, there will be a reduction in equity on transition as the valuation of the discounted future
earnings expected to emerge from the business currently in force in the balance sheet will decrease. Income will
be recognised on these contracts in later periods due to the change in the valuation basis.
Acceptances
Acceptances are currently accounted for on a net basis.
There is no gross up of the amount to be paid and the
amount receivable from the originator and thus no
balance appears in the balance sheet in relation to
these products.
IAS 39 requires the recognition of a liability for
acceptances from the date of acceptance. A
corresponding asset due from the originator will also
be recognised.
IFRS impact:
This will give rise to a gross up of the balance sheet with no impact on equity.
54
Changes applying from 1 January 2005 (and to the IFRS balance sheet at that date)
IR GAAP
IFRS
Classification of financial liabilities
Under IR GAAP capital instruments that are not
shares should be treated as liabilities if they involve an
obligation to transfer economic benefits. All other
capital instruments should be reported in shareholders’
funds.
Financial instruments with an obligation to pay
interest or repay principal are classified in the balance
sheet as liabilities. Issue expenses of capital instruments
classified as liabilities are deducted from the proceeds
of issue and the total finance cost is recognised at a
constant rate to the expected maturity date.
Financial instruments with no obligation to pay
interest or repay principal are classified as equity.With
the execption of dividends declared on ordinary shares,
dividends on financial instruments within equity are
accounted for as a movement in shareholders’ funds
and taken into account in the calculation of EPS when
declared.The issue costs of financial instruments
classified as equity are deducted from shareholders’
funds.
IFRS impact:
The existing preference shares will be classified as debt while the reserve capital instruments will be classified as
equity.
This is a presentational change that will impact the face of the income statement and the balance sheet.
Although pre-tax profit will be impacted, there will be no impact on income attributable to ordinary
shareholders.There will be an impact on income statement ratios including, net interest margin, cost income
ratio and the effective tax rate.
55
Report of the Directors
for the year ended 31 December 2004
The Directors of Allied Irish Banks, p.l.c. present their report and the audited accounts for
the year ended 31 December 2004. A Statement of the Directors’ responsibilities in
relation to the Accounts appears on page 149.
Results
The Group profit attributable to
the ordinary shareholders
amounted to € 1,047m and was
arrived at as shown in the
Consolidated Profit and Loss
Account on pages 69 and 70.
Dividend
An interim dividend of EUR
20.9c per ordinary share,
amounting to € 179m, was paid
on 24 September 2004. It is
recommended that a final
dividend of EUR 38.5c per
ordinary share, amounting to
€ 333m (see Note 19), be paid
on 28 April 2005, making a total
distribution of EUR 59.4c per
ordinary share for the year. The
balance of profit to be transferred
to the Profit and Loss Account
amounts to € 477m.
Capital
Information concerning new
shares allotted under the
Company’s Dividend
Reinvestment Plan is shown in
Note 43 on page 112. Details of
treasury shares re-issued under
the Approved Employees’ Profit
Sharing Schemes, the Allfirst
Stock Option Plan, and the AIB
Share Option Scheme, are given
in Note 47 on pages 114 and
115.
At the 2004 Annual General
Meeting, shareholders granted
authority for the Company, or
any subsidiary, to make market
purchases of up to 90 million
ordinary shares of the Company,
subject to the terms and
conditions set out in the relevant
resolution. As at 31 December
2004 some 48,889,789 shares so
purchased were held as Treasury
Shares; information in this regard
is given in Note 47.
Accounting policies
The principal accounting policies
adopted by the Group, together
with information on changes
therein, are set out on pages 64 to
68.
Review of activities
The Statement by the Chairman
on pages 4 and 5 and the Review
by the Group Chief Executive on
pages 8 to 10 contain a review of
the development of the business of
the Group during the year, of
recent events, and of likely future
developments.
Directors
The following Board changes
occurred with effect from the
dates shown:
- Ms Carol Moffett retired as a
Non-Executive Director on 31
August 2004;
- Mr Kieran Crowley was
appointed a Non-Executive
Director on 24 August 2004;
- Ms Jennifer Winter was
appointed a Non-Executive
Director on 24 August 2004.
In accordance with the
Articles of Association, Mr
Crowley and Ms Winter retire at
the 2005 Annual General
Meeting and, being eligible, offer
themselves for re-appointment.
Mr Adrian Burke, Mr Colm
Doherty, Mr Don Godson, Mr
Jim O’Leary and Mr Mike
Sullivan retire by rotation at
the 2005 AGM and, being
eligible, offer themselves for re-
appointment.
Mr Padraic M Fallon and Mr
John B McGuckian retire at the
Meeting in compliance with the
Combined Code on Corporate
Governance (each having served
in excess of nine years) and, being
eligible, offer themselves for re-
appointment.
The names of the Directors
appear on pages 6 and 7, together
with a short biographical note on
each Director.
Directors’ and Secretary’s
Interests in the Share
Capital
The interests of the Directors and
Secretary in the share capital of the
Company are shown in Note 54
on pages 134 and 135.
Substantial Interests in
the Share Capital
The following substantial interests
in the Ordinary Share Capital had
been notified to the Company at
15 February 2005:
Bank of Ireland Asset
Management Limited 6.04%
(6.38% when Treasury Shares are
excluded).
None of the clients on whose
behalf these shares are held had a
56
requirements.
During 2004, safety officials in
branch and other office locations
in the Republic of Ireland
participated in health and safety
training workshops, to support
health and safety management at
local level.The Group’s Fire
Safety Manual was revised and
distributed to all AIB Bank
properties, and a programme of
fire safety training workshops was
run for safety officials, to ensure
the application of best fire safety
management practice in this area.
Branches Outside the
State
The Company has established
branches, within the meaning of
EU Council Directive
89/666/EEC, in Germany, the
United Kingdom and the United
States of America.
Auditors
The Auditors, KPMG, have
signified their willingness to
continue in office in accordance
with Section 160(2) of the
Companies Act, 1963.
Dermot Gleeson
Chairman
Michael Buckley
Group Chief Executive
21 February 2005
beneficial interest in 3% or more
of the Ordinary Share Capital.
An analysis of shareholdings is
shown on page 162.
Corporate Governance
The Directors’ Corporate
Governance statement appears on
pages 58 to 63.
Books of Account
The measures taken by the
Directors to secure compliance
with the Company’s obligation to
keep proper books of account are
the use of appropriate systems
and procedures, including those
set out in the Internal Control
section of the Corporate
Governance statement on pages
62 to 63, and the employment of
competent persons. The books of
account are kept at the
Company’s Registered Office,
Bankcentre, Ballsbridge, Dublin 4,
Ireland; at the principal offices of
the Company’s main subsidiary
companies, as shown on pages
99/100 and 156/157; and at the
Company’s other principal
offices, as shown on those pages.
Safety, Health and
Welfare of Employees
It is the Company’s policy to
ensure the safety, health and
welfare of its employees while at
work, and of visitors to its
premises, by maintaining safe
places and systems of work. The
Company is committed to
facilitating this policy by an open,
consultative process with its
employees. Monitoring
procedures ensure the
maintenance of standards and
compliance with legislative
57
Corporate Governance
Corporate Governance is
concerned with how companies
are managed and controlled. The
Board is committed to the
highest standards in that regard.
This statement explains how the
Company has applied the
Principles set out in the
Combined Code on Corporate
Governance(1) (‘the Code’).
The Board
Role
The Board is responsible for the
leadership, direction and control
of the Company and the Group
and is accountable to shareholders
for financial performance. There
is a comprehensive range of
matters specifically reserved for
decision by the Board; at a high
level this includes:
– determining the Company’s
strategic objectives and
policies;
– appointing the Chairman and
the Group Chief Executive
and addressing succession
planning;
– monitoring progress towards
achievement of the
Company’s objectives and
compliance with its policies;
– approving annual operating
and capital budgets, major
acquisitions and disposals, and
risk management policies and
limits; and
– monitoring and reviewing
financial performance, risk
management activities and
controls.
The role of the Chairman,
which is non-executive, is
separate from the role of the
Group Chief Executive, with
clearly-defined responsibilities
attaching to each; these are set
out in writing and agreed by the
Board.
There is a procedure in place
to enable the Directors to take
independent professional advice,
at the Company’s expense.
The Company holds
insurance cover to protect
Directors and Officers against
liability arising from legal actions
brought against them in the
course of their duties.
Meetings
The Chairman sets the agenda for
each Board meeting. The
Directors are provided in advance
with relevant papers to enable
them to consider the agenda
items, and are encouraged to
participate fully in the Board’s
deliberations. Executive
management attend Board
meetings and make regular
presentations.
The Board met on 16
occasions in 2004. Two of those
meetings related to the approval
of the Accounts, following their
previous consideration by the
Audit Committee and the Board,
and were attended by the
Chairman, the Group Chief
Executive, the Group Director,
Finance & Enterprise Technology,
and, on one occasion, the
Chairman of the Audit
Committee. Attendance at the
other meetings is reported on
below. During a number of those
meetings, the Non-Executive
Directors met in the absence of
the Executive Directors, in
accordance with good
governance standards. In addition
to their attendance at Board
meetings, individual Non-
Executive Directors attended
board meetings of overseas
subsidiaries, met regulators, and
held numerous consultative
meetings with the Chairman.
Attendance at meetings
Dermot Gleeson
Michael Buckley
Adrian Burke
Kieran Crowley*
Colm Doherty
Padraic M Fallon
Don Godson
Sir Derek Higgs
Gary Kennedy
Carol Moffett#
John B McGuckian
Aidan McKeon
Jim O’Leary
Michael J Sullivan
Robert G Wilmers
Jennifer Winter*
14/14
14/14
14/14
6/6
14/14
12/14
12/14
14/14
14/14
8/9
13/14
13/14
13/14
14/14
6/14
6/6
*Appointed 24 August 2004
#Retired 31 August 2004
Membership
It is the policy of the Board that a
significant majority of the
Directors should be Non-
Executive. At 31 December
2004, there were 11 Non-
Executive Directors and 4
Executive Directors. Non-
Executive Directors are appointed
so as to maintain an appropriate
balance on the Board, and to
ensure a sufficiently wide and
relevant mix of backgrounds,
skills and experience to provide
strong and effective leadership
and control of the Group.
The names of the Directors,
and their biographical notes,
appear on pages 6 and 7. All
(1)The Code was adopted in 2003 by the Irish Stock Exchange and the UK Listing Authority.
58
Directors are required to act in
the best interests of the Company,
and to bring independent
judgement to bear in discharging
their duties as Directors. The
Board has determined that all the
Non-Executive Directors,
except Mr Wilmers, are
independent in character and
judgement and free from any
business or other relationship
with the Company or the Group
that could affect their judgement.
While two of the Non-Executive
Directors have served in excess of
nine years and are members of
the Non-Executive Directors’
Pension Scheme (‘the Scheme’),
both have been determined by
the Board to be independent. In
that regard, the benefits accruing
to the Directors concerned - Mr
Padraic M Fallon and Mr John B
McGuckian - from their
historical membership of the
Scheme are not considered to be
significant to them, and their
tenure as Directors has not
affected their ability to bring
independent judgement to bear
in discharging their duties.
Chairman
Mr Dermot Gleeson has been
Chairman of the Board since 14
October 2003. His
responsibilities include the
leadership of the Board, ensuring
its effectiveness, setting its agenda,
ensuring that the Directors
receive adequate, accurate and
timely information, facilitating
the effective contribution of the
Non-Executive Directors,
ensuring the proper induction of
new Directors, and reviewing the
performance of individual
Directors.
Group Chief Executive
The day-to-day management of
the Group has been delegated to
the Group Chief Executive,
whose responsibilities include the
formulation of strategy and
related plans, and, subject to
Board approval, their execution.
He is also responsible for
ensuring an effective organisation
structure, for the appointment,
motivation and direction of the
senior executive management, and
for the operational management
of all the Group’s businesses.
Senior Independent Non-
Executive Director
Mr John B McGuckian, the
Senior Independent Non-
Executive Director, is available to
shareholders if they have concerns
which contact through the
normal channels of Chairman or
Group Chief Executive have
failed to resolve, or for which
such contact is considered by the
shareholder(s) concerned to be
inappropriate.
Company Secretary
The Directors have access to the
advice and services of the
Company Secretary, who is
responsible for ensuring that
Board procedures are followed
and that applicable rules and
regulations are complied with.
each of the Directors. The results
were presented to the Board. An
evaluation of the performance of
the Chairman was conducted in
his absence by the Non-
Executive Directors, under the
Chairmanship of Mr John B
McGuckian, the Senior
Independent Non-Executive
Director, who had consulted the
Executive Directors.
Terms of Appointment
Non-Executive Directors
appointed during 2004 were
appointed for a three-year term,
with the possibility of renewal for
a further three years. Following
appointment, Directors are
required to retire at the next
Annual General Meeting, and
may go before the shareholders
for re-appointment. Subsequently,
all Directors are required to
submit themselves for re-
appointment at intervals of not
more than three years, except that
Directors who have served for
more than nine years are subject
to annual re-appointment by
shareholders.
Letters of appointment, as
well as dealing with appointees’
responsibilities, stipulate that a
specific time commitment is
required from Directors; (a copy
of the standard terms of the letter
of appointment of Non-
Executive Directors is available
from the Company Secretary).
Performance Evaluation
Evaluations of the performances
of the Board, individual
Directors, and Board Committees
were conducted during the year
by the Chairman, using a detailed
questionnaire and meetings with
Induction
There is an induction process for
new Directors. Its content varies
as between Executive and Non-
Executive Directors. In respect of
the latter, the induction is
designed to familiarise Non-
59
Corporate Governance
Executive Directors with the
Group and its operations, and
comprises the provision of
relevant briefing material,
including details of the
Company’s strategic and
operational plans, and a
programme of meetings with the
Heads of Divisions and the senior
management of businesses and
support functions. During the
year, offers were made to major
shareholders of the opportunity
to meet newly-appointed Non-
Executive Directors. Directors
also attend external courses and
seminars to update their
knowledge.
Board Committees
The Board is assisted in the
discharge of its duties by a
number of Board Committees,
whose purpose is to consider, in
greater depth than would be
practicable at Board meetings,
matters for which the Board
retains responsibility. The
composition of such Committees
is reviewed annually by the
Board. A description of these
Committees, each of which
operates under terms of reference
approved by the Board, and their
membership, is given below. The
minutes of all meetings of Board
Committees are circulated to all
Directors, for information, with
their Board papers, and are
formally noted by the Board.
This provides an opportunity for
Directors who are not members
of those Committees to seek
additional information or to
comment on issues being
addressed at Committee level.
The terms of reference of the
Audit Committee, the Corporate
Social Responsibility Committee,
the Nomination and Corporate
Governance Committee, and the
Remuneration Committee are
available on AIB’s website,
www.aibgroup.com.
Audit Committee
Members: Mr Adrian Burke,
Chairman; Mr Kieran Crowley (from
14 October); Sir Derek Higgs; Mr
Jim O’Leary; and Mr Michael J
Sullivan.
The role and responsibilities
of the Audit Committee are set
out in its terms of reference.
Those responsibilities are
discharged through its meetings
and receipt of reports from
Management, the external
Auditors, the Group Internal
Auditor, and the Group General
Manager, Regulatory Compliance
& Business Ethics.
The Audit Committee
reviews the Group’s annual and
interim accounts; the scope of the
audit; the findings, conclusions
and recommendations of the
internal and external Auditors;
reports on compliance; the nature
and extent of non-audit services
provided by the Auditors; and the
effectiveness of internal controls.
The Committee is responsible for
making recommendations on the
appointment, re-appointment and
removal of the Auditors, ensuring
the cost-effectiveness of the audit,
and for confirming the
independence of the Auditors, the
Group Internal Auditor, and the
Group General Manager,
Regulatory Compliance &
Business Ethics, each of whom it
meets separately at least once
each year, in confidential session,
in the absence of Management.
Each of these parties has
unrestricted access to the
Chairman of the Audit
Committee. A written report is
submitted annually to the Board,
showing the issues considered by
the Committee.
There is a process in place by
which the Audit Committee
reviews and, if considered
appropriate, approves, within
parameters approved by the
Board, any non-audit services
undertaken by the Auditors, and
the related fees. This ensures that
the objectivity and independence
of the Auditors is safeguarded.
The Audit Committee met on
nine occasions during 2004. All
the members attended all the
meetings. The following attend
the Committee’s meetings, by
invitation: the Auditors; the
Group Director, Finance &
Enterprise Technology; the Chief
Financial Officer; the Group
Chief Risk Officer; the Group
General Manager, Regulatory
Compliance & Business Ethics;
and the Group Internal Auditor.
Corporate Social Responsibility
Committee
Members: Ms Carol Moffett,
Chairman (until her retirement as a
Director on 31 August); Mr Dermot
Gleeson, Chairman (from 1
September); Mr Padraic M Fallon;
Mr Don Godson (until 7 October);
and Ms Jennifer Winter (from 7
October).
The role of the Corporate
Social Responsibility (‘CSR’)
Committee (previously the Social
Affairs Committee) is to
recommend Group CSR policies
and objectives.
The Committee met on 4
60
occasions during 2004. All the
members attended all the
meetings, except Mr Fallon, who
attended three of the meetings.
Nomination and Corporate
Governance Committee
Members: Mr Dermot Gleeson,
Chairman; Mr Michael Buckley; Mr
Don Godson; Mr John B
McGuckian; and Mr Michael J
Sullivan.
The Nomination and
Corporate Governance
Committee’s responsibilities
include: recommending
candidates to the Board for
appointment as Directors;
reviewing the size, structure and
composition of the Board; and
reviewing succession planning.
The Committee is also
responsible for reviewing the
Company’s corporate governance
policies and practices.
The Committee met on three
occasions during 2004. All the
members attended all the
meetings. Based on information
available to the Company, and
without resort to external search
consultants or open advertising,
the Committee considered
candidates for appointment as
Non-Executive Directors, and
made recommendations to the
Board in that regard.
Remuneration Committee
Members: Mr Dermot Gleeson,
Chairman; Mr Don Godson; Sir
Derek Higgs; Mr John B
McGuckian; and Mr Jim O’Leary.
The Remuneration Committee’s
responsibilities include
recommending to the Board: (a)
Group remuneration policies and
practices; (b) performance-related
pay schemes; (c) the annual
operation of incentive schemes;
and (d) executive and managerial
salary ranges. The Committee
also determines the remuneration
of the Group Chief Executive, the
other Executive Directors, and
the other members of the Group
Executive Committee, under
advice to the Board.
The Committee met on three
occasions during 2004. All the
members attended all the
meetings, except Mr O’Leary,
who attended two of the
meetings.
Directors’ Remuneration
The Report on Directors’
Remuneration and Interests
appears on pages 132 to 135.
Relations with
Shareholders
To strengthen communication
with shareholders, the Company
circulates each year, along with
the statutory Annual Report and
Accounts, a short booklet
explaining features of the
Company’s performance in the
previous year. This also focuses
on strategy, performance over the
previous five years, and
interactions with customers and
the wider community, and
comments on the membership of
the Board and other issues.
Website
Shareholders have the option of
accessing the Annual Report and
Accounts on AIB’s website,
instead of receiving that
document by post. The website
contains, for the previous five
years, the Annual Report and
Accounts, the Interim Report,
and the Annual Report on Form
20-F.
The Company’s presentations
to fund managers and analysts of
Annual and Interim Financial
Results (in February and July,
respectively) are broadcast live on
the internet, and may be accessed
on www.aibgroup.com/webcast.
The times of the broadcasts are
announced in advance on the
website, which is updated with
the Company’s Stock Exchange
releases, including the Trading
Updates issued in June and
December, and formal
presentations to analysts and
investors. These items are thus
available for review by all
shareholders with internet access.
Annual General Meeting
All shareholders are invited to
attend the Annual General
Meeting (‘AGM’) and to
participate in the proceedings.
Shareholders were invited to
submit written questions in
advance of the 2004 AGM.
Those questions were dealt with
at the AGM. Subsequently, the
Chairman wrote to each
shareholder who had submitted a
question. At the AGM, it is
practice to give an update on the
Group’s performance and
developments of interest, by way
of video presentation. Separate
resolutions are proposed on each
separate issue.
The Chairmen of the Board’s
Committees are available to
answer questions about the
Committees’ activities. The
proportion of proxy votes lodged
for and against each resolution is
indicated; this shows what the
voting position would be if all
61
Corporate Governance
votes cast, including votes cast by
shareholders not in attendance,
were taken into account.
It is usual for all Directors to
attend the AGM and to be
available to meet shareholders
before and after the Meeting. A
Help Desk facility is available to
shareholders attending.
It is intended that the Notice
of the 2005 AGM and related
papers will be posted to
shareholders 29 calendar days and
21 working days before the
Meeting, which is scheduled for
27 April.
Institutional Shareholders
The Company held over 300
meetings with its principal
institutional shareholders and
with financial analysts and brokers
during 2004. The Group Chief
Executive, the Group Director,
Finance & Enterprise Technology,
Heads of Divisions, the Chief
Financial Officer, other Executive
Management as requested by
shareholders, and the Head of
Investor Relations participate in
those meetings, which are
governed by prescribed
procedures to ensure that price-
sensitive information is not
divulged. Company
representatives also spoke at a
number of investor conferences,
and hosted such a conference in
London in May 2004, when
presentations were made by the
senior Management Team to
approximately 90 shareholders
and analysts; that conference was
attended by the Chairman and
one of the Non-Executive
Directors. The Combined Code
suggests that the Senior
Independent Non-Executive
Director should attend meetings
with major shareholders in order
to develop a balanced
understanding of their issues and
concerns. While this did not
occur in 2004, its objective was,
nevertheless, met through the
steps outlined below, which were
taken to strengthen the
communication of shareholders’
views to the Board:
- The Chairman wrote to
institutional shareholders in
Ireland, the UK, and North
America, offering to meet them if
they considered such meetings to
be useful.
- The Chairman held
discussions with institutional
shareholders, and further such
meetings are planned for 2005.
- The Head of Investor
Relations reported on
institutional shareholders’ views
to the Board.
- A research project was
undertaken by external
consultants into the views of
AIB’s largest institutional
shareholders (controlling c.26% of
total issued shares), and the results
were presented to the Board.
- Analysts’ and brokers’
briefings on the Company were
circulated to the Directors, on
receipt.
Accountability and Audit
Accounts and Directors’
Responsibilities
The Accounts and other
information presented in this
Report and Accounts are
consistent with the Code
Principle requiring the
presentation of ‘a balanced and
understandable assessment of the
Company’s position and
prospects’.The Statement
concerning the responsibilities of
the Directors in relation to the
Accounts appears on page 149.
Going Concern
The Accounts continue to be
prepared on a going concern
basis, as the Directors are satisfied
that the Company and the Group
as a whole have the resources to
continue in business for the
foreseeable future. In forming this
view, the Directors have reviewed
the Group’s budget for 2005.
Internal Control
The Company’s risk governance
and internal controls were
strengthened during the year by
the adoption by the Board of
recommendations made in a
number of third-party reports. A
Code of Business Ethics for all
employees of the Group, approved
by the Board, was formally
launched during the year; the
Code subsumed a Statement of
Business Principles, which had
been adopted by the Board in
2001.
The Directors acknowledge
that they are responsible for the
Group’s system of internal control
and for reviewing its effectiveness.
Guidance (‘Internal Control:
Guidance for Directors on the
Combined Code’) has been
issued by the Irish Stock
Exchange and the London Stock
Exchange to assist Directors in
complying with the Code’s
requirements in respect of
internal control. That Guidance
states that systems of internal
control are designed to manage,
rather than eliminate, the risk of
62
Compliance Statement
The foregoing explains how the
Company has applied the
principles set out in the Code.
The Company has complied,
throughout 2004, with the Code’s
provisions, save that the briefing
of the Senior Independent Non-
Executive Director regarding the
views of major shareholders was
done through the mechanisms
described above, rather than
through meetings with them.
A brief description of the
significant differences between
AIB’s corporate governance
practices and those followed by
U.S. companies under the New
York Stock Exchange’s listing
standards is provided on AIB’s
website:
www.aibgroup.com/investorrelations.
failure to achieve business
objectives, and can provide only
reasonable and not absolute
assurance against material
misstatement or loss.
The Group’s system of
internal control includes:
– a clearly-defined management
structure, with defined lines of
authority and accountability;
– a comprehensive annual
budgeting and financial
reporting system, which
incorporates clearly-defined
and communicated common
accounting policies and
financial control procedures,
including those relating to
authorisation limits; capital
expenditure and investment
procedures; physical and
computer security; and
business continuity planning.
The accuracy and integrity of
the Group’s financial
information is confirmed
through Divisional and
Group-level reports to the
Chief Financial Officer;
– the Group Risk Management
function, which is responsible
for ensuring that risks are
identified, assessed and
managed throughout the
Group;
– the General Manager,
Regulatory Compliance &
Business Ethics, who reports
independently to the Audit
Committee on the
compliance framework across
the Group and on
management’s attention to
compliance matters;
– the Audit Committee, which
receives reports on various
aspects of control, reviews the
Group’s statutory Accounts
and other published financial
statements and information,
and ensures that no
restrictions are placed on the
scope of the statutory audit or
on the independence of the
Internal Audit and Regulatory
Compliance functions. The
Audit Committee reports to
the Board on these matters,
and on compliance with
relevant laws and regulations,
and related issues;
– appropriate policies and
procedures relating to capital
management, asset and
liability management
(including interest rate risk,
exchange rate risk and
liquidity management), credit
risk management, and
operational risk management.
Independent testing of the
risk management and control
framework is undertaken by
the Internal Audit function;
– regular review by the Board
of overall strategy, business
plans, variances against
operating and capital budgets
and other performance data.
The Group’s structure and
on-going processes for
identifying, evaluating and
managing the significant credit,
market and operational risks faced
by the Group are described in
pages 34 to 41.Those processes
are regularly reviewed by the
Board, and accord with the
above-mentioned Guidance.
The Directors confirm that,
with the assistance of reports
from the Audit Committee and
Management, they have reviewed
the effectiveness of the Group’s
system of internal control for the
year ended 31 December 2004.
63
Accounting policies
Accounting convention
The accounts on pages 69 to 148 have
been prepared under the historical cost
convention, as modified by the revaluation
of certain financial instruments held for
dealing purposes, assets held in the long-
term assurance business and certain
properties.The accounts comply with the
requirements of Irish statute comprising
the Companies Acts 1963 to 2003 and the
European Communities (Credit
Institutions: Accounts) Regulations, 1992,
and with applicable accounting standards
issued by the Accounting Standards Board,
pronouncements of the Urgent Issues Task
Force (‘UITF’), and with the Statements
of Recommended Practice (‘SORP’s’)
issued by the British Bankers’ Association
and the Irish Bankers’ Federation except
as described below in respect of the
change in accounting policy for certain
derivative transactions.
The preparation of accounts requires
management to make estimates and
assumptions that affect the reported
amounts of certain assets, liabilities,
revenues and expenses, and disclosures of
contingent assets and liabilities. Since
management’s judgement involves making
estimates concerning the likelihood of
future events, the actual results could differ
from those estimates. Some estimation
techniques involve significant amounts of
management valuation judgements, often
in areas which are inherently uncertain.
The estimation techniques which are
considered to be most complex are in the
areas of provisions for bad and doubtful
debts, fair value of financial instruments,
the useful economic lives of goodwill, the
value of the long-term assurance business,
and retirement benefits.
The effect on the Group’s
consolidated net income and ordinary
shareholders’ equity had US Generally
Accepted Accounting Principles (‘US
GAAP’) been applied in the preparation
of these accounts is set out in note 63.
64
Change in accounting policy
and divisional restatements
(a) Derivatives
The Group has amended its policy in
respect of the accounting for termination
of derivative transactions held to hedge
the impact of fluctuations in interest rates
on the income stream on the Group’s
capital fund. Previously it was Group
policy that, on early termination of all
non-trading derivative transactions, any
realised gain or loss was deferred and
amortised to net interest income over the
life of the original hedge, as long as the
designated assets or liabilities remained.
This policy has not been amended in
respect of hedging positions generated
from the Group’s retail businesses and
treasury operations. Non-trading
derivatives held for hedging purposes are
accounted for on an accruals basis. Upon
early termination of derivative
transactions, classified as hedges of the
income stream on Group capital, any
realised gain or loss is taken to profit and
loss account as it arises. The amendment
to the accounting policy does not comply
with the SORP on Derivatives which
requires that the gains and losses should be
amortised over the life of the underlying
position. The change in accounting policy
follows a revision in the Bank’s policy
with respect to the investment of its
capital funds.The directors believe that
the new accounting policy is more
appropriate than the previous accounting
policy in dealing with the financial impact
of this revision because of the manner in
which the Group’s capital funds are now
managed.
The change in accounting policy had
a positive impact of € 23m in the year
ended 31 December 2004.The change in
accounting policy has no impact on the
reported numbers for prior years.
(b) Divisional restatements
The profit segments by division have been
restated to reflect a change in the
allocation of pension costs across business
segments. Previously business segments
accounted for the normalised pension
contribution rate appropriate to individual
pension schemes.The full impact of
FRS 17 (retirement benefits) is now
charged to each operating division. Each
division now accounts for the full service
cost, the expected return on pension
scheme assets and the interest on pension
scheme liabilities.
Basis of consolidation
The Group accounts include the
accounts of Allied Irish Banks, p.l.c.
(the parent company) and its subsidiary
undertakings made up to the end of
the financial year. Details of principal
subsidiaries are given in note 31.
In order to reflect the different nature
of the shareholders’ and policyholders’
interests in the long-term assurance
business, the value of long-term assurance
business attributable to shareholders
and the long-term assurance assets and
liabilities attributable to policyholders
are classified under separate headings
in the consolidated balance sheet.
Interests in associated
undertakings
An associated undertaking generally
is one in which the Group’s interest
is greater than 20% and less than 50%
and where the Group exercises significant
influence over the entity’s operating and
financial policies. Interests in associated
undertakings are included in the
consolidated balance sheet at the Group’s
share of the net assets of the undertakings
concerned, less provisions for any
impairment in value. Goodwill arising
on the acquisition of associates occurring
after 1 January 1998 is included within
the carrying amount of the associate less
amortisation to date.The attributable share
of income of associated undertakings,
based on accounts made up to the end
of the financial year, is included in the
consolidated profit and loss account using
the equity method of accounting.
Income and expense
recognition
Interest income and expense is recognised
in the profit and loss on an accruals basis
except in respect of non-performing loans
where interest is not taken to profit and
loss account when recovery is doubtful.
Fees which are considered to increase the
yield on transactions are spread over the
lives of the underlying transactions on a
level yield basis. All costs associated with
mortgage incentive schemes are charged
in the period in which the expense is
incurred. Fees and commissions received
for services provided are recognised when
earned. Fees and commissions payable to
third parties in connection with lending
arrangements are charged to profit and
loss account as incurred. Expenses are
charged to profit and loss account as
incurred.
Provisions for bad and
doubtful debts
It is Group policy to make provisions
for bad and doubtful debts to reflect the
losses inherent in the loan portfolio at
the balance sheet date.The charge to the
profit and loss account reflects new
provisions made during the year, plus
write-offs not previously provided for,
less existing provisions no longer required
and recoveries of bad debts already
written off.
Specific provisions are made when, in
the judgement of management, the
recovery of the outstanding balance is
in serious doubt.The amount of the
specific provision is intended to cover the
difference between the balance
outstanding on the loan or advance and
the estimated recoverable amount. In
certain portfolios, provisions are applied to
pools of loans on a formula driven basis
depending on levels of delinquency.
When a loan has been subjected to
a specific provision, and the prospects for
recovery do not improve, a point will
come when it may be concluded that
there is no realistic prospect of recovery.
When this point is reached, the amount of
the loan which is considered to be beyond
the prospect of recovery is written off.
General provisions are also made to
cover loans which are impaired at balance
sheet date, and while not specifically
identified, are known from experience
to be present in any portfolio of bank
advances.The Group holds general
provisions at a level deemed appropriate
by management taking into account a
number of factors including:- the credit
grading profiles and movements within
credit grades; historic loan loss rates; local
and international economic climates
and portfolio sector profiles/industry
conditions.The level of general provisions
is reviewed quarterly to ensure that it
remains appropriate.
Loans and advances to banks and
customers are reported in the balance
sheet having deducted the total provisions
for bad and doubtful debts (note 26).
Loans are deemed non-performing
where interest is 90 days overdue and not
taken to profit (i.e. non-accrual) or where
a provision exists in anticipation of a loss.
Interest is not taken to profit when
recovery is doubtful.
Debt securities
Debt securities held as financial fixed
assets are those held on a continuing
use basis by the Group and those held
to hedge positions which are accounted
for on a historic cost basis.These debt
securities are stated in the balance sheet
at cost, adjusted for the amortisation of
any premiums or discounts arising on
acquisition or provisions for impairment.
The amortisation of premiums and
discounts is included in net interest
income. Profits and losses on disposal
of securities held for investment purposes
are recognised immediately in other
operating income. Profits and losses
on disposal of securities held for hedging
purposes are amortised over the lives
of the underlying transactions and
included in net interest income.
Debt securities held for trading
purposes are stated in the balance sheet
at market value. Both realised and
unrealised profits on trading securities are
taken directly to the profit and loss
account and included within dealing
profits.
Sale and repurchase
agreements (including stock
borrowing and lending)
Securities may be lent or sold subject to a
commitment to repurchase them.
Securities sold are retained on the balance
sheet where substantially all the risks and
rewards of ownership remain with the
Group. Similarly, securities purchased
subject to a commitment to resell are
treated as collateralised lending
transactions where the Group does not
acquire the risks or rewards of ownership.
The cash lending/borrowing elements
of these transactions are included with
loans and advances to banks, loans and
advances to customers, deposits by banks
and customer accounts, as appropriate.
The Group aims to generate increased
income from these activities as well as
providing a source of funding of its own
holdings of securities.
Finance leases
Assets leased to customers are classified
as finance leases if the lease agreements
transfer substantially all the risks and
rewards of ownership. Finance lease
receivables are recorded within loans and
advances to customers, and are stated in
the balance sheet at the cost of asset,
including gross earnings to date, less
rentals earned to date and provisions for
impairment. In addition rentals received in
advance but not yet amortised to profit
and loss account are included in other
liabilities.
Income from finance leasing
transactions is apportioned over the
primary leasing period on an after tax
basis in proportion to the net cash
investment using the investment period
method. Government grants in respect of
these assets are credited to profit and loss
account on the same basis.
Hire purchase and installment
finance
Amounts receivable under hire purchase
contracts are stated in the balance sheet at
the cost of the asset, including gross
earnings to date less rentals received to
date and provisions for impairment.
Interest and charges on hire purchase
and on installment credit agreements are
taken to profit and loss account by the
sum of the digits method over the period
of the agreements after deducting the
costs of setting up the transactions.
Securitised assets
Securitised assets are included in the
balance sheet at their gross amount less
non-returnable proceeds received
on securitisation, where the Group has
retained significant rights to benefits
and exposure to risks, but where the
Group’s maximum loss is limited to a
fixed monetary amount.The contribution
from the securitised assets is included in
other operating income.
65
Accounting policies (continued)
Operating leases
Rentals are charged to the profit and loss
account in equal installments over the
terms of the leases.
Tangible fixed assets
Tangible fixed assets include freehold and
leasehold properties, property adaptation
works, computer hardware, software and
communication technology, motor
vehicles and other machines and
equipment.
It is Group policy not to revalue its
tangible fixed assets.The Group adopted
the transitional arrangements of FRS 15
‘Tangible Fixed Assets’ and chose to retain
the book amounts of previously revalued
assets in its accounting records.
Tangible fixed assets are depreciated
on a straight line basis over their estimated
useful economic lives.
No depreciation is provided on
freehold land. Freehold and long leasehold
properties are written off over their
estimated useful lives of 50 years.
Leasehold properties with less than
50 years unexpired are written off by
equal annual installments over the
remaining terms of the leases.
The estimated useful life for costs of
adaptation of freehold and leasehold
property are 10 years for branch
properties and 15 years for office
properties, in all cases subject to the
maximum remaining life of a lease. Such
costs are included within property in the
balance sheet total of tangible fixed assets.
Computer hardware, operating
software and application software are
written off over their estimated useful
lives of 3 to 5 years, while other
equipment and furnishings are written off
over 3 to 10 years.The estimated useful
life of motor vehicles is 5 years.
The Group reviews its depreciation
rates regularly.
Software development costs which
lead to the creation of a definable software
asset, are capitalised subject to a de-
minimis limit.
Expenditure incurred to date
amounting to € 75m on the development
of computer systems has been capitalised
and included under equipment.This
expenditure is written off over a
maximum period of 5 years and to date
€ 39m has been charged to the profit and
loss account.
Equity shares
Equity shares intended to be held on
a continuing basis are classified as financial
fixed assets and included in the balance
sheet at cost less provision for any
impairment. Profits and losses on disposal
of equity shares held as financial fixed
assets are recognised immediately in the
profit and loss account. Equity shares held
for trading purposes are marked to market
with full recognition in the profit and loss
account of changes in market value.
Impairment
Tangible fixed assets and goodwill are
subject to impairment review in
accordance with FRS 11 ‘Impairment
of Fixed Assets and Goodwill’ if there
is evidence of changes in circumstances
that the carrying amount of the fixed asset
or goodwill may not be recoverable. For
the purpose of conducting impairment
reviews, income generating units are
identified as groups of assets, liabilities
and associated goodwill that generate
income that is largely independent of
other income streams.
The impairment review comprises
a comparison of the carrying amount
of the fixed asset or goodwill with its
recoverable amount, which is the higher
of net realisable value and value in use.
Net realisable value is calculated by
reference to the amount at which the
asset could be disposed of.Value in use is
calculated by discounting the expected
future cash flows obtainable as a result of
the assets continued use, including that
resulting from its ultimate disposal, at a
market based discount rate on a pre-tax
basis. Any loss is recognised in the profit
and loss account in the year in which
impairment occurs through the writing
down of the asset. If the occurrence of
an external event gives rise to the reversal
of an impairment loss, the reversal is
recognised in the profit and loss account,
by increasing the carrying amount of the
fixed asset or goodwill in the period
in which it occurs.
Non-credit risk provisions
Provisions are recognised for present
obligations arising as a consequence of
past events where it is probable that a
transfer of economic benefits will be
necessary to settle the obligation and it
can be reliably estimated.
The Group provided in the year
ended 31 December 1993, on a present
value basis, for the cost of its future
commitments arising under the
agreements reached in relation to the
funding of Icarom plc (under
Administration), formerly The Insurance
Corporation of Ireland plc.The future
commitments under the agreements were
each discounted to their present value by
applying an interest rate derived from the
weighted average of the yield to maturity
of Irish Government securities maturing
on the same dates as the future
commitments.The Group’s policy is not
to revise these discount rates for future
changes in interest rates.The
commitments are deducted from the
present value provisions as they mature
and interest at the relevant discount rates
is charged annually to interest expense
and added to the present value provisions.
The present value provisions are included
in other liabilities (note 39).
Where a leasehold property ceases
to be used in the business, provision is
made where the unavoidable cost of the
future obligations relating to the lease are
expected to exceed anticipated income.
The provision is discounted using market
rates to reflect the long term nature of the
cash flows.
Where the Group has a detailed
formal plan for restructuring a business
and has raised valid expectations in the
areas affected by the restructuring, by
starting to implement the plan or
announcing its main features, provision
is made for the anticipated cost of the
restructuring including retirement benefit
and redundancy costs.The provision raised
is normally utilised within twelve months.
Contingent liabilities are possible
obligations whose existence will be
confirmed only by uncertain future events
giving rise to present obligations where
the transfer of economic benefit is
uncertain or cannot be reliably measured.
Contingent liabilities are not recognised
but are disclosed unless they are remote.
66
Credit related instruments
The Group treats credit related
instruments (other than credit derivatives)
as contingent liabilities and these are not
recognised on the balance sheet unless and
until the Group is called upon to make a
payment under the instrument. Assets
arising from payments to a third party
where the Group is awaiting
reimbursement from a customer are shown
on the balance sheet where reimbursement
is considered to be virtually certain. Fees
for providing these instruments are taken
to profit and loss account over the life
of the instrument and reflected in fees and
commissions receivable.
Retirement benefits
AIB Group provides a number of defined
benefit and defined contribution
retirement benefit schemes in various
geographic locations, the majority of
which are funded.
Full actuarial valuations of defined
benefit schemes are undertaken every
three years and are updated to reflect
current conditions in the intervening
periods. Scheme assets are valued at market
value. Scheme liabilities are measured on
an actuarial basis, using the projected unit
method and discounted at the current rate
of return on a high quality corporate bond
of equivalent term and currency to the
liability. Schemes in surplus are shown as
assets on the balance sheet net of the
deferred tax impact. Schemes in deficit
together with unfunded schemes are
shown on the balance sheet as liabilities
net of the deferred tax impact. Actuarial
gains and losses are recognised
immediately in the statement of total
recognised gains and losses.
The current service cost and past
service cost of the defined benefit schemes
is charged to operating profit and the
expected return on assets net of the
change in the present value of the scheme
liabilities arising from the passage of time,
is credited to other finance income.
The costs of the Group’s defined
contribution schemes are charged to the
profit and loss account in the period in
which they are incurred.
Deferred taxation
Except as outlined below deferred taxation
is recognised in full in respect of timing
differences that have originated but not
reversed at the balance sheet date.
Deferred tax is not provided on timing
differences arising:- on the revaluation of
property when no commitment has been
made to sell the asset; when a taxable gain
on the sale of an asset is rolled over into
replacement assets; or on the potential
additional tax that may be payable on the
payment of a dividend by a subsidiary
where no commitment has been made to
pay a dividend.
Deferred tax assets are recognised to
the extent that, on the basis of the
available evidence, it is regarded as more
likely than not that there will be suitable
taxable profits from which the future
reversal of the underlying timing
differences can be deducted.The
calculation of the deferred taxation asset or
liability is based on the taxation rates that
are expected to apply in the periods in
which the timing differences are expected
to reverse based on tax rates and laws that
have been enacted or substantively enacted
at the balance sheet date.
Foreign currencies
Assets and liabilities denominated in
foreign currencies and commitments for
the purchase and sale of foreign currencies
are translated at appropriate spot or
forward rates of exchange ruling on the
balance sheet date. Profits and losses arising
from these translations and from trading
activities are included as appropriate,
having regard to the nature of the
transactions, in other operating income or
dealing profits.
In the case of net investments in
foreign subsidiaries, associated
undertakings and branches, exchange
adjustments arising from the retranslation
of these investments, net of hedging profits
and losses, are recognised in the statement
of total recognised gains and losses.
Profits and losses arising in foreign
currencies have been translated at average
rates for the year.The adjustment arising
on the retranslation of profits and losses to
balance sheet rates is recognised in the
statement of total recognised gains and
losses.
Capital instruments
Issue expenses of capital instruments
are deducted from the proceeds of issue
and, where appropriate, are amortised to
profit and loss account so that the finance
costs are allocated to accounting periods
at a constant rate based on the carrying
amount of the instruments.The issue
expenses amortised to profit and loss
account are subsequently transferred
to the share premium account.
Intangible assets and goodwill
Goodwill may arise on the acquisition
of subsidiary and associated undertakings.
Purchased goodwill is the excess of cost
over the fair value of the Group’s share
of net assets acquired. In accordance with
FRS 10 ‘Goodwill and Intangible Assets’,
purchased goodwill and intangible assets
arising on acquisition of subsidiary and
associated undertakings, occurring after
1 January 1998, are capitalised as assets
on the balance sheet and amortised to
profit and loss account over their estimated
useful economic lives.The useful
economic life of goodwill is determined at
the time of acquisition, taking into
consideration factors such as the nature of
the business acquired, the market in which
it operates and its position in that market.
In all cases goodwill is subject to a
maximum life of 20 years and is subject to
an impairment review in accordance with
FRS 11,‘Impairment of Fixed Assets and
Goodwill’. Impairment charges, if any, are
included within goodwill amortisation.
Goodwill arising on acquisitions of
subsidiary and associated undertakings
prior to 31 December 1997 has been
written off to the profit and loss account
(note 46) in the year of acquisition. In
accordance with the transitional
arrangements of FRS 10 this goodwill was
not reinstated when FRS 10 was
implemented. At the date of disposal of
subsidiary or associated undertakings, any
unamortised goodwill, or goodwill written
off directly to profit and loss account on
acquisitions prior to 1 January 1998, is
included with the Group’s share of net
assets of the undertaking disposed in the
calculation of the profit or loss on disposal.
67
Accounting policies (continued)
Own shares
Shares in Allied Irish Banks, p.l.c. held
by the parent company or its subsidiary
companies, including those held within
the long-term assurance assets attributable
to policyholders, are deducted in arriving
at consolidated shareholders’ funds. Profits
or losses on transactions in AIB shares are
excluded from the Group profit and loss
account.
Shares held by Employee Share Trusts
are deducted in arriving at shareholders’
funds where the shares have not vested
unconditionally in the employees.
Where shares are granted to employees
at a discount to market price the cost of
providing these shares is charged to the
profit and loss on a systematic basis over
the period to date of vesting. Dividend
income received by the schemes is
excluded in arriving at profit before
taxation, and dividends on equity shares is
reduced accordingly.
Shares held by the trusts and by Group
companies are excluded from the earnings
per share calculation.
Derivatives
The Group uses derivatives, such as
interest rate swaps, options, forward rate
agreements and financial futures for
trading and non-trading purposes (note
50).The accounting treatment of these
derivative instruments is dependent on the
purpose for which they are entered into.
The Group maintains trading positions
in a variety of financial instruments
including derivatives.Trading transactions
arise as a result of activity generated by
customers while others represent
proprietary trading with a view to
generating incremental income.Trading
instruments and hedges thereof are
recognised in the accounts at fair value
with the adjustment arising included in
other assets and other liabilities as
appropriate.
Gains and losses arising from trading
activities are included in dealing profits in
the profit and loss account using the mark
to market method of accounting. Interest
and dividend income arising together with
the funding costs relating to trading
activities are included in net interest
income.
Non-trading derivative transactions,
comprise transactions held for hedging
purposes as part of the Group’s risk
management strategy, against assets,
liabilities, positions or cash flows,
themselves accounted for on an accruals
basis.The gains and losses on these
instruments (arising from changes in fair
value) are not recognised in the profit
and loss account immediately as they arise.
Derivative transactions entered into for
hedging purposes are recognised in the
accounts on an accruals basis consistent
with the accounting treatment of the
underlying transaction or transactions
being hedged. Except as described below,
in respect of hedges of the income stream
on Group capital, upon early termination
of derivative financial instruments,
classified as hedges, any realised gain or loss
is deferred and amortised to net interest
income over the life of the original hedge
as long as the designated assets or liabilities
remain. Upon early termination of
derivative transactions classified as hedges
of the income stream on Group capital,
any realised gain or loss is taken to profit
and loss account as it arises.
A derivative will only be classified as a
hedge where it is designated as a hedge at
its inception and where it is reasonably
expected that the derivative substantially
matches or eliminates the exposure being
hedged.Transactions designated as hedges
are reviewed and where a transaction
originally entered into for hedging
purposes no longer represents a hedge, its
value is restated at fair value and any
change in value is taken to profit and loss
account immediately. Interest rate swaps,
forward rate agreements and option
contracts are generally used to modify the
interest rate characteristics of balance sheet
instruments and are linked to specific assets
or groups of similar assets or specific
liabilities or groups of similar liabilities.
Futures contracts are designated as hedges
when they reduce risk and there is high
correlation between the futures contracts
and the item being hedged, both at
inception and throughout the hedge
period. Amounts paid or received over
the life of a futures contract are deferred
and amortised over the life of the contract.
Netting
The Group enters into master agreements
with counterparties, to ensure that if an
event of default occurs all amounts
outstanding with those counterparties can
be settled on a net basis.
Where the amounts owed by the
Group and the counterparty are
determinable and in freely convertible
currencies, and where the Group has the
ability to insist on net settlement which is
assured beyond doubt and is based on a
legal right to settle net that would survive
the insolvency of the counterparty, the
amounts are shown in the balance sheet as
net assets or net liabilities as appropriate.
Long-term assurance business
The value placed on the Group’s
long-term assurance business attributable
to shareholders represents a valuation of
the policies in force together with the net
tangible assets of the business including
any surplus retained in the long-term
business funds which could be transferred
to shareholders.The value of the inforce
business is calculated by projecting future
surpluses and other net cash flows
attributable to the shareholder arising from
business written by the balance sheet date
and discounting the result at an
appropriate discount rate. The value is
determined on the advice of a qualified
actuary on an after tax basis and is
included separately in the consolidated
balance sheet.
Movements in the value placed on the
Group’s long-term assurance business
attributable to shareholders, grossed up for
taxation, are included in other operating
income.
Fiduciary and trust activities
Allied Irish Banks, p.l.c. and some
subsidiary undertakings act as trustee and
in other fiduciary capacities that result in
the holding or placing of assets on behalf
of individuals, investment trusts, pension
schemes and unit trusts.These assets are
not consolidated in the accounts as they
are not assets of Allied Irish Banks, p.l.c. or
its subsidiary undertakings. Fees and
commissions earned in respect of these
activities are included in the profit and loss
account.
68
Consolidated profit and loss account
for the year ended 31 December 2004
Interest receivable:
Interest receivable and similar income arising from
debt securities and other fixed income securities
Other interest receivable and similar income
Less: interest payable
Net interest income
Other finance income
Dividend income
Fees and commissions receivable
Less: fees and commissions payable
Dealing profits
Other operating income
Other income
Total operating income
Administrative expenses
Staff and other administrative expenses
Restructuring costs in continuing businesses
Depreciation and amortisation
Total operating expenses
Group operating profit before provisions
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts (written back)/written off fixed asset investments
Group operating profit
Share of operating profits of associated undertakings
Share of restructuring and integration costs
in associated undertaking
Amortisation of goodwill on acquisition of associated undertaking
Profit on disposal of property
Profit/(loss) on disposal of businesses
Group profit on ordinary activities before taxation
Taxation on ordinary activities
Group profit on ordinary activities after taxation
Equity and non-equity minority interests in subsidiaries
Dividends on non-equity shares
Notes
2004
€ m
2003(1)
€ m
2002(1)
€ m
4
5
6
7
8
9
10(a)
10(b)
11
26
12
14 & 2
16
17
18
888
3,118
712
2,898
946
3,807
(1,970)
(1,676)
(2,402)
2,036
1,934
2,351
18
27
1,031
(131)
96
187
1,210
3,264
1,713
9
1,722
164
1,886
1,378
116
20
(1)
1,243
201
–
(52)
9
17
1,418
336
1,082
30
5
35
12
16
1,038
(125)
135
166
1,230
3,176
1,709
72
1,781
179
1,960
1,216
152
9
16
1,039
143
(20)
(42)
32
(141)
1,011
318
693
11
5
16
62
14
1,301
(138)
74
263
1,514
3,927
2,098
13
2,111
207
2,318
1,609
194
2
55
1,358
9
–
–
5
–
1,372
306
1,066
24
8
32
Group profit attributable to the ordinary shareholders
of Allied Irish Banks, p.l.c.
1,047
677
1,034
69
Consolidated profit and loss account (continued)
for the year ended 31 December 2004
Group profit attributable to the ordinary shareholders
of Allied Irish Banks, p.l.c.
Dividends on equity shares
Transfer to reserves
Profit retained
Earnings per € 0.32 ordinary share – basic
Earnings per € 0.32 ordinary share – adjusted
Earnings per € 0.32 ordinary share – diluted
Notes
2004
€ m
2003(1)
€ m
2002(1)
€ m
1,047
511
59
570
477
19
45
20 & 46
677
452
51
503
174
1,034
429
45
474
560
21(a)
122.9c
78.8c
119.1c
21(b)
133.1c
109.5c
122.7c
21(c)
122.4c
78.4c
117.9c
(1)The consolidated profit and loss account for 2002 reflects the consolidation of Allfirst for a full year, while the profit and loss account for 2003
reflects the consolidation of Allfirst for the period to 31 March 2003 (see note 2).
D Gleeson, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
The movements in the Group profit and loss account are shown in note 46.
70
Consolidated balance sheet
31 December 2004
Assets
Cash and balances at central banks
Items in course of collection
Central government bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Securitised assets
Less: non-returnable proceeds
Debt securities
Equity shares
Interests in associated undertakings
Intangible fixed assets
Tangible fixed assets
Other assets
Deferred taxation
Prepayments and accrued income
Long-term assurance business attributable to shareholders
Long-term assurance assets attributable to policyholders
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Accruals and deferred income
Pension liabilities
Provisions for liabilities and charges
Deferred taxation
Subordinated liabilities
Equity and non-equity minority interests in subsidiaries
Share capital
Share premium account
Reserves
Profit and loss account
Shareholders’ funds including non-equity interests
Long-term assurance liabilities to policyholders
Memorandum items
Contingent liabilities:
Acceptances and endorsements
Guarantees and assets pledged as collateral security
Other contingent liabilities
Commitments
Notes
22
23
24
27
28
29
30
32
33
34
35
35
36
37
38
39
13
40
34
41
42
43
44
45
46
35
49
49
2004
€ m
887
368
-
2,320
64,836
-
-
-
24,076
195
1,317
380
785
2,247
198
918
467
98,994
3,246
102,240
20,428
51,397
11,805
3,900
911
676
122
123
2,765
1,212
299
1,870
977
2,435
5,581
98,920
3,320
102,240
14
5,394
830
6,238
2003
€ m
838
339
45
2,633
50,490
719
(516)
203
18,127
180
1,361
420
792
1,507
174
636
405
78,150
2,810
80,960
18,094
44,612
3,489
3,144
595
502
87
142
2,130
158
295
1,885
951
2,007
5,138
78,091
2,869
80,960
12
4,157
722
4,891
16,127
13,932
D Gleeson, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
71
Balance sheet Allied Irish Banks, p.l.c.
31 December 2004
Assets
Cash and balances at central banks
Items in course of collection
Central government bills and other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Equity shares
Interests in associated undertakings
Shares in Group undertakings
Tangible fixed assets
Other assets
Deferred taxation
Prepayments and accrued income
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Accruals and deferred income
Pension liabilities
Provisions for liabilities and charges
Deferred taxation
Subordinated liabilities
Share capital
Share premium account
Reserves
Profit and loss account
Shareholders’ funds including non-equity interests
Memorandum items
Contingent liabilities:
Acceptances and endorsements
Guarantees and assets pledged as collateral security
Other contingent liabilities
Commitments
Notes
2004
€ m
2003
€ m
514
178
-
18,489
44,696
20,895
28
826
225
476
1,524
77
767
508
151
45
14,982
34,314
15,378
26
891
230
470
993
72
785
88,695
68,845
34,448
34,727
10,330
2,360
735
438
100
3
2,765
299
1,870
100
520
2,789
28,831
29,117
3,218
1,676
737
280
58
10
2,130
295
1,885
101
507
2,788
88,695
68,845
2
4,732
636
5,370
11,902
2
3,680
565
4,247
9,893
22
23
24
28
29
31
33
34
36
37
38
39
40
34
41
43
44
45
46
49
49
D Gleeson, Chairman. M Buckley, Group Chief Executive. G Kennedy, Group Director, Finance & Enterprise Technology.W M Kinsella, Secretary.
72
Consolidated cash flow statement
for the year ended 31 December 2004
Net cash inflow/(outflow) from operating activities
Dividends received from associated undertakings
Returns on investments and servicing of finance
Equity dividends paid
Taxation
Capital expenditure and financial investment
Acquisitions and disposals
Financing
Increase/(decrease) in cash
Reconciliation of Group operating profit to net
cash inflow/(outflow) from operating activities
Group operating profit
(Increase)/decrease in prepayments and accrued income
Increase/(decrease) in accruals and deferred income
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts (written back)/written off fixed asset investments
Increase in other provisions
Depreciation and amortisation
Profit/(loss) on disposal of businesses
Interest on subordinated liabilities
Interest on reserve capital instruments
Profit on disposal of debt securities and equity shares
Profit on termination of off-balance sheet instruments
Average gains on debt securities held for hedging purposes
Profit on disposal of associated undertakings
Amortisation of premiums net of (discounts)
on debt securities held as financial fixed assets
Increase in long-term assurance business
Notes
53(a)
53(b)
53(c)
53(d)
53(e)
53(f)
2004
€ m
3,168
37
(111)
(340)
(317)
(4,130)
9
1,744
60
2004
€ m
1,243
(280)
302
116
20
(1)
33
164
17
68
38
(17)
(36)
(2)
(1)
24
(63)
2003
€ m
1,631
33
(93)
(378)
(273)
(1,049)
(1,049)
(173)
(1,351)
2003
€ m
1,039
106
(95)
152
9
16
57
174
(141)
47
38
(40)
–
(1)
–
23
(53)
2002
€ m
(121)
1
(138)
(345)
(280)
1,379
(5)
(129)
362
2002
€ m
1,358
1,162
(1,191)
194
2
55
16
207
–
83
38
(117)
–
(4)
(1)
(15)
(48)
Net cash inflow from trading activities
1,625
1,331
1,739
Net increase in deposits by banks
Net increase in customer accounts
Net increase in loans and advances to customers
Net decrease in loans and advances to banks
Decrease/(increase) in central government bills
Net increase in debt securities and equity shares
held for trading purposes
Net (increase)/decrease in items in course of collection
Net increase/(decrease) in debt securities in issue
Net increase/(decrease) in notes in circulation
Increase in other assets
Increase/(decrease) in other liabilities
Effect of exchange translation and other adjustments
Net cash inflow/(outflow) from operating activities
2,703
6,488
(14,420)
345
45
(2,066)
(29)
8,303
30
(735)
737
142
1,543
3,168
4,207
5,729
(10,043)
591
(41)
(1,216)
(161)
1,082
41
(920)
701
330
300
1,631
3,975
2,299
(6,129)
982
18
(1,180)
174
(1,425)
(3)
(28)
(521)
(22)
(1,860)
(121)
73
Statement of total recognised gains and losses
Group profit attributable to the ordinary shareholders
Gain recognised on disposal of Allfirst (note 2)
Currency translation differences on foreign currency net investments
Actuarial loss recognised in retirement benefit schemes (note 13)
Actuarial (loss)/gain recognised in associated undertaking
Total recognised gains/(losses) relating to the year
2004
€ m
1,047
–
(69)
(197)
(1)
780
Reconciliation of movements in shareholders’ funds
Group profit attributable to the ordinary shareholders
Dividends on equity shares
Gain recognised on disposal of Allfirst (note 2)
Goodwill written back on disposals
Actuarial loss recognised in retirement benefit schemes (note 13)
Actuarial (loss)/gain recognised in associated undertaking
Other recognised losses relating to the year
Ordinary share buyback
Ordinary shares issued in lieu of cash dividend
Other ordinary share capital issued
Net movement in own shares (note 48)
Net addition to/(deduction from) shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
Shareholders’ funds:
Equity interests
Non-equity interests
2004
€ m
1,047
511
536
–
–
(197)
(1)
(80)
–
134
71
(20)
443
5,138
5,581
5,399
182
5,581
2003
€ m
677
489
(457)
(50)
8
667
2003
€ m
677
452
225
489
1,043
(50)
8
(491)
(812)
108
62
141
723
4,415
5,138
4,942
196
5,138
2002
€ m
1,034
–
(341)
(823)
–
(130)
2002
€ m
1,034
429
605
–
–
(823)
–
(352)
–
76
39
37
(418)
4,833
4,415
4,180
235
4,415
Note of historical cost profits and losses
Reported profits on ordinary activities before taxation would not be materially different if presented on an unmodified
historical cost basis.
74
Notes to the accounts
1 Turnover
Turnover is not shown as it resulted in the main from the business of banking.
2 Acquisition of a strategic stake in M&T Bank Corporation. Disposal of Allfirst Financial Inc.
AIB’s US subsidiary, Allfirst, was acquired by M&T on 1 April 2003. AIB received 26.7 million M&T shares, representing a stake of
approximately 22.5% in the enlarged M&T, together with US$ 886.1m in cash.The agreement allowed for the cash consideration to
be reduced by the amount of a pre-close dividend from Allfirst to AIB and prior to closing a dividend of US$ 865.0m was declared
and paid by Allfirst Financial Inc. Consequently, the cash consideration payable by M&T reduced to US$ 21.1m.
The transaction is accounted for in accordance with the Urgent Issue Task Force Abstract No. 31 ‘Exchanges of businesses
or other non-monetary assets for an interest in a subsidiary, joint venture or an associate’ (‘UITF 31’). Under UITF 31, the transaction
is accounted for as an exchange of 77.5% of Allfirst for 22.5% of M&T pre-merger. Under this approach, the 22.5% of Allfirst that
is owned by AIB, both directly before the transaction and indirectly thereafter, is treated as being owned throughout the transaction.
The total recognised gains arising from the transaction amounted to € 449m (after tax) and was reflected in the accounts for the year
ended 31 December 2003 as follows:-
Gain recognised on the disposal of Allfirst
Recognised in the profit and loss account
Recognised in the statement of total recognised gains and losses
€ m
(40)
489
449
The transaction gave rise to a profit before tax of € 1m (loss of € 40m after tax). In accordance with the requirements of UITF 31,
the unrealised element of the gain, of € 489m, has been recognised in the statement of total recognised gains and losses.
The consolidated profit and loss account for the year ended 31 December 2002 reflects the consolidation of Allfirst for a full year,
while the profit and loss account for the year ended 31 December 2003 reflects the consolidation of Allfirst for the period to 31
March 2003.
To facilitate comparisons to the year ended 31 December 2004 financial statements presented in this Annual Report, the
consolidated profit and loss accounts for the years ended 31 December 2003 and 31 December 2002, split between continuing and
discontinued activities (arising from the disposal of Allfirst Financial Inc. on 1 April 2003), have been presented in the Additional
Financial Information section on page 152 of this Annual Report.
Year 31 December 2004
AIB Bank AIB Bank
Capital
ROI GB & NI Markets
€ m
€ m
€ m
Poland
Group
€ m
€ m
3 Segmental information
Operations by business segments(1)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Group operating profit/(loss)
Share of operating (loss)/profit of
associated undertakings
Amortisation of goodwill on acquisition
of associated undertaking
Profit on disposal of property
Profit on disposal of businesses
Group profit on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(2)
1,126
20
399
1,545
812
44
689
(1)
–
7
–
411
(6)
191
596
295
13
288
–
–
1
–
359
3
389
751
403
29
319
6
–
–
4
695
289
329
174
–
188
362
268
29
65
1
–
1
13
80
Total
€ m
2,036
18
1,210
3,264
1,886
135
(34)
1
43
10
108
20
(118)
1,243
195
201
(52)
–
–
(52)
9
17
25
1,418
35,671
28,424
43,065
31,194
2,145
13,755
9,084
15,082
12,531
861
13,798
40,537
32,398
29,650
2,038
3,765
5,452
6,666
4,238
291
167
133
5,029
926
64
67,156
83,630
102,240
78,539
5,399
75
Notes to the accounts
3 Segmental information (continued)
Operations by business segments(1)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Group operating profit/(loss)
Share of operating profits of associated undertakings
Share of restructuring and integration costs
in associated undertaking
Amortisation of goodwill on acquisition
of associated undertaking
Profit on disposal of property
(Loss)/profit on disposal of businesses
Group profit on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(2)
Operations by business segments(1)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Group operating profit/(loss)
Share of operating profits of associated undertakings
Profit/(loss) on disposal of property
Group profit/(loss) on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Total risk weighted assets
Net assets(2)
76
Year 31 December 2003(3)
AIB Bank
ROI
€ m
AIB Bank
GB & NI
€ m
Capital
Markets
€ m
Poland
Group
Allfirst
€ m
€ m
€ m
1,016
17
389
1,422
787
62
573
–
–
–
13
–
364
(5)
165
524
276
19
229
–
–
–
2
–
312
2
365
679
394
46
239
7
–
–
–
(146)
175
–
170
345
308
31
6
–
–
–
–
4
(20)
–
38
18
70
8
(60)
136
(20)
(42)
17
1
87
(2)
103
188
125
11
52
–
–
–
–
–
Total
€ m
1,934
12
1,230
3,176
1,960
177
1,039
143
(20)
(42)
32
(141)
586
231
100
10
32
52
1,011
27,428
24,572
34,101
24,119
1,904
10,353
7,881
11,643
10,055
794
12,404
29,318
28,365
24,506
1,934
2,939
4,222
5,301
3,259
257
202
202
1,550
676
53
–
–
–
–
–
53,326
66,195
80,960
62,615
4,942
Year 31 December 2002(3)
AIB Bank
AIB Bank
ROI GB & NI
€ m
€ m
Capital
Markets
€ m
Poland
Group
Allfirst
€ m
€ m
€ m
921
40
353
1,314
681
55
578
–
8
586
363
(1)
166
528
266
22
240
–
–
240
313
7
382
702
405
63
234
9
–
243
263
–
165
428
341
46
41
–
(2)
39
(25)
18
–
(7)
54
(30)
(31)
–
–
516
(2)
448
962
571
95
296
–
(1)
(31)
295
1,372
21,367
22,522
27,186
18,821
1,136
8,967
7,449
10,158
8,666
523
13,371
24,482
26,618
22,833
1,378
3,473
5,014
6,261
3,549
215
143
132
126
257
16
11,162
12,591
15,472
15,113
912
58,483
72,190
85,821
69,239
4,180
Total
€ m
2,351
62
1,514
3,927
2,318
251
1,358
9
5
United
States of
America
€ m
United
Kingdom
Poland
Rest of
the world
€ m
€ m
€ m
Year 31 December 2004
Republic of
Ireland
3 Segmental information (continued)
Operations by geographical segments (4)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Group operating profit
Share of operating profits of associated undertakings
Amortisation of goodwill on acquisition
of associated undertaking
Profit on disposal of property
Profit on disposal of business
Group profit on ordinary activities
before taxation
€ m
1,283
25
636
1,944
1,130
72
742
5
–
7
–
754
Balance sheet
Total loans
Total deposits
Total assets
Net assets(2)
42,744
56,535
70,458
3,460
Republic of
Ireland
Operations by geographical segments (4)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Group operating profit/(loss)
Share of operating profits of associated undertakings
Share of restructuring and integration costs
of associated undertakings
Amortisation of goodwill on acquisition
of associated undertaking
Profit on disposal of property
Profit/(loss) on disposal of businesses
Group profit/(loss) on ordinary activities
before taxation
€ m
1,155
20
562
1,737
1,056
68
613
7
–
–
30
1
651
23
(1)
102
124
81
(4)
47
195
(52)
–
–
190
538
(6)
261
793
383
38
372
–
–
1
4
377
1,467
2,691
2,449
260
19,060
18,952
22,546
1,370
United
States of
America
€ m
United
Kingdom
€ m
121
(2)
217
336
210
20
106
136
(20)
(42)
–
7
187
465
(6)
261
720
369
58
293
–
–
–
2
(153)
142
190
-
205
395
288
29
78
1
–
1
13
93
3,765
5,452
6,666
298
Poland
€ m
193
–
188
381
322
31
28
–
–
–
–
4
32
Balance sheet
Total loans
Total deposits
Total assets
Net assets(2)
34,944
46,876
54,667
2,979
1,095
1,083
2,101
369
14,336
14,014
18,880
1,316
2,935
4,222
5,295
278
Total
€ m
2,036
18
1,210
3,264
1,886
135
1,243
201
(52)
9
17
1,418
67,156
83,630
102,240
5,399
2
-
6
8
4
-
4
–
–
–
–
4
120
–
121
11
Year 31 December 2003
Rest of
the world
€ m
–
–
2
2
3
–
(1)
–
–
–
–
–
Total
€ m
1,934
12
1,230
3,176
1,960
177
1,039
143
(20)
(42)
32
(141)
(1)
1,011
16
–
17
–
53,326
66,195
80,960
4,942
77
Notes to the accounts
3 Segmental information (continued)
Operations by geographical segments (4)
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Provisions
Republic of
Ireland
€ m
1,050
62
538
1,650
924
71
Group operating profit
655
Share of operating profits of associated undertakings 9
8
Profit/(loss) on disposal of property
Group profit on ordinary activities
before taxation
Balance sheet
Total loans
Total deposits
Total assets
Net assets(2)
672
29,899
37,944
45,151
1,873
United
States of
America
€ m
United
Kingdom
€ m
563
(2)
555
1,116
676
109
331
–
(1)
330
12,594
14,453
17,629
1,179
455
2
234
691
363
25
303
–
–
303
12,516
14,779
16,769
895
Year 31 December 2002
Poland
€ m
283
–
184
467
351
47
69
–
(2)
67
3,473
5,014
6,271
233
Rest of
the world
€ m
–
–
3
3
4
(1)
–
–
–
–
1
–
1
–
Total
€ m
2,351
62
1,514
3,927
2,318
251
1,358
9
5
1,372
58,483
72,190
85,821
4,180
(1)The business segment information is based on management accounts information. Income on capital is allocated to the divisions
on the basis of the capital required to support the level of risk weighted assets. Interest income earned on capital not allocated to
divisions is reported in Group.
(2)The fungible nature of liabilities within the banking industry inevitably leads to allocations of liabilities to segments, some of which
are necessarily subjective. Accordingly, the directors believe that the analysis of total assets is more meaningful than the analysis of net
assets.
(3)
The December 2003 and 2002 amounts have been restated to reflect the divisional restatements as discussed in Accounting Policies
page 64.
(4)The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction.
78
4 Other interest receivable and similar income
Interest on loans and advances to banks
Interest on loans and advances to customers
Income from leasing and hire purchase contracts
Income from leasing and hire purchase contracts has been accounted for as follows:
Investment period method
Sum of the digits method
The aggregate rentals receivable from leasing contracts was € 485m (2003: € 500m).
5 Interest payable
Interest on deposits by banks and customer accounts
Interest on debt securities in issue
Interest on subordinated liabilities
Interest on reserve capital instruments
2004
€ m
94
2,866
158
3,118
93
65
158
2004
€ m
1,608
256
68
38
1,970
2003
€ m
113
2,622
163
2,898
99
64
163
2003
€ m
1,490
101
47
38
1,676
2002
€ m
196
3,423
188
3,807
119
69
188
2002
€ m
2,178
103
83
38
2,402
6 Other finance income
Under FRS 17 ‘Retirement benefits’, the net of the interest cost on liabilities and the expected return on assets is recorded as other
finance income adjacent to interest.The interest cost represents the unwinding of the discount on the scheme liabilities.The expected
return on assets is based on long-term expectations at the beginning of the period.
A description of the retirement benefit schemes operated by the Group is provided in note 13.
7 Dividend income
The dividend income relates to income from equity shares.
8 Dealing profits
Foreign exchange contracts
Profits less losses from securities held for trading purposes
Interest rate contracts
Equity index contracts
2004
€ m
67
54
(30)
5
96
2003
€ m
92
23
16
4
135
2002
€ m
78
7
(11)
–
74
Dealing profits is a term prescribed by the European Communities (Credit Institutions: Accounts) Regulations, 1992. Dealing profits
reflects trading income and excludes interest payable and receivable arising from these activities. Staff and other administrative expenses
arising from trading activities are not included here but are included under the appropriate heading within administrative expenses
(note 10).
79
Notes to the accounts
9 Other operating income
Profit on disposal of debt securities held for investment purposes
Profit on termination of off-balance sheet instruments
Profit on disposal of investments in associated undertakings
Profit on disposal of equity shares
Contribution of life assurance company (note 35)
Contribution from securitised assets (note 27)
Mortgage origination and servicing income
Miscellaneous operating income
10 Administrative expenses
(a) Staff and other administrative expenses
Staff costs:
Wages and salaries
Social security costs
Retirement benefits service costs (note 13)
Other staff costs
Other administrative expenses
2004
€ m
2003
€ m
15
36
1
2
72
3
–
58
37
–
–
3
60
1
2
63
187
166
2004
€ m
890
86
115
41
1,132
581
1,713
2003
€ m
905
88
111
53
1,157
552
1,709
2002
€ m
106
–
1
11
57
4
7
77
263
2002
€ m
1,097
105
122
67
1,391
707
2,098
(b) Restructuring costs in continuing businesses
During 2003, BZWBK commenced a branch network restructuring process resulting in the closure of approximately 40 branches
across Poland. A provision of € 10m was recorded in 2003 in respect of this process with a further charge of € 9m in 2004.
AIB Group introduced an Early Retirement Package in 2003 for certain staff over the age of 50 working in Ireland and
Northern Ireland with staff located in the UK who have repatriation rights to Ireland also included. A provision of € 62m was made
in the 2003 accounts of which € 41m forms part of the retirement benefit past service cost in note 13. Approximately 250 people left
the organisation during 2004 under the package.
The charge of € 13m in 2002 relates to the cost of an Allfirst Early Retirement Program.This also forms part of the retirement
benefit past service cost in note 13.
80
11 Depreciation and amortisation
Depreciation of tangible fixed assets:
Property depreciation
Equipment depreciation
Amortisation and impairment of goodwill on acquisition of subsidiaries (note 32)
12 Amounts (written back)/written off fixed asset investments
Debt securities
Equity shares
13 Retirement benefits
2004
€ m
23
102
125
39
164
2004
€ m
(4)
3
(1)
2003
€ m
30
118
148
31
179
2003
€ m
13
3
16
2002
€ m
37
138
175
32
207
2002
€ m
19
36
55
(a) Description of retirement benefit schemes
The Group provides pension and retirement benefits for employees in Ireland, the UK, the US and Poland, the majority of which are
funded. Certain post-retirement benefits are also provided for retired employees.
Defined benefit schemes
The Group operates a number of defined benefit schemes the most significant being the AIB Group Irish Pension Scheme (the Irish
scheme) and the AIB Group UK Pension Scheme (the UK scheme). Approximately fifty per cent of staff in the Republic of Ireland
are members of the the Irish scheme while the majority of staff in the UK are members of the the UK scheme. Retirement benefits
for the defined benefit schemes are calculated by reference to service and pensionable salary at normal retirement date.
Independent actuarial valuations, for the main Irish and UK schemes, are carried out on a triennial basis.The last such valuations
were carried out on 30 June 2003 using the Projected Unit Method.The schemes are funded and contribution rates of 26.0% and
44.6% have been set for the Irish and UK schemes respectively with effect from 1 January, 2004. As both these schemes are closed to
new entrants, under the Projected Unit Method, the current service cost and the standard contribution rates will increase as members
of the schemes approach retirement. The actuarial valuations are available for inspection only to the members of the schemes.
The following table summarises the financial assumptions adopted in the preparation of these accounts in respect of the main
schemes.The assumptions, including the expected long-term rate of return on assets, have been set upon advice of the Group’s
actuary.
Financial assumptions
Irish scheme
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
UK scheme
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
Other schemes
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
as at 31 December
2004
%
4.0
2.5
4.90
2.5
4.0
2.75
5.30
2.5
2003
%
4.0
2.5
5.25
2.5
4.0
2.50
5.25
2.5
2002
%
4.0
2.5
5.60
2.5
4.0
2.50
5.75
2.5
4.0 - 4.25
0.0 - 2.75
4.90 - 5.75
2.5 - 2.75
4.0 - 4.25
0.0 - 2.50
5.25 - 6.02
2.5 - 3.00
4.0 - 4.50
0.0 - 2.50
5.60 - 6.51
2.5 - 3.00
81
Notes to the accounts
13 Retirement benefits (continued)
The following table sets out on a combined basis for all schemes the fair value of the assets held by the schemes together with the
long term rate of return expected for each class of assets.
Equities
Bonds
Property
Cash
Total market value of assets
Actuarial value of liabilities
Deficit in the schemes
Related deferred tax asset
Net pension liability
as at 31 December 2004
Long term
rate of return
expected
%
7.8
4.1
6.4
3.0
6.9
Value
€ m
1,803
344
274
130
2,551
(3,384)
(833)
157
(676)
The net pension liability is recognised on the balance sheet as follows:-
Funded pension schemes in deficit
Unfunded schemes
as at 31 December 2003
Long term
rate of return
expected
%
Value
€ m
as at 31 December 2002
Long term
rate of return
expected
%
Value
€ m
8.2
5.0
7.5
3.0
7.6
1,670
265
255
82
2,272
(2,902)
(630)
128
(502)
9.0
5.2
7.5
3.0
8.0
1,490
333
262
84
2,169
(2,879)
(710)
173
(537)
as at 31 December
2004
€ m
(652)
(24)
(676)
2003
€ m
(485)
(17)
(502)
Included in the actuarial value of the liabilities is an amount in respect of commitments to pay annual pensions amounting to
€ 69,756 in aggregate to a number of former directors.
The following table sets out the components of the defined benefit cost for each of the three years ended 31 December 2004,
2003 and 2002.
Other finance income
Expected return on pension scheme assets
Interest on pension scheme liabilities
Included within administrative expenses
Current service cost
Past service cost
Cost of providing defined retirement benefits
Analysis of the amount recognised in STRGL
Actual return less expected return on pension scheme assets
Experience gains and losses on scheme liabilities
Changes in demographic and financial assumptions
Actuarial loss recognised under FRS 17
Deferred tax
Recognised in STRGL
82
2004
€ m
171
(153)
18
91
3
94
76
2004
€ m
99
(150)
(179)
(230)
33
(197)
2003
€ m
161
(149)
12
81
50
131
119
2003
€ m
93
97
(257)
(67)
17
(50)
2002
€ m
(482)
(55)
(537)
2002
€ m
220
(158)
62
86
22
108
46
2002
€ m
(862)
(18)
(123)
(1,003)
180
(823)
13 Retirement benefits (continued)
Movement in (deficit)/surplus during the year
Surplus in schemes at beginning of year
Movement in year:
Current service cost
Past service cost
Contributions
Other finance income
Actuarial loss recognised under FRS 17
Disposal of subsidiary company
Translation adjustment
Deficit in schemes at end of year
History of experience gains and losses
Difference between expected and actual return on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses on scheme liabilities:
Amount
Percentage of scheme liabilities
Total amount recognised in STRGL:
Amount
Percentage of scheme liabilities
2004
€ m
99
4%
(150)
4%
(230)
7%
2003
€ m
93
4%
97
3%
(67)
2%
2004
€ m
(630)
(91)
(3)
102
18
(230)
–
1
(833)
2002
€ m
(862)
40%
(18)
1%
(1,003)
35%
2003
€ m
(710)
(81)
(50)
84
12
(67)
158
24
(630)
2001
€ m
(438)
15%
(32)
1%
(502)
19%
2002
€ m
257
(86)
(22)
50
62
(1,003)
–
32
(710)
2000
€ m
(158)
5%
(72)
3%
(248)
10%
Defined contribution schemes
The Group operates a number of defined contribution schemes.The defined benefit schemes in Ireland and the UK were closed
to new members from December 1997. Employees joining after December 1997 join on a defined contribution basis.The standard
contribution rate in Ireland is 8%.The standard contribution rate in the UK is 5% and these members are also accruing benefits
under SERPS (the State Earnings Related Pension Scheme). The total cost in respect of defined contribution schemes for 2004 was
€ 21m (2003: € 21m; 2002: € 27m).
(b) Implementation of FRS 17 ‘Retirement benefits’
The Group adopted FRS 17 in the preparation of its accounts for the year ended 31 December 2001 and comparative figures were
restated.The change in accounting policy arising from the adoption of FRS 17 gave rise to a net credit to shareholders’ funds of
€ 648m at 1 January 2001.
14 Profit/(loss) on disposal of businesses
2004
The profit on disposal of businesses in 2004 of € 17m relates to the sale of BZWBK’s subsidiary, CardPoint S.A. of € 13m (tax
charge € 2m), and the accrual of € 4m (tax charge € 1m), arising from the sale of the Govett business in 2003.
2003
The loss on disposal of businesses of € 141m relates to the loss on disposal of Govett of € 153m (loss of € 152m after tax), offset by
the realised gain on disposal of Allfirst of € 1m (loss of € 40m after tax), the profit on disposal of the AIB New York retail branch of
€ 7m (tax charge € 3m) and the profit on disposal of Polsoft of € 4m (tax charge € 1m).
In 2003, AIB sold the majority of the Govett business its UK based asset management business to Gartmore. Certain management
contracts were excluded from the sale and were managed by AIB’s Irish based asset management company, AIB Investment Managers
(AIB IM).The operations of AIB IM were otherwise unaffected by this transaction.
Total consideration for the business was estimated as € 17m and is payable in cash. The consideration is made up of an initial
payment of € 6m plus a series of payments based on the level of fees earned by Gartmore on the Govett management contracts over
the following three years.The initial payment of € 6m is reflected in the financial statements for the year ended 31 December 2003.
83
Notes to the accounts
14 Profit/(loss) on disposal of businesses (continued)
The transaction gave rise to a loss on disposal of € 153m in profit and loss account in the financial statements for the year ended
31 December 2003.The loss on disposal was made up of the € 6m consideration less goodwill previously written off of € 139m and
one off closure costs of € 20m.The goodwill of € 139m was previously written off to reserves on the purchase of Govett in 1995.
The after tax loss is € 152m.The financial statements for the year ended 31 December 2003 also reflect the income and expenses for
Govett for the period as part of continuing activities, which amounted to a loss before tax of € 12m.
15 Group profit on ordinary activities before taxation
Is stated after:
(i) Income:
(ii) Expenses:
Listed investments
Unlisted investments
Operating lease rentals
Property
Equipment
Auditors’ remuneration (including VAT):
Statutory audit
Further assurance services
Other services:
Taxation services
Other consultancy
(iii) Investigation related charges
2004
€ m
807
108
40
–
1.8
0.4
0.4
0.4
0.8
50
2003
€ m
609
119
41
1
1.8
0.3
0.2
0.3
0.5
–
2002
€ m
691
269
50
4
2.1
0.4
0.1
0.8
0.9
–
Audit further assurance services include fees for assignments which are of an audit nature.These fees include assignments where the
Auditors provide assurance to third parties.
In the year ended 31 December 2004, 53% (2003: 61%) of the total statutory audit fees and 41% (2003: 65%) of the further
assurance and other services fees were paid to overseas offices of the Auditors.
The Group has adopted a policy on the provision of non-audit services to the bank and its subsidiary companies.This policy
includes the prohibition on the provision of certain services and the pre-approval by the Audit Committee of the engagement of the
Auditors for non-audit work.
The Audit Committee has reviewed the level of non-audit services fees and is satisfied that it has not affected the independence
of the Auditors. It is Group policy to subject all large consultancy assignments to competitive tender.
Investigation related charges
During 2004, AIB provided € 50 million for investigation related charges and costs. The investigation related primarily to the failure
to notify the Regulator as required by law in respect of the application of certain regulated charges on foreign exchange products. An
amount of € 12 million was charged to net interest income, € 24 million was charged to other income and there was € 14 million
of costs included in other administrative expenses. The amount includes a refund to customers of approximately € 26 million
including interest in respect of notification errors and approximately € 10 million including interest in relation to non-regulated
charges.
84
16 Taxation
Allied Irish Banks, p.l.c. and subsidiaries
Corporation tax in Republic of Ireland
Current tax on income for the period(1)
Adjustments in respect of prior periods
Double taxation relief
Foreign tax
Current tax on income for the period
Adjustments in respect of prior periods
Total current tax
Deferred tax
Origination and reversal of timing differences
Other
Total deferred tax
Associated undertakings
Taxation on ordinary activities
Effective tax rate
Effective tax rate - adjusted
2004
€ m
2003
€ m
2002
€ m
138
(5)
133
(13)
120
181
(11)
170
290
(7)
(8)
(15)
61
336
173
4
177
(49)
128
210
–
210
338
(54)
(5)
(59)
39
318
23.7%
31.4%
23.7%(2)
24.0%(2)
81
(7)
74
(4)
70
212
(4)
208
278
21
6
27
1
306
22.3%
22.3%
(1)The December 2004 figure includes a charge of € 29.5m (2003:€ 29.5m; 2002: nil) in relation to the Irish Government bank levy.
(2)The adjusted effective tax rate has been presented to eliminate the disposal of Govett in 2004 and 2003 and the withholding tax on
the Allfirst dividend in 2003.
Factors affecting current tax charge for period
The current tax charge for 2004 is lower (2003: higher; 2002: lower) than the weighted average of the Group’s statutory corporation
tax rates across its geographic locations.The differences are explained below.
Weighted average corporation tax rate
Effects of:
Expenses not deductible for tax purposes
Goodwill amortisation
Exempted income, income at reduced rates and tax credits
Net effect of differing tax rates overseas
Capital allowances in excess of depreciation
Other deferred tax timing differences
Tax on associated undertakings
Bank levy in Republic of Ireland
Goodwill on disposal of businesses
Withholding tax on Allfirst dividend
Adjustments to tax charge in respect of previous periods
2004
%
20.5
2.8
0.6
(1.2)
0.2
0.1
0.8
(4.4)
2.1
–
–
(1.1)
2003
%
19.1
2.8
0.8
(0.1)
1.9
–
3.8
(3.9)
2.9
3.6
3.9
(1.4)
2002
%
23.8
0.8
0.7
(1.9)
0.7
(1.0)
(2.0)
(0.1)
–
–
–
(0.8)
Effective current tax charge
20.4
33.4
20.2
85
Notes to the accounts
17 Equity and non-equity minority interests in subsidiaries
The profit attributable to minority interests is analysed as follows:
Equity interest in subsidiaries
Non-equity interest in subsidiaries
2004
€ m
2003
€ m
2002
€ m
28
2
30
10
1
11
20
4
24
18 Dividends on non-equity shares
The dividends paid on the Non-cumulative preference shares of US$ 25 each amounted to € 5m (2003: € 5m; 2002: € 8m).
Included in this figure is an amount of € 1m which has been accrued (2003: € 1m; 2002: € 2m) and amortised issue costs of € 0.4m
(2003: € 0.5m; 2002: € 0.4m).
19 Dividends on equity shares
Ordinary shares of € 0.32 each
Interim dividend
Final dividend
Employee share trusts(1)
2004
2003
cent per € 0.32 share
2002
20.9
38.5
59.4
19.0
35.0
54.0
17.25
31.81
49.06
2004
€ m
179
333
512
(1)
511
2003
€ m
161
296
457
(5)
452
2002
€ m
154
283
437
(8)
429
(1)In accordance with FRS 14 ‘Earnings per share’, dividends of € 0.8m (2003: € 4.8m; 2002: € 7.9m) arising on the shares held by
certain employee share trusts (note 48) are excluded in arriving at profit before taxation and deducted from the aggregate of dividends
paid and proposed.
20 Profit retained
The transfer to the profit and loss account is dealt with
in the Group accounts as follows:
Allied Irish Banks, p.l.c.
Subsidiary undertakings
Associated undertakings
2004
€ m
2003
€ m
2002
€ m
68
359
50
477
834
(669)
9
174
76
477
7
560
As permitted by Regulation 5, paragraph 2 of the European Communities (Credit Institutions: Accounts) Regulations, 1992, the
profit and loss account of Allied Irish Banks, p.l.c. has not been presented separately.
86
21 Earnings per € 0.32 ordinary share
2004
2003
2002
(a) Basic
Group profit attributable to the ordinary shareholders(1)
Weighted average number of shares in issue during the year(1)
Earnings per share
€
1,047m € 677m
852.0m
859.6m
EUR 122.9c
EUR 78.8c
€ 1,034m
868.7m
EUR 119.1c
(1)In accordance with FRS 14 - ‘Earnings per share’, dividends arising on the shares held by the employee share trusts (note 48) are
excluded in arriving at profit before taxation and deducted from the aggregate of dividends paid and proposed.The shares held by
the trusts are excluded from the calculation of weighted average number of shares in issue.
(b) Adjusted
As reported
Adjustments
Goodwill amortisation and impairment
Impact of Govett disposal on profit and loss account
Impact of Allfirst disposal on profit and loss account
Earnings per € 0.32 ordinary share
2004
2003
2002
cent per € 0.32 share
122.9
10.6
(0.4)
–
78.8
8.4
17.6
4.7
119.1
3.6
–
–
133.1
109.5
122.7
The adjusted earnings per share figure has been presented to eliminate the effect of the goodwill amortisation in all years, goodwill
impairment loss in 2004, the impact of the Govett disposal in 2004 and 2003 and the Allfirst disposal in 2003.
(c) Diluted
Weighted average number of shares in issue during the period
Dilutive effect of options outstanding
Diluted
2004
2003
2002
Number of shares (millions)
859.6
4.7
864.3
868.7
8.4
877.1
852.0
3.1
855.1
The weighted average number of ordinary shares reflects the dilutive effect of options outstanding under the employee share trusts
(note 48), the share option scheme (note 47) and the Allied Irish Bank stock option plan (note 47).
22 Central government bills and other eligible bills
Group and Allied Irish Banks, p.l.c.
Held for trading purposes
Treasury bills
Analysis of movements in central government bills
and other eligible bills held as financial fixed assets
At 1 January 2004
Purchases
Disposals/maturities
Amortisation of discounts
At 31 December 2004
Book
amount
€ m
2004
Market
value
€ m
Book
amount
€ m
2003
Market
value
€ m
–
–
–
–
45
45
–
–
Group
€ m
Allied Irish
Banks, p.l.c.
€ m
–
651
(652)
1
–
–
–
–
–
–
87
Notes to the accounts
23 Loans and advances to banks
Funds placed with the Central Bank and Financial
Services Authority of Ireland
Funds placed with other central banks
Funds placed with other banks
Analysed by remaining maturity:
Repayable on demand
Other loans and advances by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
General and specific bad and doubtful debt provisions (note 26)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Amounts include:
Due from associated undertakings
Loans and advances to banks by geographical area
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
2004
€ m
446
450
1,424
2,320
Group
2003
€ m
863
17
1,753
2,633
246
204
127
30
279
1,640
2,322
2
2,320
134
88
107
2,102
2,635
2
2,633
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
400
7
18,082
18,489
171
–
30
229
722
1,152
–
1,152
256
17,081
17,337
18,489
818
5
14,159
14,982
154
–
73
87
1,948
2,262
–
2,262
115
12,605
12,720
14,982
1
1
–
–
2004
€ m
1,152
81
685
400
2
2,320
Group
2003
€ m
2,282
48
239
63
1
2,633
88
24 Loans and advances to customers
Loans and advances to customers
Amounts receivable under finance leases
Amounts receivable under hire purchase contracts
Money market funds
Analysed by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
General and specific bad and doubtful debt provisions (note 26)
Due from subsidiary undertakings:
Subordinated
Unsubordinated
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
2004
€ m
62,219
1,625
968
24
Group
2003
€ m
47,828
1,636
873
153
44,678
1
–
17
64,836
50,490
44,696
26,349
16,932
10,177
12,036
65,494
658
20,699
12,841
7,677
9,935
51,152
662
16,341
11,344
6,594
7,599
41,878
289
64,836
50,490
41,589
83
3,024
3,107
44,696
34,198
3
–
113
34,314
12,365
8,122
4,866
6,042
31,395
287
31,108
83
3,123
3,206
34,314
11,427
Of which repayable on demand or at short notice
16,640
13,064
14,881
At 31 December 2004, € 1,192m (2003: € 1,200m) of loans and advances were pledged as collateral with the Central Bank and
Financial Services Authority of Ireland.
The cost of assets acquired for letting under finance leases and hire purchase contracts amounted to € 1,568m (2003: € 1,234m).
Loans accounted for on a non-accrual basis (including loans where interest
is accrued but provisions have been made against it)
AIB Bank ROI division
AIB Bank GB & NI division
Capital Markets division
Poland division
2004
€ m
221
139
100
299
759
Group
2003
€ m
209
84
82
332
707
89
Notes to the accounts
25 Loans and advances to customers -
concentrations of credit risk
Construction and property
Republic of Ireland
United States of America
United Kingdom
Poland
2004
% of total
loans(1)
15.3
0.3
8.8
0.6
25.0
€ m
10,059
191
5,769
365
16,384
2003
% of total
loans(1)
13.2
0.2
7.8
0.5
21.7
€ m
6,716
93
4,009
270
11,088
The construction and property portfolio is well diversified across the Group’s principal markets by spread of location and individual
customer. In addition, the Group’s outstandings are dispersed across the segments within the construction and property portfolio to
ensure that the credit risk is widely spread.
Residential mortgages
Republic of Ireland
United Kingdom
Poland
2004
% of total
loans(1)
20.2
4.7
0.7
25.6
€ m
13,236
3,090
477
16,803
2003
% of total
loans(1)
20.0
4.9
0.8
25.7
€ m
10,271
2,499
388
13,158
The residential mortgage portfolio contains high quality lendings which are well diversified by borrower and are represented across
the Group’s principal markets.
(1)Total loans relate to loans and advances to customers and are gross of provisions and unearned income and exclude money market
funds.
Loans and advances to customers by geographical area
Republic of Ireland
United States of America
United Kingdom
Poland
Rest of the world
2004
€ m
41,592
1,386
18,375
3,365
118
64,836
Group
2003
€ m
32,459
1,047
14,097
2,872
15
50,490
90
26 Provisions for bad
and doubtful debts
Specific
€ m
General
€ m
Group
At 1 January
Exchange translation adjustments
Disposal of subsidiary undertaking
Transfer to contingent liabilities and
commitments
Charge against profit and loss account
Transfer to specific
Amounts written off
Recoveries of amounts written
off in previous years
At 31 December
Amounts include:
Loans and advances to banks (note 23)
Loans and advances to customers (note 24)
Allied Irish Banks, p.l.c.
At 1 January
Exchange translation adjustments
Transfer to contingent liabilities and
commitments
Charge against profit and loss account
Transfer to specific
Amounts written off
Recoveries of amounts written
off in previous years
At 31 December (note 24)
348
23
–
–
–
142
(151)
21
383
2
381
383
108
–
–
–
65
(62)
16
127
316
2
–
(15)
116
(142)
–
–
277
–
277
277
179
(1)
(15)
64
(65)
–
–
162
2004
Total
€ m
664
25
–
(15)
116
–
(151)
21
660
2
658
660
287
(1)
(15)
64
–
(62)
16
289
Specific
€ m
General
€ m
435
(33)
(24)
–
–
134
(182)
18
348
2
346
348
96
(1)
–
–
148
(148)
13
108
427
(18)
(111)
–
152
(134)
–
–
316
–
316
316
175
(2)
–
154
(148)
–
–
179
2003
Total
€ m
862
(51)
(135)
–
152
–
(182)
18
664
2
662
664
271
(3)
–
154
–
(148)
13
287
The provisions for bad and doubtful debts in Allied Irish Banks, p.l.c. at 31 December 2004 and 2003 relate to loans and advances to
customers only.
27 Securitised assets
Securitised assets
Less: non-returnable proceeds
2004
€ m
–
–
–
2003
€ m
719
(516)
203
The securitised assets at 31 December 2003 relates to a securitisation transaction originated in 1999. These assets were redeemed in
December 2004 as a result of this transaction being restructured.
The contribution from these securitised assets, which includes a loss on the disposal of assets from the portfolio as part of the
restructure, is included in other operating income and analysed below.
Net interest income
Other income
Total income
Provisions for bad and doubtful debts
Contribution from securitised assets (note 9)
2004
€ m
2003
€ m
2002
€ m
3
(2)
1
(2)
3
3
–
3
2
1
4
–
4
–
4
91
Notes to the accounts
28 Debt securities
Group
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Group
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
137
13
–
119
269
(11)
–
–
(6)
(17)
7,101
854
585
7,710
16,250
1,048
73
–
6,705
7,826
2004
Market
value
€ m
7,227
867
585
7,823
16,502
1,048
73
–
6,705
7,826
24,076
269
(17)
24,328
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
109
7
–
94
210
–
–
(1)
(29)
(30)
5,237
562
589
6,057
12,445
630
85
–
4,967
5,682
2003
Market
value
€ m
5,346
569
588
6,122
12,625
630
85
–
4,967
5,682
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
18,127
210
(30)
18,307
92
28 Debt securities (continued)
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Held for trading purposes
Issued by public bodies:
Government securities
Other public sector securities
Issued by other issuers:
Bank and building society certificates of deposit
Other debt securities
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
108
12
–
119
239
(11)
–
–
(6)
(17)
5,486
692
284
7,093
13,555
562
73
–
6,705
7,340
2004
Market
value
€ m
5,583
704
284
7,206
13,777
562
73
–
6,705
7,340
20,895
239
(17)
21,117
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
81
7
–
92
180
–
–
(1)
(24)
(25)
3,627
409
504
5,480
10,020
310
86
–
4,962
5,358
2003
Market
value
€ m
3,708
416
503
5,548
10,175
310
86
–
4,962
5,358
Market value is market price for quoted securities and directors’ estimate for unquoted securities.
15,378
180
(25)
15,533
93
Notes to the accounts
28 Debt securities (continued)
Analysed by remaining maturity
Due within one year
Due one year and over
Analysed by listing status
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
2004
€ m
4,048
20,028
24,076
Book
amount
€ m
14,076
376
1,798
16,250
7,560
266
–
7,826
24,076
Group
2003
€ m
2,783
15,344
18,127
2004
Market
value
€ m
14,325
376
1,801
16,502
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
2,064
13,314
15,378
2003
Market
value
€ m
11,235
305
1,085
12,625
2,867
18,028
20,895
Book
amount
€ m
11,054
306
1,085
12,445
5,595
87
–
5,682
18,127
Debt securities subject to repurchase agreements amounted to € 8,780m (2003: € 5,860m).
Subordinated debt securities included as financial fixed assets amounted to € 126m at 31 December 2004 (2003: € 20m).
The unamortised premiums net of discounts on debt securities held as financial fixed assets amounted to € 53m at 31 December
2004 (2003: unamortised discount net of premiums € 19m).
The cost of debt securities held for trading purposes amounted to € 7,761m (2003: € 5,655m).
Analysed by listing status
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Quoted elsewhere
Unquoted
2003
Market
value
€ m
9,388
–
787
10,175
2004
Market
value
€ m
12,825
–
952
13,777
Book
amount
€ m
12,606
–
949
13,555
7,340
–
–
7,340
20,895
Book
amount
€ m
9,233
–
787
10,020
5,358
–
–
5,358
15,378
Debt securities subject to repurchase agreements amounted to € 8,600m (2003: € 5,824m).
The amount of unamortised premiums net of discounts on debt securities held as financial fixed assets was € 162m
(2003: € 71m).
The cost of debt securities held for trading purposes was € 7,279m (2003: € 5,344m).
94
28 Debt securities (continued)
Analysis of movements in debt securities
held as financial fixed assets
Group
At 1 January 2004
Exchange translation adjustments
Purchases
Realisations/maturities
Amounts written back to profit and loss account (note 12)
Amortisation of (premiums) net of discounts
At 31 December 2004
Allied Irish Banks, p.l.c.
At 1 January 2004
Exchange translation adjustments
Purchases
Realisations/maturities
Amounts written back to profit and loss account
Amortisation of (premiums) net of discounts
At 31 December 2004
29 Equity shares
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Unquoted
Group
Held as financial fixed assets
Listed on a recognised stock exchange
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Cost
€ m
Discounts
and
premiums
€ m
Amounts
written
off
€ m
12,430
(294)
14,281
(10,174)
–
–
16,243
10,075
(444)
12,381
(8,376)
–
–
13,636
33
1
–
7
–
(24)
17
(42)
(1)
–
31
–
(66)
(78)
(18)
(1)
–
5
4
–
(10)
(13)
1
–
5
4
–
(3)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
5
106
111
78
6
84
195
15
9
24
(1)
(3)
(4)
24
(4)
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
6
110
116
64
180
11
5
16
16
(1)
(1)
(2)
(2)
Book
amount
€ m
12,445
(294)
14,281
(10,162)
4
(24)
16,250
10,020
(444)
12,381
(8,340)
4
(66)
13,555
2004
Market
value
€ m
19
112
131
78
6
84
215
2003
Market
value
€ m
16
114
130
64
194
95
Notes to the accounts
29 Equity shares (continued)
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Unquoted
Allied Irish Banks, p.l.c.
Held as financial fixed assets
Unquoted
Held for trading purposes
Listed on a recognised stock exchange
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
2
23
3
26
28
–
–
–
–
Book
amount
€ m
Gross
unrealised
gains
€ m
Gross
unrealised
losses
€ m
2
24
26
–
–
–
–
2004
Market
value
€ m
2
23
3
26
28
2003
Market
value
€ m
2
24
26
Analysis of movements in equity shares held as financial fixed assets
Group
At 1 January 2004
Charge to profit and loss account (note 12)
Exchange translation adjustments
Purchases
Disposals
At 31 December 2004
The cost of equity shares held for trading purposes amounted to € 82m (2003: € 65m).
Cost
€ m
Amounts
written
off
€ m
Book
amount
€ m
158
–
2
6
(15)
151
(42)
(3)
–
–
5
(40)
116
(3)
2
6
(10)
111
96
2003
€ m
31
(219)
59
1,473
–
9
8
1,361
2003
€ m
3
–
3
2003
€ m
–
1,181
(162)
1,019
–
42
(4)
38
2004
€ m
3
(3)
–
2004
€ m
1,019
8
(71)
956
38
52
(4)
86
30 Interests in associated undertakings
Share of net assets including goodwill
At 1 January
Exchange translation adjustments
Transfer from subsidiary undertakings
Purchases
Disposals
Profit retained
Actuarial (loss)/gain
At 31 December
2004
€ m
1,361
(100)
–
7
–
50
(1)
1,317
The Group’s interests in associated undertakings are shown after accumulated provisions for write-downs of nil (2003: € 3m).
The movements in the provisions are as follows:
At 1 January
Disposals
At 31 December
Included in the Group’s share of net assets of associates is goodwill as follows:
Goodwill
Cost at 1 January
Additions during year(1)
Exchange translation adjustments
At 31 December
Accumulated amortisation at 1 January
Charge for year
Exchange translation adjustments
At 31 December
Net book value
At 31 December
870
981
(1)€ 5m of the goodwill arising during 2004 relates to the finalisation of the M&T fair value adjustments reflecting an adjustment to
other liabilities, in respect of the dilutive impact of the M&T employee stock options outstanding on AIB’s interest in M&T. The
remainder relates to acquisitions during the year.
Principal associated undertakings
M&T Bank Corporation
Nature of business
Banking and financial services
Registered office:
One M&T Plaza, Buffalo, New York 14203, USA
(Common stock shares of US $0.50 par value each – Group interest 23.1%(2))
(2)Group interest is held directly by Allied Irish Banks, p.l.c.. The agreement with M&T provides for the maintenance of AIB’s interest in M&T at
22.5% through share repurchase programmes effected by M&T and through rights provided to AIB which allow it to subscribe for additional shares
in M&T at fair market value.
97
Notes to the accounts
30 Interests in associated undertakings (continued)
The summary consolidated profit and loss of M&T Bank Corporation for the twelve months ended 31 December 2004 and nine
months ended 31 December 2003 and summary balance sheet as at 31 December 2004 and 2003 under Irish GAAP are as follows:
9 Months
31 December
2003
US $m
12 Months
31 December
2004
US $m
1,177
639
1,816
1,118
698
98
600
199
401
1,613
922
2,535
1,357
1,178
95
1,083
338
745
Summary of consolidated profit and loss account
Net interest income
Other income
Total operating income
Total operating expenses
Group operating profit before provisions
Provisions
Group profit before taxation
Taxation
Group profit after taxation
12 Months
31 December
2004
€ m
9 Months
31 December
2003
€ m
1,293
739
2,032
1,088
944
76
868
271
597
1,020
553
1,573
968
605
85
520
172
348
31 December
2003
US $m
31 December
2004
US $m
Summary of consolidated balance sheet
31 December
2004
€ m
31 December
2003
€ m
37,618
7,255
399
1,641
46,913
33,188
10,178
1,537
2,010
46,913
39,508
8,516
367
1,635
50,026
35,493
11,221
781
2,531
50,026
Loans etc
Investment securities
Fixed assets
Other assets
Total assets
Deposits etc
Other borrowings
Other liabilities
Shareholders’ funds
Total liabilities and shareholders’ funds
29,005
6,252
270
1,200
36,727
26,058
8,238
573
1,858
36,727
29,785
5,744
316
1,299
37,144
26,277
8,058
1,217
1,592
37,144
The contribution of the enlarged M&T for the twelve months ended 31 December 2004 and the nine months ended 31 December
2003 is as follows:
9 Months
31 December
2003
US $m
12 Months
31 December
2004
US $m
157
(23)
(48)
86
(44)
42
243
–
(64)
179
(76)
103
Contribution of M&T
Share of operating profits
Share of restructuring and integration costs
Amortisation of goodwill
Contribution to Group profit before taxation
Taxation
Contribution to Group profit after taxation
12 Months
31 December
2004
€ m
9 Months
31 December
2003
€ m
195
–
(52)
143
(60)
83
136
(20)
(42)
74
(38)
36
With the exception of M&T, the Group’s interests in associated undertakings are non-credit institutions, are unlisted and are held by
subsidiary undertakings.
In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, Allied Irish Banks, p.l.c. will
annex a full listing of associated undertakings to its annual return to the companies registration office.
98
31 Shares in Group undertakings
Allied Irish Banks, p.l.c.
At 1 January
Additions
Disposal of subsidiary undertaking
Transfer to associated undertakings
Exchange translation adjustments
At 31 December
At 31 December
Credit institutions
Other
Total – all unquoted
2004
€ m
2003
€ m
230
–
(5)
–
–
225
42
183
225
1,327
2
(10)
(1,032)
(57)
230
42
188
230
The shares in Group undertakings are included in the accounts on a historical cost basis.
Principal subsidiary undertakings incorporated
in the Republic of Ireland
Nature of business
AIB Capital Markets plc*
AIB Corporate Finance Limited
AIB Finance Limited*
AIB Leasing Limited
AIB Fund Management Limited
AIB Investment Managers Limited
AIB International Financial Services Limited
Ark Life Assurance Company Limited*
Goodbody Holdings Limited
*Group interest is held directly by Allied Irish Banks, p.l.c.
Banking and financial services
Corporate finance
Industrial banking
Leasing
Unit trust management
Investment management
International financial services
Life assurance and pensions business
Stockbroking and corporate finance
The above subsidiary undertakings are incorporated in the Republic of Ireland and are wholly-owned unless otherwise stated.
The issued share capital of each undertaking is denominated in ordinary shares.
99
Notes to the accounts
31 Shares in Group undertakings (continued)
Principal subsidiary undertakings incorporated
outside the Republic of Ireland
AIB Group (UK) p.l.c.
trading as First Trust Bank in Northern Ireland
trading as Allied Irish Bank (GB) in Great Britain
Registered office:
4 Queen’s Square, Belfast, BT1 3DJ
Nature of business
Banking and financial services
AIB Bank (CI) Limited*
Banking services
Registered office:
AIB House, Grenville Street, St. Helier, Jersey, JE4 8WT
AIB Bank (Isle of Man) Limited*
Banking services
Registered office:
10 Finch Road, Douglas, Isle of Man
Bank Zachodni WBK S.A.
Banking and financial services
Registered office:
Rynek 9/11, 50-950 Wroclaw, Poland
(Ordinary shares of PLN 10 each - Group interest 70.47%)
*Group interest is held directly by Allied Irish Banks, p.l.c.
The above subsidiary undertakings are wholly-owned unless otherwise stated.The registered office of each is located in the principal
country of operation.The issued share capital of each undertaking is denominated in ordinary shares.
In presenting details of the principal subsidiary undertakings the exemption permitted by the European Communities
(Credit Institutions: Accounts) Regulations, 1992, has been availed of and, in accordance with the regulations, Allied Irish Banks, p.l.c.
will annex a full listing of subsidiary undertakings to its annual return to the companies registration office.
32 Intangible fixed assets
Goodwill
Cost at 1 January
Exchange translation adjustments
At 31 December
Accumulated amortisation at 1 January
Charge for the year (note 11)
Impairment loss (note 11)
Exchange translation adjustments
At 31 December
Net book value
At 31 December
2004
€ m
2003
€ m
545
(3)
542
125
31
8
(2)
162
380
553
(8)
545
96
31
–
(2)
125
420
Intangible fixed assets comprise purchased goodwill arising on acquisition of subsidiary undertakings. Prior to 1 January 1998
goodwill arising on acquisition of subsidiary and associated undertakings was taken directly to profit and loss account reserves.
100
33 Tangible fixed assets
Group
Cost at 1 January 2004
Disposal of group undertaking
Additions
Disposals
Exchange translation adjustments
At 31 December 2004
Accumulated depreciation at 1 January 2004
Disposal of group undertaking
Depreciation charge for the year
Impairment loss
Disposals
Reclassification
Exchange translation adjustments
At 31 December 2004
Net book value
At 31 December 2004
At 31 December 2003
Allied Irish Banks, p.l.c.
Cost at 1 January 2004
Additions
Disposals
Exchange translation adjustments
At 31 December 2004
Accumulated depreciation at 1 January 2004
Depreciation charge for the year
Disposals
Reclassification
At 31 December 2004
Net book value
At 31 December 2004
At 31 December 2003
Property
Equipment
Total
Freehold
Long
leasehold
€ m
€ m
Leasehold
under 50
years
€ m
€ m
€ m
506
–
16
(16)
21
527
85
–
14
9
(10)
–
8
106
421
421
77
–
3
–
–
80
10
–
3
–
–
–
–
13
67
67
102
–
13
(3)
(1)
111
66
–
6
–
(3)
3
–
72
39
36
805
(7)
80
(174)
34
738
537
(6)
102
–
(169)
(3)
19
480
258
268
1,490
(7)
112
(193)
54
1,456
698
(6)
125
9
(182)
–
27
671
785
792
Freehold
Long
leasehold
€ m
€ m
Property
Leasehold
under 50
years
€ m
Equipment
Total
€ m
€ m
287
15
(2)
–
300
34
7
(1)
–
40
260
253
66
2
–
–
68
8
2
–
–
10
58
58
56
6
–
(1)
61
30
4
–
3
37
24
26
473
54
(158)
–
369
340
53
(155)
(3)
235
134
133
882
77
(160)
(1)
798
412
66
(156)
–
322
476
470
The net book value of property occupied by the Group for its own activities was € 516m (2003: € 513m).
101
Notes to the accounts
34 Deferred taxation
Deferred tax assets:
Provision for bad and doubtful debts
Amortised income
Debt securities
Timing difference on provisions for future
commitments in relation to the funding of
Icarom plc (under Administration)
Other
Total gross deferred tax assets
Deferred tax liabilities:
Assets leased to customers
Assets used in the business
Debt securities
Other
Total gross deferred tax liabilities
Net deferred tax assets
2004
€ m
(99)
(28)
(11)
(9)
(51)
(198)
46
7
22
48
123
(75)
Group
2003
€ m
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
(87)
(23)
(2)
(9)
(53)
(174)
64
5
22
51
142
(32)
(24)
(8)
(8)
(9)
(28)
(77)
–
3
–
–
3
(74)
(24)
(5)
(1)
(9)
(33)
(72)
1
2
–
7
10
(62)
For each of the years ended 31 December, 2004 and 2003 full provision has been made for capital allowances and other timing
differences except as described below.
No provision is made for tax that could be payable on any future remittance of the past earnings of certain subsidiary
undertakings.
No provision is made for tax on capital gains which might arise on the disposal of properties at their balance sheet amounts due
to the expectation that the greater portion of land and buildings will be retained by the Group. Accordingly deferred tax has not
been recognised on the revaluation gains and losses that have arisen on the Group’s property portfolio. If deferred tax had been
recognised it would have amounted to € 23m approximately. In view of the substantial number of properties involved and the
likelihood of a material tax liability arising being remote no provision is made in the accounts in respect of a tax liability arising until
a decision is made to sell the properties involved. No provision is made in respect of certain taxable gains in the Republic of Ireland
which have been rolled over into replacement assets. Finance Act 2003 changed the legislation in respect of roll over relief in the
Republic of Ireland. However, where taxable gains had been rolled over prior to the amendments introduced in Finance Act 2003
the rolled over gains can continue to be rolled over again on disposal of the replacement assets.Therefore a tax liability is unlikely to
crystallise.
Analysis of movements in deferred taxation
At 1 January
Disposal of subsidiary undertaking
Exchange translation and other adjustments
Profit and loss account taxation credit (note 16)
At 31 December
2004
€ m
(32)
–
(28)
(15)
(75)
Group
2003
€ m
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
282
(280)
25
(59)
(32)
(62)
–
(1)
(11)
(74)
(36)
–
–
(26)
(62)
102
35 Long-term assurance business
Methodology
The value of the shareholder’s interest in the long-term assurance business (‘the embedded value’) is comprised of the net tangible
assets of Ark Life Assurance Company Limited (‘Ark Life’), including any surplus retained in the long-term business funds, which
could be transferred to shareholders, and the present value of the in-force business.The value of the in-force business is calculated by
projecting future surpluses and other net cash flows attributable to the shareholder arising from business written by the balance sheet
date and discounting the result at a risk discount rate.
Surpluses arise following annual actuarial valuations of the long-term business funds, which are carried out in accordance with
the statutory requirements designed to ensure and demonstrate the solvency of the funds. Future surpluses will depend on
experience in a number of areas such as investment returns, lapse rates, mortality and administrative expenses. Surpluses can be
projected by making realistic assumptions about future experience, having regard to both actual experience and forecast long-term
economic trends. Other net cash flows principally comprise annual management charges and other fees levied upon the
policyholders by Ark Life.
Changes in the embedded value, which are determined on a post-tax basis, are included in the profit and loss account and
described as contribution from life assurance company. For the purpose of presentation, the change in this value is grossed up at the
underlying rate of corporation tax.
Analysis of income from long-term assurance business
Income from long-term assurance business included in the profit and loss account can be divided into those items comprising the
operating profit of the business and other items.
Included within operating profit are the following items:
New business contribution: this represents the value from new business written during the year after taking into account the cost of
acquisition but before the allowance for the cost of distribution.
Contribution from existing business: this comprises the following elements:
-
-
The expected return arising from the unwinding of the discount rate; and
Experience variances caused by the differences between the actual experience during the year and the expected
experience.
Investment returns: this represents the investment return on both the net tangible assets and the value of the shareholder’s interest in
the long-term business account.
Distribution costs: this represents commission payable from Ark Life to AIB Group for the distribution of its products.
Included within other items are:
Change in value of future unit linked fees: this represents the unsmoothed impact of the discounted value of future unit linked fees
at the end of the year as a result of investment returns being different from those assumed at the start of the year.
Changes in operating assumptions: this represents the effect of changes in demographic factors such as mortality and morbidity, and
assumptions in respect of lapses and expense levels.
Changes in economic assumptions: this represents the effect of changes in the economic assumptions referred to below.
Exceptional items: this includes any other items which by virtue of their size or incidence, are considered not to form part of the
ongoing operating profit.
103
Notes to the accounts
35 Long-term assurance business (continued)
Income from Ark Life’s long-term assurance
business is set out below:
New business contribution
Contribution from existing business
-
-
expected return
experience variances
Investment returns
Distribution costs
Operating profit
Other items:
Change in value of future unit linked fees
Changes in economic assumptions
Changes in operating assumptions
Exceptional items
Income from long-term assurance business before tax
Attributable tax
Income from long-term assurance business after tax
2004
€ m
39
27
(2)
4
(13)
55
–
12
4
1
72
9
63
2003
€ m
39
24
(1)
4
(15)
51
3
–
–
6
60
8
52
Assumptions
The economic assumptions have been revised at the balance sheet date and allowance has been made for the cost of maintaining the
solvency margin.The operating assumptions have been adjusted to more accurately reflect current experience.
The principal economic assumptions are as follows: -
Risk adjusted discount rate
Weighted average investment return
Future expense inflation
Corporation tax rate
2004
%
7.5
5.875
4.0
12.5
2003
%
10.0
7.625
3.5
12.5
104
35 Long-term assurance business (continued)
Balance sheet
The assets and liabilities of Ark Life representing the value of the assurance business together with the policyholders’ funds are:
Investments:
Cash and short-term placings with banks
Debt securities
Equity shares
Property
Embedded value adjustment
Other assets – net
Long-term assurance liabilities to policyholders
Long-term assurance business attributable to shareholders
Represented by:
Shares at cost
Reserves
Profit and loss account
2004
€ m
1,466
425
1,521
51
3,463
198
126
2003
€ m
1,546
239
1,179
45
3,009
167
98
3,787
(3,320)
3,274
(2,869)
467
19
435
13
467
405
19
376
10
405
Presentation in the Group balance sheet
Under UITF 37, holdings of shares in Allied Irish Banks, p.l.c., (by the parent or subsidiary companies), for any reason, are deducted
in arriving at shareholders’ funds. At 31 December 2004, shares in AIB with a value of € 74m (2003: € 59m) were held within the
long-term business funds to meet the liabilities to policyholders.
Long-term assurance assets attributable to policyholders are presented in the Group balance sheet net of the carrying value of the
shares in AIB held within the fund. Group shareholders’ funds have been reduced by a similar amount.
Modified statutory solvency basis
Ark Life’s profit before tax on a modified statutory solvency basis was € 36m (2003: € 44m) and its profit after tax was € 32m
(2003: € 39m). Ark Life’s total assets on a modified statutory solvency basis were € 3,658m at 31 December 2004 (2003: € 3,181m)
and its shareholders’ funds at 31 December 2004 were € 268m (2003: € 237m).The following table provides a reconciliation of
embedded value to the modified statutory solvency basis.
Reconciliation of embedded value to modified statutory solvency basis
Long-term assurance business attributable to the shareholder - embedded value basis
Value of in-force business
Other differences:
Deferred acquisitions costs
Shareholders’ funds of life operations - modified statutory solvency basis
2004
€ m
467
(296)
97
268
2003
€ m
405
(267)
99
237
105
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
8,421
26,027
34,448
6,093
22,738
28,831
2004
€ m
8,523
11,905
20,428
18,450
1,978
20,428
555
50
6,456
13,014
20,075
353
Group
2003
€ m
6,093
12,001
18,094
16,040
2,054
18,094
348
91
2,509
14,838
17,786
308
527
–
6,368
12,787
19,682
255
310
77
2,504
14,596
17,487
293
17,780
11,051
28,831
20,428
18,094
19,937
14,511
34,448
2
3
2
3
Notes to the accounts
36 Deposits by banks
Securities sold under agreements to repurchase
Other borrowings from banks
Of which:
Domestic offices
Foreign offices
With agreed maturity dates or periods of notice,
by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less but not repayable on demand
Repayable on demand
Due to subsidiary undertakings
Amounts include:
Due to associated undertakings
106
37 Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase
Other short-term borrowings
Of which:
Non-interest bearing current accounts
Domestic offices
Foreign offices
Interest bearing deposits, current accounts and
short-term borrowings
Domestic offices
Foreign offices
Analysed by remaining maturity:
Over 5 years
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less but not repayable on demand
Repayable on demand
Due to subsidiary undertakings
Amounts include:
Due to associated undertakings
2004
€ m
17,099
7,321
22,676
47,096
77
4,224
4,301
Group
2003
€ m
14,657
6,788
19,539
40,984
–
3,628
3,628
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
10,886
5,433
14,269
30,588
–
4,139
4,139
9,270
5,004
11,246
25,520
–
3,597
3,597
51,397
44,612
34,727
29,117
6,522
1,920
5,712
1,714
26,676
16,279
51,397
276
3,407
2,423
20,846
26,952
24,445
51,397
23,548
13,638
44,612
339
2,355
1,980
20,505
25,179
19,433
44,612
240
2,920
1,171
12,689
17,020
16,312
33,332
1,395
34,727
294
1,954
1,049
12,820
16,117
12,689
28,806
311
29,117
23
17
8
2
Securities sold under agreements to repurchase are secured by Irish Government stock, US Treasury and US Government agency
securities and mature within three months.
The aggregate market value of all securities sold under agreements to repurchase did not exceed 10% of total assets and the
amount at risk with any individual counterparty or group of related counterparties did not exceed 10% of total stockholders’ equity.
107
Notes to the accounts
38 Debt securities in issue
Bonds and medium term notes:
European medium term note programme
Other medium term notes
Other debt securities in issue:
Commercial paper
Commercial certificates of deposit
Analysed by remaining maturity
Bonds and medium term notes:
5 years or less but over 1 year
1 year or less but over 3 months
Other debt securities in issue:
5 years or less but over 1 year
1 year or less but over 3 months
3 months or less
39 Other liabilities
Notes in circulation
Taxation
Dividend (note 19)
Provision for future commitments in relation to the funding of Icarom(1)
Short positions in securities(2)
Other
2004
€ m
3,250
288
3,538
1,187
7,080
8,267
11,805
3,423
115
3,538
676
2,016
5,575
8,267
11,805
2004
€ m
450
137
333
72
332
2,576
3,900
Group
Allied Irish Banks, p.l.c.
2003
€ m
1,255
168
1,423
261
1,805
2,066
3,489
1,423
–
1,423
–
456
1,610
2,066
3,489
Group
2003
€ m
420
169
296
79
149
2,031
3,144
2004
€ m
3,250
–
3,250
–
7,080
7,080
10,330
3,250
–
3,250
676
2,016
4,388
7,080
10,330
2003
€ m
1,255
–
1,255
158
1,805
1,963
3,218
1,255
–
1,255
–
456
1,507
1,963
3,218
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
–
80
333
72
229
1,646
2,360
–
109
296
79
35
1,157
1,676
(1)The provision represents the present value of the cost of the future commitments arising under the 1992 agreement in relation
to the funding of Icarom. A discount rate of 6.35% was applied in the year ended 31 December 1993, in discounting the cost
of the future commitments arising under this agreement.The undiscounted amount was € 89m (2003: € 101m).The unwinding of
the discount on the provision amounted to € 4.7m (2003: € 5.1m).
(2)Short positions in debt securities and equity securities in 2004 were € 313m and € 19m, respectively (2003: € 147m and
€ 2m, respectively).
108
40 Provisions for liabilities and charges
Group
At 1 January 2004
Exchange translation adjustments
Profit and loss account charge
Provisions utilised
Transfer from provisions for bad and doubtful debts
At 31 December 2004
Allied Irish Banks, p.l.c.
At 1 January 2004
Profit and loss account charge
Provisions utilised
Transfer from provisions for bad and doubtful debts
At 31 December 2004
Contingent
liabilities
and
commitments
€ m
Other
Total
€ m
€ m
11
1
20
–
15
47
9
21
–
15
45
76
1
33
(35)
–
75
49
28
(22)
–
55
87
2
53
(35)
15
122
58
49
(22)
15
100
109
Notes to the accounts
41 Subordinated liabilities
Allied Irish Banks, p.l.c.
Undated loan capital
Dated loan capital
Reserve capital instruments
Undated loan capital
US $100m Floating Rate Notes, Undated
US $100m Floating Rate Primary Capital Perpetual Notes, Undated
€ 200m Fixed Rate Perpetual Subordinated Notes
Dated loan capital
Allied Irish Banks, p.l.c.
European Medium Term Note Programme:
€ 32.2m 6.7% Fixed Rate Notes due August 2009
US $250m Floating Rate Notes due January 2010
€ 250m Floating Rate Notes due January 2010
€ 100m Floating Rate Notes due August 2010
€ 200m Floating Rate Notes due June 2013
US $400m Floating Rate Notes due July 2015
€ 400m Floating Rate Notes due March 2015
Stg £350m Fixed Rate Notes due November 2030
The dated loan capital outstanding is repayable as follows:
In one year or less
Between 1 and 2 years
Between 2 and 5 years
In 5 years or more
2004
€ m
345
1,923
2,268
497
2,765
73
73
199
345
–
184(2)
250(3)
100
200
293
400
496
2003
€ m
357
1,276
1,633
497
2,130
79
79
199
357
32(1)
198
250
100
200
–
–
496
1,923
1,276
434
–
–
1,489
1,923
–
–
–
1,276
1,276
(1)The € 32.2m Fixed Rate Notes were redeemed on 20 August 2004.
(2)The US$ 250m Floating Rate Notes were redeemed on 24 January 2005.
(3)The € 250m Floating Rate Notes were redeemed on 25 January 2005.
The loan capital of the Bank is unsecured and is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank.
Undated loan capital
The US$ Undated Floating Rate Loan capital notes have no final maturity but may be redeemed at par at the option of the Bank,
with the prior approval of the Irish Financial Services Regulatory Authority (‘IFSRA’). Interest is payable semi-annually on the
US$ 100m Undated Floating Rate Notes and quarterly on the US$ 100m Floating Rate Primary Capital Perpetual Notes.The
€ 200m Fixed Rate Perpetual Subordinated Notes, with interest payable annually, have no final maturity but may be redeemed at the
option of the Bank, with the prior approval of the IFSRA, on each coupon payment date on or after 3 August 2009.
110
41 Subordinated liabilities (continued)
Dated loan capital
The European Medium Term Note Programme is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank. The € 100m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part, on the
interest payment date falling in August 2005. The € 200m Floating Rate Notes, with interest payable quarterly, may be redeemed, in
whole but not in part, on the 12 June 2008 and on each interest payment date thereafter. In July 2004, US$ 400m Floating Rate
Notes due in July 2015 were issued. The US$ 400m Floating Rate Notes, with interest payable quarterly, may be redeemed, in
whole but not in part, on any interest payment date falling in or after July 2010. In December 2004, € 400m Floating Rate Notes
due in March 2015 were issued. The € 400m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but
not in part, on any interest payment date falling in or after March 2010. The Stg £350m Fixed Rate Notes, with interest payable
annually in arrears on 26 November in each year, may be redeemed, in whole but not in part, on the 26 November 2025 and on
each interest payment date thereafter. In all cases, redemption prior to maturity is subject to the necessary prior approval of the
IFSRA.There is no exchange exposure as the proceeds of these notes are retained in their respective currencies.
Reserve capital instruments
In February 2001, Reserve capital instruments (RCIs) of € 500m were issued by Allied Irish Banks, p.l.c. at an issue price of
100.069%.The RCIs are perpetual securities and have no maturity date.The RCIs are redeemable, in whole but not in part, at
the option of the Bank and with the agreement of the IFSRA (i) upon the occurrence of certain events, or (ii) on or after 28
February 2011, an authorised officer having reported to the Trustees within the previous six months that a solvency condition is met.
The RCIs bear interest at a rate of 7.50% per annum from (and including) 5 February 2001 to (but excluding) 28 February 2011
and thereafter at 3.33% per annum above three month EURIBOR, reset quarterly.
The rights and claims of the RCI holders and the coupon holders are subordinated to the claims of the senior creditors and the
senior subordinated creditors of the issuer. In the event of a winding up of the issuer, the RCI holders will rank pari passu with the
holders of the classes of preference shares (if any) from time to time issued by the issuer and in priority to all other shareholders.
42 Equity and non-equity minority interests in subsidiaries
Equity interest in subsidiaries
Non-equity interest in subsidiaries
2004
€ m
220
992
1,212
2003
€ m
158
-
158
Non-equity interest in subsidiaries
In December 2004, Fixed Rate/Floating Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (‘Preferred
Securities’) in the amount of € 1,000,000,000 were issued through a Limited Partnership. The Preferred Securites were issued at par
and have the benefit of a subordinated guarantee of Allied Irish Banks, p.l.c. (‘AIB’). The Preferred Securities have no fixed final
redemption date and the holders have no rights to call for the redemption of the Preferred Securities.
The Preferred Securities are redeemable in whole but not in part at the option of the general partner and with the agreement of
the IFSRA (i) upon the occurrence of certain events, or (ii) on or after 17 December 2014, subject to the provisions of the Limited
Partnership Act, 1907.
Distributions on the Preferred Securities are non-cumulative. The distributions will be payable at a rate of 4.781% per annum up
to 17 December 2014 and thereafter at the rate of 1.10% per annum above 3 month EURIBOR, reset quarterly. The discretion of
the Board of Directors of AIB to resolve that a distribution should not be paid is unfettered.
In the event of the dissolution of the Limited Partnership, holders of Preferred Securities will be entitled to receive a liquidation
preference in an amount equal to the distributions that those holders would have received in a dissolution of AIB at that time, if they
had held, instead of the Preferred Securities, non-cumulative preference shares issued directly by AIB, having the same liquidation
preference as the Preferred Securities, and ranking junior to all liabilites of AIB including subordinated liabilites.
111
43 Share capital
Ordinary share capital
Ordinary shares of € 0.32 each
Authorised:
1,160 million shares (2003: 1,160 million)
Issued:
918 million shares (2003: 908 million)
Preference share capital
Non-cumulative preference shares of US$ 25 each
Authorised:
20.0 million shares (2003: 20.0 million)
Issued:
0.25 million shares (2003: 0.25 million)
Non-cumulative preference shares of € 1.27 each
Authorised:
200.0 million shares (2003: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Stg £ 1 each
Authorised:
200.0 million shares (2003: 200.0 million)
Issued:
Nil
Non-cumulative preference shares of Yen 175 each
Authorised:
200.0 million shares (2003: 200.0 million)
Issued:
Nil
Movements in ordinary share capital
At 1 January
New shares issued during year - see below
At 31 December
2004
€ m
2003
€ m
294
290
5
–
–
–
5
–
–
–
299
295
290
4
294
287
3
290
During the year ended 31 December 2004, the number of ordinary shares in issue was increased from 907,621,316 to 918,435,570,
through the allotment of 10,814,254 shares under the Company’s dividend reinvestment plan, as follows:
(a) 6,443,950 shares were allotted to shareholders, at € 12.20 per share, in respect of the final dividend for the year ended
31 December 2003; and
(b) 4,370,304 shares were allotted to shareholders, at € 12.77 per share, in respect of the interim dividend for the year ended
31 December 2004.
These allotments were made in lieu of dividends amounting to € 134.4m.
Preference share capital
In 1998, 250,000 non-cumulative preference shares of US$ 25 each were issued at a price of US$ 995.16 per share raising
US$ 248.8m before expenses.The holders of the non-cumulative preference shares are entitled to a non-cumulative preferential
dividend, payable quarterly in arrears, at a floating rate equal to 3 month dollar LIBOR plus 0.875% on the liquidation preference
amount of US$ 1,000 per share.The preference shares are redeemable at the option of the Bank, and with the agreement of the Irish
Financial Services Regulatory Authority, on or after 15 July 2008 (i) in whole or in part or (ii) prior to that date in certain
circumstances in whole, but not in part. In each case, the preference shares will be redeemed at a price equal to US$ 1,000 per share
(consisting of a redemption price of US$ 995.16 plus a special dividend of US$ 4.84 per share), plus accrued dividends.
112
44 Share premium account
At 1 January 2004
Profit and loss account
Exchange translation adjustments
At 31 December 2004
45 Reserves
At 1 January 2004
Capital reserves
Revaluation reserves
Transfer from/(to) profit and loss account:
Non-distributable reserves of Ark Life
Property revaluation reserves
Exchange translation and other adjustments
At 31 December 2004
At 31 December 2004
Capital reserves
Revaluation reserves
46 Profit and loss account
At January 1 2004
Profit retained for the year
Dividend reinvestment plan
Actuarial loss recognised in
retirement benefit schemes (note 13)
Actuarial loss recognised in associated undertaking
Ordinary shares bought back/purchased
Ordinary shares issued/sold
Share premium account
Transfer from property revaluation reserves
Exchange translation adjustments
At 31 December 2004
At 31 December 2004
Allied Irish Banks, p.l.c. and subsidiaries
Associated undertakings
Group
€ m
1,885
(1)
(14)
1,870
Group
€ m
Allied Irish
Banks, p.l.c.
€ m
1,885
(1)
(14)
1,870
Allied Irish
Banks, p.l.c.
€ m
838
113
951
59
(1)
(32)
977
866
111
977
–
101
101
–
(1)
–
100
–
100
100
Revenue
Share
Reserves Repurchases
Own
Shares
Total
€ m
Banks, p.l.c.
€ m
Group
Allied Irish
2,886
477
130
(197)
(1)
–
–
1
1
(35)
3,262
(799)
(80)
–
–
–
–
–
71
–
–
–
–
–
–
–
(22)
2
–
–
1
2,007
477
130
(197)
(1)
(22)
73
1
1
(34)
(728)
(99)
2,435
507
68
130
(177)
–
–
71
1
1
(81)
520
2,238
197
2,435
The cumulative goodwill arising on acquisitions of subsidiary and associated undertakings which are still part of the Group, and
charged against profit and loss account reserves of the Group, amounted to € 347m at 31 December 2004 (2003: € 364m).
Included within the profit and loss account reserve for the Group at 31 December 2004 is € 652m (Allied Irish Banks, p.l.c.:
€ 425m) relating to the net pension liability in funded retirement benefit schemes (note 13).
113
Notes to the accounts
47 Share repurchases
At the 2004 Annual General Meeting, shareholders granted authority for the Company, or any subsidiary, to make market purchases
of up to 90 million ordinary shares of the Company, subject to the terms and conditions set out in the relevant resolution. During
the year ended 31 December 2004, some 6,644,367 ordinary shares previously purchased under a similar authority, and held as
Treasury shares, were re-issued as follows:
At 1 January
Shares purchased
Shares re-issued under:
AIB Share Option Schemes
Allfirst Financial Stock Option Plan
AIB Approved Employee Profit Sharing Schemes
At 31 December
2004
2003
55,534,156
–
–
60,798,412
4,338,350
3,092,500
29,600
2,276,417
6,644,367
46,000
2,125,756
5,264,256
48,889,789
55,534,156
In addition, 5.6 million ordinary shares were purchased by a subsidiary undertaking in 1997 at a cost of € 42m, on which the related
dividend entitlements have been waived.
AIB Share option schemes
The Company operates share option schemes on terms approved by the shareholders. Officials may participate in the schemes at the
discretion of the directors. Options are granted at the market price, being the middle-market quotation of the Bank’s shares on the
Irish Stock Exchange on the day preceding the date on which the option is granted.The exercise of options granted between 1
January 1996 and 31 December 2000 is conditional on the achievement of earnings per share (‘EPS’) growth of at least 2% per
annum, compound, above the increase in the Consumer Price Index (‘CPI’) over a period of not less than three and not more than
five years from date of grant.The exercise of options granted since 1 January 2001 is conditional on the achievement of EPS growth
of at least 5% per annum, compound, above the increase in the CPI over a period of not less than three and not more than five years
from date of grant. Options may not be transferred or assigned and may be exercised only between the third and seventh
anniversaries of their grant in the case of the options granted up to 31 December 2000, and between the third and tenth
anniversaries of their grant in the case of options granted subsequent to that date.
The shares issued during 2004 to participants in the schemes were issued at prices of € 5.80, € 6.25, € 10.02 and € 11.90 per
share.The consideration received for these shares was € 44.0m.
At 31 December 2004, options were held by some 3,845 participants over 21,025,229 ordinary shares in aggregate (2.3% of
the issued ordinary share capital, 2.4% net of 48,889,789 Treasury Shares held at that date), at prices ranging from
€ 10.02 to € 13.90 per share; these options may be exercised at various dates up to 28 April 2014.
Allfirst Financial Inc. stock option plan
Under the terms of the Agreement and Plan of Merger between the Company, First Maryland Bancorp (subsequently renamed
‘Allfirst’) and Dauphin Deposit Corporation (‘Dauphin’, subsequently renamed ‘Allfirst’), approved by shareholders at the 1997
Annual General Meeting, options to purchase Dauphin shares which were outstanding immediately prior to the merger were
converted, at the holders’ elections, into either cash or options to purchase a similar number of AIB American Depositary Shares
(‘converted options’). On 1 April 2003, the merger of Allfirst Financial Inc. (‘Allfirst’) with M&T Bank Corporation (‘M&T’) was
completed, pursuant to the Agreement and Plan of Reorganisation dated 26 September 2002 by and among the Company, Allfirst
and M&T. Under the terms of that Agreement, converted options outstanding immediately prior to that merger (over some 321,598
ordinary shares) remained in force.
The consideration received for the shares issued during 2004 to participants in the Allfirst Financial Stock Option Plan was
€ 0.2m.
At 31 December 2004, converted options were outstanding over 106,998 ordinary shares.
114
47 Share repurchases (continued)
AIB Long Term Incentive Plan
Under the terms of the AIB Long Term Incentive Plan, approved by shareholders at the 2000 Annual General Meeting, conditional
grants of awards of ordinary shares have been made in respect of 1,305,200 ordinary shares, in aggregate, to 234 employees.These
awards will vest in full in the award-holders only if (a) the growth in the Company’s EPS, as defined in the Rules of the Plan, in any
three consecutive years within the five years following the grant is not less than the growth in the CPI plus 5% per annum,
compound, over the same three year period; and (b) the growth in the Company’s core EPS, as defined in the Rules of the Plan, over
the three year period during which the criterion at (a) is satisfied, is such as to position the Company in the top 20% of the FTSE
Eurotop Banks Retail Index. Partial vesting, on a reducing scale, will occur if the growth in the Company’s core EPS positions the
Company outside the top 20% of that Index but still within its top 45%, subject to the criterion at (a) being satisfied.Vested shares
must be held until normal retirement date, except that award-holders may dispose of shares sufficient to meet the income tax liability
arising on vesting. No awards were granted during 2004.
Employee share schemes
The Company operates employee profit sharing schemes on terms approved by the shareholders. All employees, including executive
directors, of the Company and certain subsidiaries are eligible to participate, subject to minimum service periods.The directors at
their discretion may set aside each year a sum not exceeding 5% of eligible profits of participating companies in the Republic of
Ireland and the UK.
Eligible employees in the Republic of Ireland may elect to receive their profit sharing allocations either in shares or in cash. Such
shares are held by Trustees for a minimum period of two years and are required to be held for a total period of three years for the
employees to obtain the maximum tax benefit. Such employees may also elect to forego an amount of salary, subject to certain
limitations, towards the acquisition of additional shares.The maximum market value of shares that may be appropriated to any
employee in a year may not exceed € 12,700.
In December 2002 the Company launched a Share Ownership Plan in the UK to replace the profit sharing scheme that
previously operated for UK-based employees.The Plan, which was approved by shareholders at the 2002 Annual General Meeting,
provides for the receipt by eligible employees of shares in a number of categories: Partnership Shares, in which employees may invest
up to Stg £ 1,500 per annum from salary; Free Shares, involving the award by the Company of shares up to the value of Stg £ 3,000
per annum per employee; and Dividend Shares, which may be acquired by employees by re-investing dividends of up to Stg £ 1,500
per annum.
During 2004 the company introduced a Save as You Earn Share Option Scheme for eligible employees in the UK. The scheme
replaced a similar scheme that had matured in 2002. Under the Scheme employees may opt to save fixed amounts on a regular basis,
over a three year period, subject to a maximum monthly saving of Stg £250 per employee, and to utilise amounts so saved in the
acquisition of market-purchased shares in the Company.
During 2004, the Company re-issued from its pool of Treasury Shares 2,276,417 ordinary shares to the Trustees of the employees’
profit sharing schemes, at € 11.96 per share.The consideration received for these shares was € 27.2m.
Limitations on profit sharing and share option schemes
Under the terms of the employees’ profit sharing schemes, the aggregate number of shares that may be purchased/held by the
Trustees in any 10-year period may not exceed 10% of the issued ordinary share capital.The aggregate number of shares issued under
the share option schemes in any 10-year period may not exceed 5% of the issued ordinary share capital.The Company complies with
guidelines issued by the Irish Association of Investment Managers in relation to those schemes.
115
Notes to the accounts
48 Own shares
The Group sponsors Sharesave schemes for eligible employees in the UK, the Isle of Man and Channel Islands.The trustees of
the schemes have borrowed funds from Group companies, interest free, to enable them to purchase Allied Irish Banks, p.l.c. ordinary
shares in the open market.These shares are used to satisfy commitments arising under the schemes.The trustees receive dividends
on the shares which are used to meet the expenses.The cost of providing these shares is charged to the profit and loss account on a
systematic basis over the period that the employees are expected to benefit. At 31 December 2004, 1.0 million shares (2003: 0.3 million)
were held by the trustees with a book value of € 10.5m (2003: € 3.0m) and a market value of € 15.2m (2003: € 4.4m).
In 2001, the AIB Group Employee Share Trust was established to satisfy commitments arising under the AIB Group Long-Term
Incentive Plan (LTIP). Funds are provided to the trustees to enable them to purchase Allied Irish Bank, p.l.c. ordinary shares in the open
market.The cost of meeting the commitments under the LTIP are charged to the profit and loss account over the period that the
employees are expected to benefit.The trustees have waived their entitlement to dividends.At 31 December 2004, 0.2m shares
(2003: 0.2m) were held by the trustees with a book value of € 1.3m (2003: € 2.1m) and a market value of € 3.1m (2003: € 2.5m).
Prior to its disposal to M&T Bank Corporation (note 2) Allfirst Financial, Inc. sponsored the Allfirst Stock Option Plans, for the
benefit of key employees of Allfirst. At 31 December 2002 Allfirst had lent US$ 178m to a trust to enable it to purchase AIB
ordinary shares in the form of American Depositary Shares in the open market.The shares purchased are used to satisfy options
which have been granted to Allfirst employees. Proceeds of option exercises are used to repay the loan to the trust. Under the terms
of the trust, the trustees receive dividends on the shares which are used to meet the expenses of the trust. A similar scheme operated
for certain eligible employees of our US operations. At 31 December 2004, 1.4 million ordinary shares were held by the trust with a
cost of € 13.3m and a market value of € 20.1m.
Certain subsidiary companies hold shares in AIB for customer facilitation and in the normal course of business. At 31 December
2004, 4.8 million shares (2003: 4.7 million) with a book and market value of € 73.7m (2003: € 59.5m) were held by subsidiary
companies.
The accounting treatment is not intended to affect the legal characterisation of the transaction or to change the situation at law
achieved by the parties to it.Thus, the inclusion of the shares as a deduction against shareholders’ funds on the Group balance sheet
does not imply that they have been purchased by the company as a matter of law.
116
49 Memorandum items: contingent liabilities and commitments
In the normal course of business the Group is a party to financial instruments with off-balance sheet risk to meet the financing
needs of customers.
These instruments involve, to varying degrees, elements of credit risk which are not reflected in the consolidated balance
sheet. Credit risk is defined as the possibility of sustaining a loss because the other party to a financial instrument fails to perform
in accordance with the terms of the contract.
The Group’s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of
non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual
amounts of those instruments.
The risk weighted amount is obtained by applying credit conversion factors and counterparty risk weightings in accordance
with the IFSRA guidelines implementing the EC Own Funds and Solvency Ratio Directives.
The Group uses the same credit control and risk management policies in undertaking off-balance sheet commitments as it does
for on balance sheet lending.
The following tables give, for the Group and Allied Irish Banks, p.l.c., the nominal or contract amounts and the risk weighted
credit equivalent of contingent liabilities and commitments.
Group
Contingent liabilities
Acceptances and endorsements
Guarantees and assets pledged as collateral security:
Guarantees and irrevocable letters of credit
Other contingent liabilities
Commitments
Documentary credits and short-term trade-related transactions
Forward asset purchases and forward deposits placed
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credit lines and other
commitments to lend:
1 year and over
Less than 1 year (1)
Contract
amount
€ m
2004
Risk
weighted
amount
€ m
Contract
amount
€ m
2003
Risk
weighted
amount
€ m
14
14
5,394
830
6,238
267
88
108
9,999
5,665
16,127
5,287
420
5,721
103
18
54
4,944
–
5,119
22,365
10,840
12
4,157
722
4,891
126
–
76
8,023
5,707
13,932
18,823
12
4,053
368
4,433
31
–
29
3,967
–
4,027
8,460
(1)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have
a risk weighting of zero.
Concentration of exposure
Republic of Ireland
Unites States of America
United Kingdom
Poland
Contingent liabilities
2004
2003
€ m
€ m
Commitments
2003
€ m
2004
€ m
2,580
2,614
1,004
40
6,238
1,685
2,549
632
25
4,891
7,945
1,820
4,970
1,392
7,552
1,173
4,393
814
16,127
13,932
117
Notes to the accounts
49 Memorandum items: contingent liabilities and commitments (continued)
Allied Irish Banks, p.l.c.
Contingent liabilities
Acceptances and endorsements
Guarantees and irrevocable letters of credit
Other contingent liabilities
Commitments
Documentary credits and short-term trade-related transactions
Undrawn note issuance and revolving underwriting facilities
Undrawn formal standby facilities, credit lines and other
commitments to lend:
1 year and over
Less than 1 year(1)
Contract
amount
€ m
2004
Risk
weighted
amount
€ m
Contract
amount
€ m
2003
Risk
weighted
amount
€ m
2
4,732
636
5,370
86
–
8,111
3,705
11,902
17,272
2
4,635
318
4,955
17
–
4,010
–
4,027
8,982
2
3,680
565
4,247
96
18
5,982
3,797
9,893
14,140
2
3,582
283
3,867
19
–
2,954
–
2,973
6,840
(1)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have
a risk weighting of zero.
There exists a contingent liability to repay in whole or in part grants received on equipment leased to customers if certain events set
out in the agreements occur.
Allied Irish Banks, p.l.c. has given guarantees in respect of the liabilities of certain of its subsidiaries and has also given guarantees
for the satisfaction of the relevant regulatory authorities for the protection of the depositors of certain of its banking subsidiaries in
the various jurisdictions in which such subsidiaries operate.
Except as set out below, AIB Group is not, nor has been, involved in, nor are there, so far as the Company is aware, pending or
threatened by or against AIB Group any legal or arbitration proceedings which may have, or have had during the previous twelve
months, a significant effect on the financial position of AIB Group.
Class action and purported shareholder derivative action
On 5 March 2002 and on 24 April 2002, separate class action lawsuits, under the Securities Exchange Act, 1934 of the United States,
were filed in the United States District Court for the Southern District of New York against AIB, Allfirst and certain serving and past
officers and directors of Allfirst and its subsidiaries, seeking compensatory damages, legal fees and other costs and expenses relating to
alleged misrepresentations in filings of AIB and Allfirst. On 3 May 2002, a motion to consolidate both cases and to appoint a lead
plaintiff was filed with the Court. On 7 December, 2004 the court granted this motion and directed that the plaintiffs file a
consolidated complaint by 7 February, 2005 (which has now been received). The defendants have a further 30 days to respond. AIB
intends to vigorously defend the action. It is not practicable to predict the outcome of the action against AIB and Allfirst and any
financial impact on AIB, but on the basis of current information, the directors do not believe that the action is likely to have a
materially adverse effect on AIB.
On 13 May 2002, a purported shareholder derivative action was filed in the Circuit Court for Baltimore City, Maryland. A
holder of AIB American Depositary Shares purports to sue certain present and former directors and officers of Allfirst Bank on behalf
of AIB, alleging those persons are liable for the foreign exchange trading losses. No relief is sought in the purported derivative action
against AIB, Allfirst or Allfirst Bank. On 30 December 2002, the Court dismissed the action. On 10 January 2003, the plaintiffs filed a
motion seeking to have the Court amend or revise the judgment, or to be granted leave to file an amended complaint.This was
dismissed on 3 March 2003.The plaintiffs filed a second such motion on 17 March 2003.The court dismissed this on 4 April 2003.
On 20 June 2003, the plaintiffs’ petition to bypass the Maryland Court of Special Appeals and appeal directly to the Maryland Court
of Appeals was denied by the Court of Appeals. The plaintiffs’ appeal to the Maryland Court of Special Appeals was dismissed on 3
December, 2004. On 21 January, 2005 the plaintiffs’ appealed the decision to the Maryland Court of Appeals. It is not known when
this appeal will be heard.
118
49 Memorandum items: contingent liabilities and commitments (continued)
Class action and purported shareholder derivative action (continued)
Certain of the individual defendants in these actions have asserted, or may possibly assert, claims for indemnification against AIB
and/or Allfirst, which, if made against Allfirst following completion of the M&T transaction, might be subject to the indemnification
obligations of AIB as part of the agreement with M&T. In the nature of any such claims, it is not possible to quantify the amount
which might be asserted in any such claim.
50 Derivatives
The Group’s objectives, policies and strategies in managing the risks that arise in connection with the use of financial instruments,
including derivative financial instruments, are set out in the Financial review.
The Group uses derivatives to service customer requirements, to manage the Group’s interest rate, exchange rate and equity
exposures and for trading purposes. Derivative instruments are contractual agreements whose value is derived from price movements in
underlying assets, interest rates, foreign exchange rates or indices.
These instruments involve, to varying degrees, elements of market risk and credit risk which are not reflected in the consolidated
balance sheet. Market risk is the exposure to potential loss through holding interest rate, exchange rate and equity positions in the
face of absolute and relative price movements, interest rate volatility, movements in exchange rates and shifts in liquidity. Credit risk is
the exposure to loss should the counterparty to a financial instrument fail to perform in accordance with the terms of the contract.
While notional principal amounts are used to express the volume of derivative transactions, the amounts subject to credit risk are
much lower because derivative contracts typically involve payments based on the net differences between specified prices or rates.
Credit risk arises to the extent that the default of a counterparty to the derivative transaction exposes the Group to the need to
replace existing contracts at prices that are less favourable than when the contract was entered into.The potential loss to the Group is
known as the gross replacement cost. For risk management purposes, consideration is taken of the fact that not all counterparties to
derivative positions are expected to default at the point where the Group is most exposed to them.
Credit risk in derivatives contracts is the risk that the Group’s counterparty in the contract defaults prior to maturity at a time
when the Group has a claim on the counterparty under the contract.The Group would then have to replace the contract at the
current market rate, which may result in a loss.
The following tables present the notional principal amount and the gross replacement cost of interest rate, exchange rate and
equity contracts at 31 December 2004 and 2003.
Interest rate contracts(1)
Notional principal amount
Gross replacement cost
Exchange rate contracts(1)
Notional principal amount
Gross replacement cost
Equity contracts(1)
Notional principal amount
Gross replacement cost
2004
€ m
Group
2003
€ m
Allied Irish Banks, p.l.c.
2003
€ m
2004
€ m
141,067
99,781
133,896
97,201
1,059
1,030
1,009
1,015
€ m
€ m
€ m
€ m
15,870
15,565
13,690
13,349
599
€ m
3,575
112
501
€ m
2,445
73
444
€ m
3,575
112
496
€ m
2,445
73
(1)Interest rate, exchange rate and equity contracts are entered into for both hedging and trading purposes.
119
Notes to the accounts
50 Derivatives (continued)
The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does
for on balance sheet lending including counterparty credit approval, limit setting and monitoring procedures. In addition, in relation
to derivative instruments, the Group’s exposure to market risk is controlled within the risk limits in the Group’s Interest Rate Risk
and Foreign Exchange Risk Policies and is further constrained by the risk parameters incorporated in the Group’s Derivatives Policy
as approved by the Board.
The following table analyses the notional amount and gross replacement cost of interest rate, exchange rate and equity contracts
by maturity.
2004
Notional amount
Gross replacement cost
2003
Notional amount
Gross replacement cost
Residual maturity
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
Total
€ m
100,303
758
64,991
694
46,330
655
41,287
655
13,879
357
160,512
1,770
11,513
255
117,791
1,604
Of the gross replacement cost, € 1,528m (2003: € 1,416m) related to financial institutions and € 242m (2003: € 188m) related to non-
financial institutions.
AIB Group has the following concentration of exposures in respect of notional amount and gross replacement cost of all interest rate,
exchange rate and equity contracts.The concentrations are based primarily on the location of the office recording the transaction.
Republic of Ireland
Unites States of America
United Kingdom
Poland
Notional amount
2003
€ m
2004
€ m
Gross replacement cost
2003
€ m
2004
€ m
121,896
3,268
26,798
8,550
86,861
3,400
23,394
4,136
160,512
117,791
1,316
43
219
192
1,770
1,164
66
365
9
1,604
120
50 Derivatives (continued)
Trading activities
AIB Group maintains trading positions in a variety of financial instruments including derivatives.These financial instruments include
interest rate, foreign exchange and equity futures, interest rate swaps, interest rate caps and floors, forward rate agreements, and interest
rate, foreign exchange and equity index options. Most of these positions arise as a result of activity generated by corporate customers
while others represent trading decisions of the Group’s derivative and foreign exchange traders with a view to generating incremental
income.The managers and traders involved in financial derivatives have the technical expertise to trade these products and the active
involvement of the traders in these markets allows the Group to offer competitive pricing to customers.
All trading activity is conducted within risk limits approved by the Board. Systems are in place which measure risks and profitability
associated with derivative trading positions as market movements occur. Independent risk control units monitor these risks.
Nature and terms of trading instruments
The following table presents the notional amounts and fair values of the classes of derivative trading instruments at 31 December
2004 and 2003.
Interest rate contracts:
Interest rate swaps
In a receivable position
In a payable position
Interest rate caps, floors and options
Held
Written
Forward rate agreements
In a favourable position
In an unfavourable position
Financial futures
In a favourable position
In an unfavourable position
Exchange rate contracts:
Currency options
Forward FX contracts
Other FX derivatives
Equity derivatives
Notional
amounts(1)
€ m
2004
Fair
values
€ m
73,150
3,524
14,595
18,103
1,946
13,909
15
3,575
750
(597)
6
(6)
13
(12)
1
(3)
2
17
–
70
Notional
amounts(1)
€ m
58,742
2,650
6,920
4,424
1,246
13,507
–
2,445
2003
Fair
values
€ m
733
(627)
9
(9)
3
(5)
–
(2)
4
52
–
38
(1)The notional amounts shown for the contracts represent the underlying amounts that the instruments are based upon and do not
represent the amounts exchanged by the parties to the instruments. In addition, these amounts do not measure the Group’s exposure
to credit or market risks.
Details of debt securities held for trading purposes are outlined in note 28 to the financial statements.
The Group’s credit exposure at 31 December 2004 and 2003 from derivatives held for trading purposes is represented by the fair
value of instruments with a positive fair value.The risk that counterparties to derivative contracts might default on their obligations is
monitored on an ongoing basis and the level of credit risk is minimised by dealing with counterparties of good credit standing. All
trading instruments are subject to market risk. As the traded instruments are recognised at market value, these changes directly affect
reported income for the period. Exposure to market risk is managed in accordance with risk limits approved by the Board through
buying or selling instruments or entering into offsetting positions.
The Group undertakes trading activities in interest rate contracts with the Group being a party to interest rate swap, forward,
futures, option, cap and floor contracts.The Group’s largest activity is in interest rate swaps.The two parties to an interest rate swap
agree to exchange, at agreed intervals, payment streams calculated on a specified notional principal amount. Forward rate agreements
are also used by the Group in its trading activities. Forward rate agreements settle in cash at a specified future date based on the
difference between agreed market rates applied to a notional principal amount. Most of these contracts have maturity terms up to
one year.
121
Notes to the accounts
50 Derivatives (continued)
Dealing profits
The following table summarises the Group’s dealing profits by category of instrument.
Foreign exchange contracts
Profits less losses from securities held for trading purposes
Interest rate contracts
Equity index contracts
Total
2004
€ m
67
54
(30)
5
96
2003
€ m
92
23
16
4
135
2002
€ m
78
7
(11)
–
74
Risk management activities
In addition to meeting customer needs, the Group’s principal objective in holding or issuing derivatives for purposes other than
trading is the management of interest rate and foreign exchange rate risks.
The operations of the Group are exposed to interest rate risk arising from the fact that assets and liabilities mature or reprice
at different times or in differing amounts. Derivatives are used to modify the repricing or maturity characteristics of assets and
liabilities in a cost-efficient manner.This flexibility helps the Group to achieve liquidity and risk management objectives. Similarly,
foreign exchange and equity derivatives can be used to hedge the Group’s exposure to foreign exchange and equity risk, as required.
Derivative prices fluctuate in value as the underlying interest rate, foreign exchange rate, or equity prices change. If the
derivatives are purchased or sold as hedges of balance sheet items, the appreciation or depreciation of the derivatives, will generally
be offset by the unrealised depreciation or appreciation of the hedged items.This means that separate disclosure of market risk on
derivatives used for hedging purposes is not meaningful.
To achieve its risk management objective, the Group uses a combination of derivative financial instruments, particularly interest
rate swaps, futures and options, as well as other contracts.The tables on the following pages present the notional and fair value
amounts, weighted average maturity and weighted average receive and pay rates for instruments held for risk management purposes
entered into by the Group at 31 December 2004 and 2003.
122
50 Derivatives (continued)
Interest rate swaps:
Receive fixed
1 year or less
1 - 5 years
Over 5 years
Pay fixed
1 year or less
1 - 5 years
Over 5 years
Pay/receive floating
1 year or less
1 - 5 years
Over 5 years
Forward rate agreements:
Loans
1 year or less
Deposits
1 year or less
Financial futures:
1 year or less
1 - 5 years
Other interest rate derivatives:
1 year or less
1 - 5 years
Over 5 years
Notional amount
2004
2003
€ m
€ m
16,640
1,210
2,304
13,276
3,255
1,984
20,154
18,515
1,339
3,234
1,640
2,156
3,603
1,547
6,213
7,306
500
1,610
600
2,710
1,931
1,931
665
665
–
–
–
22
–
–
22
–
10
15
25
–
–
–
–
944
83
1,027
68
79
25
172
Weighted
average
maturity
in years
Weighted average rate
Pay
Receive
2004
2003
2004
%
2003
%
2004
%
2003
%
Estimated fair value
2003
€ m
2004
€ m
0.31
2.84
9.38
1.50
0.55
2.94
9.51
4.16
0.42
2.73
10.10
3.94
0.61
0.61
0.99
0.99
–
–
–
0.75
–
–
0.75
0.43
2.66
10.90
2.84
4.53
3.46
2.72
4.49
5.82
1.95
3.01
3.36
2.11
2.15
0.46
2.55
9.88
3.49
–
2.75
7.33
5.50
–
–
–
–
0.58
1.72
0.67
0.20
3.14
6.17
2.42
3.95
4.47
4.14
3.77
4.19
5.03
2.13
2.46
4.27
4.24
4.26
2.14
2.18
–
3.68
4.43
2.54
4.13
2.49
4.21
2.52
2.52
–
–
–
–
–
2.17
–
–
2.17
3.00
–
2.76
3.30
5.42
3.37
4.28
–
–
3.38
3.38
–
–
–
6.75
–
–
6.75
–
–
2.83
3.44
2.88
2.80
6.94
–
4.34
100
60
107
267
(20)
(132)
(124)
(276)
54
112
108
274
(41)
(169)
(102)
(312)
–
3
–
3
1
1
(2)
(2)
–
–
–
(5)
–
–
(5)
–
–
–
–
–
–
–
–
–
–
–
(3)
(3)
2
(4)
The carrying value of the interest rate derivative financial instruments held for risk management purposes was € 48m (2003: € 2m).
123
Notes to the accounts
50 Derivatives (continued)
Reconciliation of movements in notional amounts of interest rate
instruments held for risk management purposes
Interest
rate swaps
€ m
FRA
Deposits
€ m
FRA
Loans
€ m
239
–
(192)
–
(43)
(4)
–
9,557
(7,626)
–
–
–
26,187
34,894
(29,826)
(4,050)
(395)
(964)
25,846
61,454
(52,099)
–
(6,102)
(22)
950
–
(910)
–
–
(40)
–
2,671
(2,006)
–
–
–
29,077
665
1,931
At 31 December 2002
Additions
Maturities/amortisations
Cancellations
Transfer to trading derivatives
Exchange adjustments
At 31 December 2003
Additions
Maturities/amortisations
Cancellations
Transfer to trading derivatives
Exchange adjustments
At 31 December 2004
124
50 Derivatives (continued)
Non-trading derivative deferred balances
Set out hereunder are deferred balances relating to settled transactions.These balances will be released to the profit and loss account
in the same periods as the income and expense flows from the underlying transactions. At 31 December 2004 the Group had
deferred income of € 4m (2003: € 8m) and deferred expense of € 9m (2003: € 20m) relating to non-trading derivatives.
€ 1m (2003: € 3m) of deferred income and € 3m (2003: € 10m) of deferred expense would be expected to be released to the profit
and loss account in 2005 under IR GAAP. During the year ended 31 December 2004, net deferred expense in relation to previous
years of € 7m was released to the profit and loss account.
Interest rate swaps
Deferred income
Deferred expense
Forward rate agreements
Deferred income
Deferred expense
Interest rate options
Deferred income
Deferred expense
Financial futures
Deferred income
Deferred expense
2005
€ 000
2006
€ 000
2007
€ 000
2008
€ 000
2009
€ 000
765
(116)
–
(734)
9
–
696
(116)
582
(116)
424
(116)
353
(110)
–
–
1
–
–
–
–
–
–
–
–
–
–
(2,413)
–
(2,448)
–
(1,492)
–
(1,076)
(2,489)
(1,867)
(1,026)
(768)
–
–
–
–
–
(92)
151
After
2009
€ 000
1,293
–
–
–
–
–
–
(395)
898
Total
€ 000
4,113
(574)
–
(734)
10
–
–
(7,916)
(5,101)
The above deferred balances have related unrealised gains or losses on transactions which are on balance sheet.The matching
of the income and expense flows from the related transactions will be effected through the deferral process. At 31 December 2004
the Group had net deferred income of € 2m (2003: deferred expense € 3m) relating to debt securities held for hedging purposes.
Deferred income of € 2m (2003: deferred expense € 4m) relating to these debt securities would be expected to be released to the
profit and loss account in 2005 under IR GAAP. During the year ended 31 December 2004, deferred income in relation to previous
years of € 7m was released to the profit and loss account.
Unrecognised gains and losses on derivatives hedges
Gains and losses on instruments used for hedging are recognised in line with the underlying items which are being hedged.
The unrecognised net loss on instruments used for hedging as at 31 December 2004 was € 60m (2003: € 44m).
The net loss expected to be recognised in 2005 is € 4m (2003: net gain of € 12m) and thereafter a net loss of € 56m
(2003: net loss of € 56m) is expected under IR GAAP.
The net gain recognised in 2004 in respect of previous years was € 4m (2003: € 16m) and the net loss arising in 2004 which was
not recognised in 2004 was € 11m (2003: net loss of € 5m).
51 Fair value of financial instruments
The term ‘financial instruments’ includes both financial assets and liabilities and also derivatives.The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale.
Fair value is based upon quoted market prices where available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar instruments and adjusted for differences between the quoted instrument and the instrument
being valued. In certain cases, including some lendings to customers, where there are no ready markets, various techniques have
been used to estimate the fair value of the instruments.These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with precision. Readers of these financial statements are advised to
use caution when using the data to evaluate the Group’s financial position or to make comparisons with other institutions.
125
Notes to the accounts
51 Fair value of financial instruments (continued)
Fair value information is not provided for certain financial instruments or for items that do not meet the definition of a financial
instrument.These items include short-term debtors and creditors, intangible assets such as the value of the branch network and the
long-term relationships with depositors, premises and equipment and shareholders’ equity.These items are material and accordingly
the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying value of
the Group as a going concern at 31 December 2004.
The following table gives details of the carrying amounts and fair values of financial instruments at 31 December 2004 and 2003.
Assets
Trading financial instruments(1)
Debt securities
Equity shares
Central government and other eligible bills
Non-trading financial instruments
Cash and balances at central banks(1)
Items in course of collection(1)
Loans and advances to banks(2)
Loans and advances to customers(2)
Securitised assets
Debt securities
Equity shares
Liabilities
Trading financial instruments
Short positions in securities(1)
Non-trading financial instruments
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Shareholders’ funds: non-equity interests
Off-balance sheet assets/(liabilities)
Trading financial instruments(1)
Interest rate contracts
Exchange rate contracts
Equity contracts
Non-trading financial instruments
Interest rate contracts
Exchange rate contracts
31 December 2004
Fair
value
€ m
Carrying
amount
€ m
31 December 2003
Fair
value
€ m
Carrying
amount
€ m
7,826
84
–
887
368
2,320
64,836
–
16,250
111
7,826
84
–
887
368
2,336
65,148
–
16,502
131
5,682
64
45
838
339
2,633
50,490
203
12,445
116
5,682
64
45
838
339
2,654
50,625
188
12,625
130
332
332
149
149
20,428
51,397
11,805
2,765
1,174
20,447
51,476
11,805
2,882
1,178
18,094
44,612
3,489
2,130
196
18,132
44,616
3,487
2,218
213
152
19
70
48
–
152
19
70
(12)
–
102
56
38
2
3
102
56
38
(42)
3
(1)The fair value of these financial instruments is considered equal to the carrying value.These instruments are either carried at market
value or have minimal credit losses.
(2)The carrying values are net of the provisions for bad and doubtful debts and related unearned income.
126
51 Fair value of financial instruments (continued)
The following methods and assumptions were used in estimating the fair value of financial instruments.
Central government bills and other eligible bills
The fair value of central government bills and other eligible bills is based on quoted market prices.
Loans and advances to banks and loans and advances to customers
The Group provides lending facilities of varying rates and maturities to corporate and personal customers. Several different techniques
are employed, as considered appropriate, in estimating the fair value of loans.Where secondary market prices were available, these were
used.The carrying amount of variable rate loans was considered to be at market value if there was no significant change in the credit
risk of the borrower.The fair value of fixed rate loans was calculated by discounting expected cash flows using discount rates that
reflected the credit and interest rate risk in the portfolio.
The fair value of money market funds and loans and advances to banks was estimated using discounted cash flows applying either
market rates, where practicable, or rates currently offered by other financial institutions for placings with similar characteristics.
Securitised assets
The fair value of securitised assets is based on market prices received from external pricing services.
Debt securities and equity shares
The fair value of listed debt securities and equity shares is based on market prices received from external pricing services or bid
quotations received from external securities dealers.The estimated value of unlisted debt securities and equity shares is based on
the anticipated future cashflows arising from these items.
Deposits by banks, customer accounts and debt securities in issue
The fair value of current accounts and deposit liabilities payable on demand is equal to their book value.The fair value of all other
deposits and other borrowings is estimated using discounted cash flows applying either market rates, where applicable, or interest
rates currently offered by the Group.
Subordinated liabilities
The estimated fair value of subordinated liabilities is based upon quoted market rates.
Commitments pertaining to credit-related instruments
Details of the various credit-related commitments entered into by the Group and other off-balance sheet financial guarantees are
included in note 49. Fees for these instruments may be billed in advance or in arrears on an annual, quarterly or monthly basis.
In addition, the fees charged vary on the basis of instrument type and associated credit risk. As a result it is not considered practicable
to estimate the fair value of these instruments because each customer relationship would have to be separately evaluated.
Derivatives
The Group uses various derivatives, designated as hedges, to manage its exposure to fluctuations in interest and exchange rates.
The fair value of these instruments is estimated using market prices or pricing models consistent with the methods used for valuing
similar instruments used for trading purposes. Derivatives used for trading purposes are marked to market using independent prices
and are included in other assets/other liabilities on the consolidated balance sheet at 31 December 2004 and 2003.
Details of derivatives in place, including fair values, are included in note 50.
Shareholders’ funds: non-equity interests
The fair value of these instruments is based on quoted market prices.
127
Notes to the accounts
52 Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2004 and 2003 is illustrated in the tables below.The interest sensitivity
gap is split by functional currency.The tables set out details of those assets and liabilities whose values are subject to change as interest
rates change within each repricing time period. Details regarding assets and liabilities which are not sensitive to interest rate
movements and any rate sensitive off-balance sheet contracts are also included.The tables show the sensitivity of the balance sheet at
one point in time and are not necessarily indicative of positions at other dates. In developing the classifications used in the tables it
has been necessary to make certain assumptions and approximations in assigning assets and liabilities to different repricing categories.
The tables do not take into account the effect of interest rate options used by the Group to hedge its exposure. Details of options
are given in note 50.
Assets
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
Total assets
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Other liabilities
Shareholders’ funds
Total liabilities
Off-balance sheet items
affecting interest rate
sensitivity
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
0-3
Months
€ m
3-6
Months
€ m
6-12
Months
€ m
1-5
Years
€ m
5 years +
€ m
Non-interest
bearing
€ m
Trading
€ m
Total
€ m
31 December 2004
1,251
54,984
3,687
–
59,922
13,716
37,253
9,501
1,500
–
–
186
2,184
898
–
3,268
3,360
1,275
1,087
73
–
–
85
1,683
1,344
–
–
3,456
6,806
–
–
2,529
3,515
–
798
–
–
10,102
–
–
7,826
906
2,320
64,836
24,076
11,008
3,112
10,262
6,044
10,900
8,732
102,240
3,086
1,100
1,068
–
–
–
–
2,662
149
–
–
–
183
226
–
1,192
–
–
83
8,881
–
–
9,053
5,581
–
–
–
–
1,211
–
20,428
51,397
11,805
2,765
10,264
5,581
61,970
5,795
5,254
2,811
1,601
23,598
1,211
102,240
5,131
(4,560)
(1,835)
1,933
(669)
–
–
–
67,101
1,235
3,419
4,744
932
23,598
1,211
102,240
(7,179)
2,033
(307)
5,518
5,112
(12,698)
7,521
(7,179)
(5,146)
(5,453)
65
5,177
(7,521)
–
Euro m Euro m Euro m Euro m Euro m Euro m Euro m
(960)
2,313
102
2,676
3,222
(11,149)
3,675
(960)
1,353
1,455
4,131
7,353
(3,796)
(121)
US $m US $m US $m US $m US $m US $m US $m
(4,087)
147
198
458
341
2,195
1,122
(4,087)
(3,940)
(3,742)
(3,284)
(2,943)
(748)
374
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
(615)
88
(590)
1,713
1,411
(3,463)
1,392
(615)
(527)
(1,117)
596
2,007
(1,456)
(64)
PLN m PLN m PLN m PLN m PLN m PLN m PLN m
(1,267)
(98)
(26)
510
116
187
345
(1,267)
(1,365)
(1,391)
(881)
(765)
(578)
(233)
128
52 Interest rate sensitivity (continued)
Assets
Central govt. bills and
other eligible bills
Loans and advances to banks
Loans and advances to customers
Debt securities
Other assets
Total assets
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Subordinated liabilities
Other liabilities
Shareholders’ funds
Total liabilities
Off-balance sheet items
affecting interest rate
sensitivity
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
Interest sensitivity gap
Cumulative interest
sensitivity gap
0-3
Months
€ m
3-6
Months
€ m
6-12
Months
€ m
1-5
Years
€ m
5 years +
€ m
Non-interest
bearing
€ m
–
2,039
43,135
3,451
–
48,625
15,178
32,415
2,860
827
–
–
–
26
1,697
979
–
2,702
1,323
879
13
79
–
–
–
11
1,753
927
–
2,691
1,171
889
442
–
–
–
–
33
2,806
5,167
–
8,006
80
1,745
174
32
–
–
–
–
1,302
1,921
–
3,223
185
382
–
1,192
–
–
–
524
–
–
9,040
9,564
157
8,302
–
–
7,017
5,138
51,280
2,294
2,502
2,031
1,759
20,614
31 December 2003
Trading
€ m
Total
€ m
45
–
–
5,682
422
45
2,633
50,693
18,127
9,462
6,149
80,960
–
–
–
–
480
–
480
18,094
44,612
3,489
2,130
7,497
5,138
80,960
4,758
(1,179)
(3,297)
56,038
(7,413)
1,115
1,587
(795)
3,486
189
2,220
5,786
(471)
–
–
–
1,288
20,614
480
80,960
1,935
(11,050)
5,669
(7,413)
(5,826)
(2,340)
3,446
5,381
(5,669)
–
Euro m Euro m Euro m Euro m Euro m Euro m Euro m
(3,387)
1,525
2,618
3,040
536
(6,987)
2,914
(3,387)
(1,862)
756
3,796
4,332
(2,655)
259
US $m US $m US $m US $m US $m US $m US $m
(1,066)
(121)
18
58
461
(503)
546
(1,066)
(1,187)
(1,169)
(1,111)
(650)
(1,153)
(607)
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
Stg m
(2,151)
(73)
715
2,043
879
(2,796)
1,292
(2,151)
(2,224)
(1,509)
534
1,413
(1,383)
(91)
PLN m PLN m PLN m PLN m PLN m PLN m PLN m
(173)
137
(173)
(36)
104
68
478
546
57
603
(776)
85
(173)
(88)
–
–
129
Notes to the accounts
53 Consolidated cash flow statement
Notes
(a) Returns on investments and servicing of finance
Interest paid on subordinated liabilities
Dividends paid on non-equity shares
Dividends paid to minority interests in subsidiaries
Net cash outflow from returns on investments and servicing of finance
(b) Taxation
Tax paid, Republic of Ireland
Foreign tax paid
Net cash outflow from taxation
(c) Capital expenditure and financial investment
Net (increase)/decrease in debt securities
Net decrease in equity shares
Additions to tangible fixed assets
Disposals of tangible fixed assets
2004
€ m
(105)
(4)
(2)
(111)
(122)
(195)
(317)
2003
€ m
(84)
(5)
(4)
(93)
(128)
(145)
(273)
(4,044)
6
(112)
20
(1,070)
21
(118)
118
Net cash (outflow)/inflow from capital expenditure
(4,130)
(1,049)
(d) Acquisitions and disposals
Acquisition of Group undertakings
Investments in associated undertakings
Disposals of investments in subsidiary undertakings
Disposals of investments in associated undertakings
Net cash inflow/(outflow) from acquisitions and disposals
(e) Financing
Issue of ordinary share capital
Share buyback
Redemption of subordinated liabilities
Issue of subordinated liabilities
Issue of preferred securities
Redemption of preference shares
–
(7)
15
1
9
53
–
(32)
733
990
–
Net cash inflow/(outflow) from financing
53(h)
1,744
(f ) Analysis of changes in cash
At 1 January
Net cash inflow/(outflow) before the effect of exchange translation adjustments
Effect of exchange translation adjustments
At 31 December
53(g)
1,042
60
31
1,133
–
–
(1,049)
–
(1,049)
36
(812)
–
603
–
–
(173)
2,731
(1,351)
(338)
1,042
2002
€ m
(126)
(8)
(4)
(138)
(85)
(195)
(280)
1,506
10
(179)
42
1,379
(1)
(5)
1
–
(5)
27
–
(247)
100
–
(9)
(129)
2,652
362
(283)
2,731
130
53 Consolidated cash flow statement (continued)
(g) Analysis of cash
Cash and balances at central banks
Loans and advances to banks (repayable on demand)
2004
€ m
887
246
2003
€ m
838
204
1,133
1,042
Change
in year
€ m
49
42
91
The Group is required to maintain balances with the Central Bank and Financial Services Authority of Ireland which amounted to
€ 446m (2003: € 863m).The Group is also required by law to maintain reserve balances with the Bank of England and with the
National Bank of Poland. Such reserve balances amounted to € 621m (2003: € 151m).
(h) Analysis of changes in financing(2)
At 1 January
Effect of exchange translation adjustments
Cash inflow from financing
Disposal of subsidiary
Other movements
Amortisation of issue costs
At 31 December
Share capital(1)
2003
€ m
2,211
(40)
7
–
3
(1)
2,180
2004
€ m
2,180
(14)
–
–
4
(1)
2,169
Subordinated
liabilities
2003
€ m
2004
€ m
Non-equity minority
interests
2003
€ m
2004
€ m
2,130
(67)
701
–
–
1
2,765
2,172
(87)
603
(547)
(12)
1
2,130
–
–
990
–
2
–
992
93
(3)
–
(90)
–
–
–
(1)Includes share capital and share premium.
(2)Excludes an amount of € 53m received for Treasury shares reissued (2003: a share buyback of € 783m net of shares reissued of
€ 29m).
131
Notes to the accounts
54 Report on directors’ remuneration and interests
Remuneration policy
The Company’s policy in respect of the remuneration of the executive directors is to provide remuneration packages that attract,
retain, motivate and reward the executives concerned and, by ensuring strong links between performance and reward, align
individual and company success. In considering such packages, cognisance is taken of: the levels of remuneration for comparable
positions, as advised by external consultants; the responsibilities and complexity of the roles of the individuals concerned; their
individual performances measured against specific and challenging objectives: and the Group’s overall performance.
Remuneration Committee
The Remuneration Committee comprises only non-executive directors; during 2004 its members were: Mr Dermot Gleeson
(Chairman), Mr Don Godson, Sir Derek Higgs, Mr John B McGuckian and Mr Jim O’Leary. The Committee has a wide remit
(see page 61) which includes, inter alia, determining, under advice to the Board, the specific remuneration packages of the
executive directors.
Fees(1)
Salary
Bonus(2)
€ 000
€ 000
€ 000
Profit
share(3)
€ 000
Taxable
benefits(4)
€ 000
Pension
contributions(5)
€ 000
35
35
35
35
775
418
415
356
360
340
235
242
140
1,964
1,177
13
13
13
4
43
52
43
38
38
171
146
18
44
285
62
71
103
33
68
95
–
39
964
210
109
108
159
586
–
–
11
–
–
–
11
–
–
–
–
–
22
2004
Total
€ 000
1,445
958
844
834
4,081
146
18
55
285
62
71
114
33
68
95
–
39
986
758
84
842
5,909
Remuneration
Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Non-executive directors
Adrian Burke
Kieran Crowley
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Michael J Sullivan
Robert G Wilmers(1)
Jennifer Winter
Former directors
Pensions(6)
Other payments(7)
Total
132
54 Report on directors’ remuneration and interests (continued)
Remuneration (continued)
Fees(1)
€ 000
Salary
€ 000
Bonus(2)
€ 000
Profit
share(3)
€ 000
Taxable
benefits(4)
€ 000
33
30
33
30
660
343
381
271
570
185
275
141
126
1,655
1,171
13
11
13
4
41
54
37
45
33
169
121
36
217
45
63
89
41
51
180
64
–
907
Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Non-executive directors
Adrian Burke
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Lochlann Quinn
Michael J Sullivan
Robert G Wilmers(1)
Former directors
Pensions(6)
Other payments(7)
Total
Pension
contributions(5)
€ 000
69
34
38
61
202
–
10
–
–
–
10
–
–
–
–
–
20
2003
Total
€ 000
1,399
640
785
540
3,364
121
46
217
45
63
99
41
51
180
64
–
927
762
249
1,011
5,302
(1) Fees comprise a basic fee of € 35,000 per annum paid in respect of service as a director, and additional remuneration paid to any
non-executive director who holds the office of Chairman, Chairman of the Audit Committee, or Senior Independent Director, or
who performs services outside the ordinary duties of a director, such as through membership of Board Committees, or who serves
on the board of a subsidiary company.
A fee of € 35,000 was paid to M&T Bank Corporation (‘M&T’), in the year ended 31 December 2004 (2003: € 25,861), in
respect of Mr Robert G Wilmers’s directorship of the Company as the designee of M&T, pursuant to the Agreement and Plan of
Reorganisation, dated 26 September 2002, by and among the Company, Allfirst Financial Inc. and M&T, as approved by
shareholders at the Extraordinary General Meeting held on 18 December 2002 (‘the Agreement’).
Messrs. Buckley and Kennedy serve as Directors of M&T, pursuant to the Agreement, and fees payable in this regard, which
amounted to € 56,718 in aggregate in 2004, are paid to AIB.
(2) The executive directors participate in a discretionary, performance-related, incentive scheme for senior executives under which
bonuses may be earned on the achievement of specific, performance-related objectives, reviewed annually. The bonus may range
from 0% to 100% of annual salary. The bonuses paid in 2003 included special bonuses of € 250,000 and € 125,000 paid to Mr
Michael Buckley and Mr Gary Kennedy, respectively, in recognition of the roles they played in AIB’s acquisition of a strategic stake
in M&T Bank Corporation.
(3) Information on the employees’ profit sharing schemes, which are operated on terms approved by the shareholders, is given in note
47.
(4) Taxable benefits include the use of a company car or the payment of a car allowance, and benefit arising from loans made at
preferential interest rates.
(5) Pension contributions represent payments to defined benefit pension plans, in accordance with actuarial advice, to provide post-
retirement pensions from normal retirement date. The contribution rates, as a percentage of pensionable emoluments, are 26.0% in
respect of the Republic of Ireland pension scheme (2003: 10.0%) and 44.6% in respect of the UK pension scheme (2003: 22.6%).
The fees of the non-executive directors who joined the Board since 1990 are not pensionable.
133
Notes to the accounts
54 Report on directors’ remuneration and interests (continued)
Remuneration (continued)
The pension benefits earned during the year, and accrued at year-end, are as follows:
Increase in accrued
benefits during 2004(a)
€ 000
Accrued benefit
at year-end(b)
€ 000
Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Non-executive directors
Padraic M Fallon
John B McGuckian
106
15
16
26
1
1
516
157
103
224
15
22
Transfer values(c)
€ 000
1,905
159
172
850
15
21
(a)
Increases are after adjustment for inflation, and reflect additional pensionable service and earnings.
(b) Figures represent the accumulated total amounts of accrued benefits payable at normal retirement dates, as at 31
December 2004.
(c) Figures show the transfer values of the increases in accrued benefits during 2004. These transfer values do not represent
sums paid or due, but the amounts that the pension plan would transfer to another pension plan, in relation to the
benefits accrued in 2004, in the event of the member leaving service.
(6)
‘Pensions’ (€ 758,000) represents the payment of pensions to former directors or their dependants, granted on an ex-
gratia basis and fully provided for in the balance sheet, together with an amount of € 650,000 to amortise a deficit on the
Non-Executive Directors’ Pension Scheme, in accordance with actuarial advice (2003: € 762,000, inclusive of € 650,000 in
respect of amortisation of Pension Scheme deficit).
(7) Other payments comprise a payment of € 83,507 to Mr Jeremiah E Casey under the terms of a post-retirement
consultancy contract approved by shareholders at the 1999 Annual General Meeting (2003: € 220,342).
Interests in shares
The beneficial interests of the directors and the secretary in office at 31 December 2004, and of their spouses and minor children, are as
follows:
31 December
2004
1 January
2004*
239,808
11,004
5,020
57,218
8,979
22,826
38,599
5,000
101,124
72,911
27,853
4,000
1,700
52,459
–
238,672
10,677
1,994
24,872
8,664
12,250
25,099
5,000
48,913
69,737
7,298
4,000
1,700
50,619
–
39,489
38,833
Ordinary Shares
Directors:
Michael Buckley
Adrian Burke
Kieran Crowley
Colm Doherty
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
Gary Kennedy
John B McGuckian
Aidan McKeon
Jim O’Leary
Michael J Sullivan
Robert G Wilmers
Jennifer Winter
Secretary:
W M Kinsella
* or later date of appointment
134
54 Report on directors’ remuneration and interests (continued)
Share options
Details of the executive directors’ and the secretary’s share options are given below. Information on the Share Option Schemes is given
in note 47. The options outstanding at 31 December 2004 are exercisable at various dates between 2005 and 2014. Details are shown
in the Register of Directors’ and Secretary’s Interests, which may be inspected by shareholders at the Company’s Registered Office.
31 December
2004
1 January
2004
Since 1 January 2004
Exercised
Granted
336,500
230,000
165,000
137,000*
336,500
230,000
185,000
130,000
–
30,000
30,000
30,000
–
30,000
50,000
20,000
Price of
options
exercised
Market
price at
date of
exercise
Weighted average
subscription price of
options outstanding
at 31 December 2004
€
–
5.80
6.25
5.80
€
–
12.05
12.05
12.50
€
12.52
12.15
12.79
12.94
40,500
45,500
5,000
10,000
11.90
13.78
11.70
Directors:
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Secretary:
W M Kinsella
*Options over 3,000 shares lapsed on 23 March 2004
Long Term Incentive Plan
Under the terms of the Long Term Incentive Plan, approved by shareholders at the 2000 Annual General Meeting, awards of
shares may be granted to key executives and other employees. Further information on the Long Term Incentive Plan is given in
note 47.
The following conditional grants of awards of ordinary shares have been made to the executive directors and the secretary under
the terms of the Plan:
Directors:
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Secretary:
W M Kinsella
Total as at
31 December 2004
Granted during
2004
Total as at
1 January 2004
38,000
35,000
20,000
14,000
4,500
–
–
–
–
–
38,000
35,000
20,000
14,000
4,500
Apart from the interests set out above, the directors and secretary and their spouses and minor children have no interests in the shares of the
Company.
The closing price, on the Irish Stock Exchange, of the Company’s ordinary shares was € 15.35 per share; during the year the price
ranged from € 11.60 to € 15.35 per share.
There were no changes in the above interests between 31 December 2004 and 21 February 2005 save for the receipt by
Mr Aidan McKeon of 23 shares under the Company's UK Share Ownership Plan (see note 47).
Service Contracts
There are no service contracts in force for any director with the Company or any of its subsidiaries.
135
Notes to the accounts
55 Related party transactions
(a) Transactions with subsidiary undertakings
In accordance with Financial Reporting Standard 8 ‘Related Party Transactions’, transactions or balances between Group entities that
have been eliminated on consolidation are not reported.
(b) Associated undertakings and joint ventures
From time to time the Group provides certain banking and financial services for associated undertakings. Details of loans to
associates are set out in Note 23, while deposits from associates are set out in Notes 36 and 37.
(c) Provision of banking and related services to Group Pension Funds, unit trusts and investment funds managed by Group Companies
The Group provides certain banking and financial services for the AIB Group Pension Funds and also for unit trusts and investment
funds managed by Group companies. Such services are provided on terms similar to those that apply to third parties and are not
material to the Group.
(d) Loans to Directors
Loans to non-executive directors are made in the ordinary course of business on normal commercial terms, while loans to executive
directors are made on terms applicable to other employees in the Group, in accordance with established policy. At 31 December
2004 the aggregate amount outstanding in loans to persons who at any time during the year were directors was € 3.4m in respect of
8 persons; the amount outstanding in respect of quasi-loans (effectively, credit card facilities), also to 8 persons, was € 0.04m (2003:
€ 45.8m in respect of loans to 9 persons and € 0.05m in respect of quasi-loans to 9 persons).
(e) Indemnities
On 2 February 2004, AIB Capital Markets plc, a wholly-owned subsidiary, extended the terms of an indemnity previously given to
certain former directors, officers and employees of Govett Investment Management Ltd. (‘Govett’) - now ‘AIB Investment
Management Limited’ - to Mr Michael Buckley, Group Chief Executive and Mr Colm Doherty, Managing Director, AIB Capital
Markets; Mr Buckley is a former director of a split capital trust managed by Govett, and Mr Doherty is a former director of Govett.
The aggregate liability of AIB Capital Markets plc under the aforementioned indemnity is € 10m.
The purpose of the indemnity is to protect the indemnified parties (or any of them) against any civil liability, loss and defence
costs which they (or any of them) may suffer by reason of any claim made against them relating to certain split capital or highly
leveraged trusts previously managed by Govett and which previously would have been covered by insurance.
Prior to July 2003, the Bank’s professional indemnity and directors’ and officers’ liability insurance provided cover in respect of
the eventualities mentioned in the previous paragraph. However, on renewal of that insurance on 1 July 2003, and in line with a
general change introduced by the insurance industry, exclusions were imposed that removed that cover. By virtue of the terms of the
above-mentioned indemnity, the indemnified parties now stand in the position they would have been in if those exclusions had not
been imposed, except that the aggregate limit of liability under the indemnity is € 10m rather than the higher amount previously
provided by the insurance.
Allied Irish Banks, p.l.c. has indemnified the Directors of Allied Irish Banks Pensions Limited and AIB DC Pensions (Ireland)
Limited, the trustees of the Group’s Republic of Ireland defined benefit and defined contribution pension schemes, respectively,
against any actions, claims or demands arising out of their actions as Directors of the trustee companies, other than by reason of
wilful default. Mr Adrian Burke, a director of the Company, is a director of the above-mentioned trustee companies.
(f) Executive Recruitment Consultancy Services
During 2004 the Company retained the services of Spencer Stuart and Associates Limited, London (‘SpencerStuart’), an executive
recruitment consultancy firm. Sir Derek Higgs, a Director of the Company, is an advisor to SpencerStuart in the UK. The
transaction with SpencerStuart, which is on normal commercial terms, is not considered material to the Group.
136
56 Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure not provided for in the accounts amounted to € 99m (2003: € 73m).
Capital expenditure authorised, but not yet contracted for, amounted to € 214m (2003: € 51m).
Operating lease rentals
The Group had annual commitments under non-cancellable operating leases as set out below.
Operating leases which expire:
Within one year
In the second to fifth year
Over five years
The operating lease rentals in respect of property are subject to rent reviews.
57 Employees
The average full-time equivalent employee numbers by division were as follows:
AIB Bank ROI
AIB Bank GB & NI
Capital Markets
Poland
Group
Allfirst
2004
€ m
–
7
31
38
Property
2003
€ m
Equipment
2003
€ m
2004
€ m
1
7
29
37
–
–
–
–
–
1
–
1
2004
2003
9,438
2,918
2,478
7,298
647
–
9,153
2,822
2,612
8,675
671
1,274
22,779
25,207
58 Companies (Amendment) Act, 1983
The Companies (Amendment) Act, 1983, requires that, when the net assets of a company are half or less than half of its called up
share capital, an extraordinary general meeting be convened.The Act further requires an expression of opinion by the auditors as to
whether the financial situation of the company at the balance sheet date is such as would require the convening of such a meeting.
59 Form 20-F
An annual report on Form 20-F will be filed with the Securities and Exchange Commission,Washington D.C. and, when filed,
will be published on the Company’s website and will be available to shareholders on application to the Company Secretary.
60 Reporting currency
The currency used in these accounts is the euro which is denoted by ‘EUR’ or the symbol €. The euro was introduced on
1 January 1999. Ireland joined the European Single Currency at the fixed translation rate of EUR 1=IR £0.787564. Each euro is
made up of one hundred cent, denoted by the symbol ‘c’ in these accounts.
137
Notes to the accounts
61 Financial and other information
Operating ratios
Operating expenses(1)/operating income
Tangible operating expenses(2)/operating income
Other income(3)/operating income
Net interest margin:
Group
Domestic
Foreign
Rates of exchange
€ /US $
Closing
Average
€ /Stg £
Closing
Average
€ /PLN
Closing
Average
2004
2003
57.5%
56.3%
37.6%
2.42%
2.19%
2.90%
1.3621
1.2474
0.7051
0.6813
4.0845
4.5314
59.4%
58.5%
39.1%
2.72%
2.54%
3.00%
1.2630
1.1346
0.7048
0.6901
4.7019
4.4157
(1)Excludes restructuring costs of € 8.7m in 2004 (2003: € 72.4m).
(2)Excludes amortisation and impairment of goodwill of € 38.8m (2003: € 30.8m) and restructuring costs of € 8.7m in 2004 (2003:
€ 72.4m).
(3)Other income includes other finance income.
Capital adequacy information
Risk weighted assets
Banking book:
On balance sheet
Off-balance sheet
Trading book:
Market risks
Counterparty and settlement risks
Total risk weighted assets
Capital
Tier 1
Tier 2
Supervisory deductions
Total
138
2004
€ m
2003
€ m
61,718
10,960
72,678
5,149
712
5,861
48,831
8,602
57,433
4,566
616
5,182
78,539
62,615
6,220
2,659
8,879
469
8,410
4,451
2,439
6,890
389
6,501
61 Financial and other information (continued)
Currency information
Euro
Other
2004
€ m
56,826
45,414
Assets
2003
€ m
46,770
34,190
2004
€ m
56,946
45,294
102,240
80,960
102,240
Liabilities
2003
€ m
46,534
34,426
80,960
62 Average balance sheets and interest rates
The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the
years ended 31 December 2004 and 2003.The calculation of average balances include daily and monthly averages for reporting units.
The average balances used are considered to be representative of the operations of the Group.
Assets
Placings with banks
Domestic offices
Foreign offices
Loans to customers(1)
Domestic offices
Foreign offices
Placings with banks and loans to customers(1)
Domestic offices
Foreign offices
Funds sold
Domestic offices
Foreign offices
Debt securities and government bills
Domestic offices
Foreign offices
Installment credit and finance lease receivables
Domestic offices
Foreign offices
Total interest earning assets
Domestic offices
Foreign offices
Allowance for loan losses
Non-interest earning assets
Average
balance
€ m
2,859
824
35,328
20,681
38,187
21,505
–
–
17,270
4,736
1,874
716
57,331
26,957
84,288
(671)
9,028
Year ended 31 December 2004
Average
rate
%
Interest
€ m
66
28
1,592
1,185
1,658
1,213
–
–
636
252
104
54
2,398
1,519
3,917
2.3
3.4
4.5
5.7
4.3
5.6
–
–
3.7
5.3
5.5
7.5
4.2
5.6
4.6
Average
balance
€ m
3,138
770
28,361
18,642
31,499
19,412
–
288
11,278
6,006
1,902
826
44,679
26,532
71,211
(741)
6,766
Year ended 31 December 2003
Average
rate
%
Interest
€ m
85
27
1,352
1,012
1,437
1,039
–
4
397
315
108
55
1,942
1,413
3,355
2.7
3.5
4.8
5.4
4.6
5.4
–
1.3
3.5
5.3
5.7
6.7
4.3
5.3
4.7
Total assets
92,645
3,917
4.2
77,236
3,355
4.3
Percentage of assets applicable to
foreign activities
32.3
37.9
(1)Loans to customers include money market funds. Non-accrual loans and loans classified as problem loans are also included within
this caption.
139
Notes to the accounts
62 Average balance sheets and interest rates (continued)
Liabilities and stockholders’ equity
Interest bearing deposits and
other short-term borrowings
Domestic offices
Foreign offices
Funds purchased
Domestic offices
Foreign offices
Subordinated liabilities
Domestic offices
Foreign offices
Total interest bearing liabilities
Domestic offices
Foreign offices
Interest-free liabilities
Current accounts
Other liabilities
Minority equity and non-equity interests
Preference share capital
Ordinary stockholders’ equity
Year ended 31 December 2004
Year ended 31 December 2003
Average
balance
€ m
Interest
€ m
Average
rate
%
Average
balance
€ m
Interest
€ m
Average
rate
%
727
606
–
3
78
7
805
616
1,421
2.0
2.9
–
1.2
4.7
5.2
2.1
2.8
2.4
49,209
22,021
–
–
2,273
–
51,482
22,021
73,503
7,706
5,880
188
197
5,171
1,037
738
–
–
106
–
1,143
738
1,881
2.1
3.3
–
–
4.7
–
2.2
3.3
2.6
36,836
21,230
–
264
1,682
132
38,518
21,626
60,144
7,798
4,219
191
215
4,669
Total liabilities and stockholders’ equity
92,645
1,881
2.0
77,236
1,421
1.8
Percentage of liabilities applicable to
foreign activities
30.6
35.6
63 Supplementary Group financial information for US reporting purposes
Exceptional foreign exchange dealing losses
In accordance with Irish Generally Accepted Accounting Principles (IR GAAP) the total costs arising from the fraud in Allfirst
Treasury have been reflected by way of an exceptional charge of € 789 million (after tax € 513 million) in the accounts for the year
ended December 31, 2001.
Under US reporting requirements, the filing of AIB’s 2001 financial statements by way of Annual Report on Form 20-F
constituted a reissue of the financial statements for prior years.The US Securities and Exchange Commission requires all material
errors in respect of prior years to be accounted for and reported as prior year adjustments, in the years in which they occurred.
Accordingly, in AIB’s Annual Report on Form 20-F for December 2001, the Fraud Losses were charged in the years in which they
occurred and this approach has been reflected in the financial information provided in this note.
140
63 Supplementary Group financial information for US reporting purposes (continued)
Exceptional foreign exchange dealing losses (continued)
The losses arising from the fraud occurred over a number of years. Reflecting the losses in the periods in which they arose would
have the following impact on reported amounts for 2002 and prior periods.
(Decrease)/increase in income before taxes
(Decrease)/increase in income tax expense
(Decrease)/increase in reported net income
2002
€ m
(28)
(10)
(18)
2001
€ m
378
132
246
2000
€ m
(228)
(80)
(148)
1999
€ m
(45)
(16)
(29)
Alternative presentation of consolidated statements of income
As outlined above, under US reporting requirements the losses arising from the fraud would be reflected in the Group figures in the
years in which the losses arose.The following alternative presentation of consolidated statements of income reflects this approach for
the year ended 31 December 2002.
Consolidated net income as in the consolidated statements of income
Adjustments:
Exceptional foreign exchange dealing losses
Administration expenses
Applicable taxes
Consolidated net income under alternative presentation
2002
€ m
1,034
(18)
(10)
10
1,016
Alternative presentation of consolidated balance sheet
Reflecting the losses in the period in which they arose, had no impact on consolidated ordinary stockholders’ equity, consolidated
total assets and consolidated total liabilities for the year ended 31 December 2002.
141
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles
The following is a description of the significant differences between Irish generally accepted accounting principles (IR GAAP)
and those applicable in the United States of America (US GAAP).
IR GAAP
US GAAP
Debt securities and equity securities
Debt and equity securities held for investment purposes are
stated in the balance sheet at amortised cost less provision for any
impairment in value. Securities held for hedging purposes are
included in the balance sheet at a valuation, the basis of which is
consistent with that being applied to the underlying transaction.
The purpose of these securities transactions is to minimise the
risk associated with the AIB investment portfolio.These are
classified as financial fixed assets.
Debt securities held for hedging purposes
Profits and losses on disposal of debt securities held as financial
fixed assets to hedge the Group’s sensitivity to movements in
market interest rates are deferred and amortised to the profit and
loss account over the lives of the underlying transactions.
Internal derivative trades
Where underlying Group subsidiaries and business units
undertake internal derivative trades with the Group central
treasury to transfer risk from the banking book to the trading
book, the Group central treasury is allowed to aggregate and/or
offset trades with similar characteristics for the purposes of
establishing an effective hedge position against the underlying
risk.
Where positions established with external counterparties
offset the net risk, hedge accounting is to be applied to internal
derivative trades.The accounting policy for derivatives under IR
GAAP is described more fully on page 68.
FAS 133 - Derivatives and hedging activities
The Group uses derivatives for both trading and hedging
purposes.The accounting treatment for these derivative
instruments is dependent on whether they are entered into for
trading or hedging purposes.
Trading instruments are recognised in the accounts at fair
value with the adjustment arising included in other assets and
other liabilities, as appropriate, in the consolidated balance sheet.
Gains and losses arising from trading activities are included in
dealing profits in the profit and loss account using the mark to
market method of accounting.
Derivative transactions entered into for hedging purposes are
recognised in the accounts in accordance with the accounting
treatment of the underlying transactions being hedged. Gains and
losses arising from hedging activities are amortised to net interest
income over the lives of the underlying transactions.
The Group has applied SFAS No. 115 ‘Accounting for Certain
Investments in Debt and Equity Securities’. Debt securities held
to maturity are recorded at amortised cost. Because AIB
periodically sells and buys long-term debt securities in response to
identified market conditions, including fluctuations in interest rates,
debt securities classified as financial fixed assets in the Group
balance sheet are classified as ‘available-for-sale’(1).
Profits and losses on disposal of debt securities are recognised
immediately in the profit and loss account.
Contemporaneous offset with external counterparties is required
if hedge accounting is to be applied to internal derivative trades.
As a consequence, trades not satisfying this requirement have
been accounted for at fair value with gains or losses being
recognised in the consolidated net income statement.
All derivatives are recognised as either assets or liabilities in the
statement of financial position and measured at fair value.The
recognition of the changes in the fair value of a derivative
depends upon its intended use. Derivatives that do not qualify for
hedging treatment must be adjusted to fair value through
earnings. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes
in the fair value of a recognised asset or liability or an
unrecognised firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of
the foreign currency exposure of a net investment in a foreign
operation, an unrecognised firm commitment, an available-for-
sale security, or a foreign currency denominated forecasted
transaction.The accounting for changes in the fair value of a
derivative depends on the intended use of the derivatives and the
resulting designations. Derivative trades entered into by the
Group are adjusted to fair value through earnings.
142
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
IR GAAP
US GAAP
Revaluation of property
Property may be carried at either original cost or subsequent
valuation less related depreciation, calculated where
applicable on the revalued amount.
Deferred taxation
Deferred taxation is recognised in full in respect of timing
differences that have originated but not reversed at the balance
sheet date.
Goodwill
Goodwill arising on acquisition of subsidiary and associated
undertakings prior to December 31, 1997 has been written off to
reserves in the year of acquisition and is written back in the year
of disposal. Goodwill arising after January 1, 1998 is capitalised
and written off over its useful life, up to a maximum of 20 years.
Core deposit intangibles
The component of goodwill arising on acquisition of bank
subsidiary undertakings which relates to retail depositors is
termed core deposit intangibles. Core deposit intangibles arising
prior to December 31, 1997 have been written off to reserves in
the year of acquisition, as a component of goodwill. Core deposit
intangibles arising after January 1, 1998, are subsumed within
goodwill and amortised over its useful life up to a maximum of
20 years.
Long-term assurance policies
The shareholders’ interest in the long-term assurance business
represents a valuation of the investment in policies in force
together with the net tangible assets of the business.
Holdings of shares in Allied Irish Banks, p.l.c., previously
recorded within long-term assurance assets/liabilities attributable
to policyholders, are now deducted in arriving at shareholders’
funds.
Revaluations are not permitted to be reflected in the financial
statements.
The liability method is also used but deferred tax assets and
liabilities are calculated for all temporary differences. A valuation
allowance is raised against a deferred tax asset where it is more
likely than not that some portion of the deferred tax asset will
not be realised.
Goodwill arising on acquisitions prior to December 31, 2001 was
capitalised and written off over its useful life, up to a maximun of
20 years. With effect from January 1, 2002, due to the
introduction of FAS 142 ‘Goodwill and Other Intangible Assets’,
goodwill is not amortised but retained at its value and reviewed for
impairment.
Capitalized core deposit intangibles are amortised through
income over the estimated average life of the retail depositor
relationship. In AIB’s case a period of 10 years has been used.
Premiums are recognised as revenue when due from
policyholders.The costs of claims are recognised when insured
events occur. For traditional business, the present value of
estimated future policy benefits is accrued when premium
revenue is recognised. Acquisition costs are capitalised and
charged to expense in proportion to premium revenue
recognised. For unit-linked business, acquisition costs are
amortised over the life of the contracts at a constant rate based
on the present value of estimated gross profits. Initial income in
respect of future services is not earned in the period assessed but
recognised as income over the same amortisation period and
using the same amortisation schedule as for acquisition costs.
Holdings of shares in Allied Irish Banks, p.l.c., are netted off
against ordinary stockholders equity.
Dividends payable on ordinary shares
AIB records proposed dividends on ordinary shares, which are
declared after period end, in the period to which they relate.
Dividends are recorded in the period in which they are declared.
Dividends on non-equity shares
AIB records dividends on non-equity shares in the profit and loss
account on an accruals basis.
Dividends are recorded as a charge against ordinary stockholders’
equity in the period in which they are declared.
143
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
IR GAAP
US GAAP
Acceptances
The Group presents acceptances as a contingent liability in a
footnote to the financial statements.
Acceptances outstanding are presented as a liability, with an equal
amount presented as an asset, ‘customers’ acceptance liability.
Retirement benefits
The expected return on pension assets, net of the interest cost on
pension liabilities, is credited to other finance income while the
service cost is charged to other administrative expenses. Actuarial
gains and losses are recognised through the statement of total
recognised gains and losses. Scheme assets are valued at fair value
and scheme liabilities are measured using the projected unit
method.The net scheme assets and liabilities, reduced by deferred
tax amounts are shown on the face of the balance sheet.
Internal use computer software
Certain specific costs incurred in respect of software for internal
use can be capitalised and amortised. All other costs are
expensed.
Special purpose vehicles/variable interest entities
Special purpose vehicles are consolidated as quasi-subsidiaries
where risks and rewards from operations are similar to those
which would be obtained for subsidiaries. In addition, linked
presentation is adopted where assets have been securitised and
the Group’s exposure is limited to the net amount recognised as
an asset in the balance sheet (see note 27).
Accounting for Investment in M&T Bank
The Group’s share of the assets and liabilities of M&T as at
1 April 2003 have been recorded at fair value in accordance with
the accounting policies of the Group. In addition, the Group’s
share of the profits of M&T reflects the IR GAAP accounting
rules applied by the Group.
Certain assumptions primarily in relation to the recognition of
actuarial gains and losses and amortisation methods are used that
are different when compared with IR GAAP.
The same treatment applies, however there are additional specific
costs that are capitalised which would be expensed under IR
GAAP.These costs are being depreciated on a straight line basis
over five years.
Variable interest entities (‘VIEs’) are consolidated by their
primary beneficiary. A company is deemed to be a primary
beneficiary where it is subject to a majority of the risk of loss
from the VIE’s activities or entitled to receive a majority of the
VIE’s residuals returns or both.
Certain accounting policies used in relation to both the
investment in M&T and the Group’s share of profits of M&T are
different when compared to IR GAAP.
144
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
(1)Debt securities and equity securities
Under US GAAP, at December 31,2004, debt securities in the amount of € 16,250 million at December 31, 2004 would be
classified as ‘available-for-sale’. At December 31, 2004 the market value of such securities was € 16,502 million.The excess of
market value over amortised cost of the debt securities of € 252 million gave rise to an after tax reconciling item of
€ 220 million positive in the consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2003, debt securities in the amount of € 12,445 million would be classified as ‘available-for-
sale’. At December 31, 2003 the market value of such securities was € 12,625 million.The excess of market value over amortised
cost of the debt securities of € 180 million, gave rise to an after tax reconciling item of € 158 million positive in the consolidated
ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2002, debt securities in the amount of € 13,446 million would be classified as ‘available-
for-sale’. At December 31, 2002 the market value of such securities was € 13,690 million.The excess of market value over
amortised cost of the debt securities of € 244 million, gave rise to an after tax reconciling item of € 199 million positive in
the consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2004, equity securities in the amount of € 111 million would be classified as ‘available-
for-sale’. At December 31, 2004 the market value of these securities was € 131 million.The excess of market value of these
securities over book amount was € 20 million giving rise to an after tax reconciling item of € 18 million positive in the
consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2003, equity securities in the amount of € 116 million would be classified as ‘available-
for-sale’. At December 31, 2003 the market value of these securities was € 130 million. The excess of market value of these
securities over book amount was € 14 million giving rise to an after tax reconciling item of € 12 million positive in the
consolidated ordinary stockholders’ equity for US GAAP purposes.
Under US GAAP, at December 31, 2002, equity securities in the amount of € 188 million would be classified as ‘available-
for-sale’. At December 31, 2002, the market value of these securities was € 203 million.The excess of market value of these
securities over book amount was € 15 million giving rise to an after tax reconciling item of € 13 million positive in the
consolidated ordinary shareholders’ equity for US GAAP purposes.
145
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
Summary of significant differences between Irish and United States accounting principles (continued)
Reconciliation of alternative presentation to US GAAP
The Group financial statements conform with accounting principles generally accepted in Ireland.The following tables provide the
significant adjustments to the alternative presentation of the consolidated net income (Group profit attributable to the stockholders of AIB)
and consolidated ordinary stockholders’ equity, total assets and total liabilities, which would be required if accounting principles
generally accepted in the United States (US GAAP) had been applied instead of those generally accepted in Ireland (IR GAAP).
Consolidated net income
Net income (Group profit attributable to the stockholders of AIB)
as in the consolidated profit and loss account under alternative
presentation (page 141)
Adjustments in respect of:
Depreciation of freehold and long leasehold property
Long-term assurance policies
Goodwill
Premium on core deposit intangibles
Retirement benefits
Dividends on non-equity shares
Securities held for hedging purposes
Internal use computer software
Derivatives FAS 133 adjustment
Gain recognised on the disposal of businesses
Share of income of associated undertakings
Deferred tax effect of the above adjustments
Year ended December 31
2004
2003
2002
(millions except per share amounts)
€ 1,047
€ 677
€ 1,016
2
(58)
26
–
(29)
7
5
2
113
–
39
1
2
(13)
30
(1)
7
5
1
(1)
11
832
33
(60)
2
(27)
4
(5)
(5)
8
(3)
1
(82)
–
–
17
Net income in accordance with US GAAP
€ 1,155
€ 1,523
€ 926
Net income applicable to ordinary stockholders of AIB in accordance with US GAAP
€ 1,148
€ 1,518
€ 918
Equivalent to
US $ 1,563
Income per American Depositary Share (ADS*) in accordance with US GAAP
€ 2.69
€ 3.53
€ 2.11
Equivalent to
Year end exchange rate €/US $
US $ 3.67
1.3621
*An American Depositary Share represents two ordinary shares of € 0.32 each.
Comprehensive income
Net income in accordance with US GAAP
Net movement in unrealised holding gains on investment securities
arising during the period
Exchange translation adjustments
Comprehensive income
Year ended December 31
2004
2003
2002
€ 1,155
(millions)
€ 1,523
€ 926
68
(88)
(41)
(501)
84
(480)
€ 1,135
€ 981
€ 530
146
63 Supplementary Group financial information for US reporting purposes (continued)
Consolidated ordinary stockholders’ equity
Ordinary stockholders’ equity as in the consolidated balance sheet
2004
2003
2002
(millions except per share amounts)
under alternative presentation (page 141)
Revaluation of property
Depreciation of freehold and long leasehold property
Goodwill
Core deposit intangibles
Dividends payable on ordinary shares
Dividends on non-equity shares
Long-term assurance policies
Unrealized gains not yet recognised on:
Available-for-sale debt securities
Available-for-sale equity securities
Securities held for hedging purposes
Derivatives FAS 133 adjustment
Retirement benefits
Internal use computer software
Other recognised gains in associated undertaking
Share of income of associated undertaking
Deferred tax effect of the above adjustments
Ordinary stockholders’ equity in accordance with US GAAP
Equivalent to
Ordinary stockholders’ equity per ADS in accordance with US GAAP
Equivalent to
Ordinary stockholders’ equity per ADS in accordance with IR GAAP
Equivalent to
Total assets as in the consolidated balance sheet under alternative
presentation (page 141)
Revaluation of property
Depreciation of freehold and long leasehold property
Goodwill
Core deposit intangibles
Available-for-sale debt securities
Available-for-sale equity securities
Derivatives FAS 133 adjustment
Retirement benefits
Internal use computer software
Special purpose vehicles/variable interest entities
Long-term assurance policies
Long-term assurance assets attributable to policyholders
Investment in associated undertaking
Acceptances
Total assets in accordance with US GAAP
Equivalent to
€ 5,399
(165)
(27)
275
–
333
3
(334)
252
20
2
46
1,087
19
4
64
(181)
€ 6,797
9,258
€ 15.96
21.74
€ 12.67
17.26
US $
US $
US $
€ 4,942
(168)
(27)
223
–
296
1
(276)
180
14
(3)
(16)
899
18
2
33
(146)
€ 5,972
€ 4,180
(201)
(27)
925
12
284
1
(263)
244
15
(4)
(79)
1,012
18
–
–
(206)
€ 5,911
€ 13.90
€ 13.61
€ 11.50
€ 9.62
2004
2003
2002
€ 102,240
(165)
(27)
275
–
252
20
46
1,087
19
–
(334)
(3,246)
74
12
€ 100,253
US $ 136,555
(millions)
€ 80,960
(168)
(27)
223
–
180
14
(16)
899
18
519
(276)
(2,810)
38
11
€ 79,565
€ 85,821
(201)
(27)
925
12
244
15
(79)
1,012
18
1,057
(263)
(2,174)
–
72
€ 86,432
147
Notes to the accounts
63 Supplementary Group financial information for US reporting purposes (continued)
Consolidated total liabilities and ordinary stockholders’ equity
2004
2003
2002
Total liabilities and ordinary stockholders’ equity as in the consolidated
balance sheet under alternative presentation (page 141)
Ordinary stockholders’ equity
Dividends payable on ordinary shares
Dividends on non-equity shares
Acceptances
Securities held for hedging purposes
Debt securities in issue re special purpose vehicles/variable
interest entities
Deferred taxation
Own shares
Long-term assurance liabilities to policyholders
(millions)
€ 80,960
1,030
(296)
(1)
11
3
519
149
59
(2,869)
€ 85,821
1,731
(284)
(1)
72
4
1,057
206
52
(2,226)
€ 102,240
1,398
(333)
(3)
12
(2)
–
187
74
(3,320)
Total liabilities and stockholders’ equity in accordance with US GAAP
€ 100,253
€ 79,565
€ 86,432
Equivalent to
US $ 136,555
Statement of changes in ordinary stockholders’ equity
2004
2003
2002
Opening balance
Net income
Dividends payable on ordinary shares
Dividends on non-equity shares
Ordinary shares bought back
Issue of shares
Unrealised gains on debt securities and equity shares
held as available-for-sale
Goodwill written back
Exchange translation adjustments
Other movements
Closing balance
64 Approval of accounts
The accounts were approved by the board of directors on 21 February 2005.
€ 5,972
1,155
(474)
(7)
–
185
68
–
(88)
(14)
€ 6,797
(millions)
€ 5,911
1,523
(440)
(5)
(812)
188
(42)
217
(501)
(67)
€ 5,972
€ 5,664
926
(396)
(8)
–
115
84
–
(480)
6
€ 5,911
148
Statement of Directors’ responsibilities
in relation to the Accounts
The following statement, which should be read in conjunction with the statement of auditors’ responsibilities set out within their
audit report, is made with a view to distinguishing for shareholders the respective responsibilities of the directors and of the auditors
in relation to the accounts.
The directors are required by the Companies Acts to prepare accounts for each financial year which give a true and fair view of
the state of affairs of the Company and the Group as at the end of the financial year, and of the profit or loss for the financial year.
The directors consider that, in preparing the accounts on pages 64 to 148, which have been prepared on a going concern basis,
the Company and the Group have, following discussions with the auditors, used appropriate accounting policies, consistently applied
and supported by reasonable and prudent judgements and estimates, and that all accounting standards which, following discussions
with the auditors, they consider applicable have been followed (subject to any explanations and any material departures disclosed in
the notes to the accounts).
The directors have responsibility for taking all reasonable steps to secure that the Company causes to be kept proper books of
account, whether in the form of documents or otherwise, that correctly record and explain the transactions of the Company, that will
at any time enable the financial position of the Company to be readily and properly audited, and that will enable the directors to
ensure that the accounts comply with the requirements of the Companies Acts.
The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the
Company and the Group, and to prevent and detect fraud and other irregularities.
The directors, having prepared the accounts, have requested the auditors to take whatever steps and undertake whatever
inspections they consider to be appropriate for the purpose of enabling them to give their audit report.
149
Independent auditors’ report
Independent Auditors’ Report to the Members of Allied Irish Banks, p.l.c.
We have audited the financial statements on pages 64 to 148.
This report is made solely to the Company’s members, as a body, in accordance with section 193 of the Companies Act, 1990.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditors’ report and for no other purpose.To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the Annual Report. As described on page 149, this includes responsibility for preparing
the financial statements in accordance with applicable Irish law and accounting standards. Our responsibilities, as independent
auditors, are established in Ireland by statute, the Auditing Practices Board, the Listing Rules of the Irish Stock Exchange, and by our
profession’s ethical guidance.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in
accordance with the Companies Acts. As also required by the Acts, we state whether we have obtained all the information and
explanations we require for our audit, whether the Company’s balance sheet is in agreement with the books of account and report
to you our opinion as to whether:
– the Company has kept proper books of account;
– the Report of the Directors is consistent with the financial statements;
– at the balance sheet date a financial situation existed that may require the company to hold an extraordinary general meeting,
on the grounds that the net assets of the Company, as shown in the financial statements, are less than half of its share capital.
We also report to you if, in our opinion, information specified by law or the Listing Rules regarding directors’ remuneration and
transactions is not disclosed.
We review whether the Corporate Governance statement on pages 58 to 63 reflects the Company’s compliance with the nine
provisions of the 2003 Combined Code specified for our review by the Listing Rules, and we report if it does not.We are not
required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the
effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
We read the other information contained in the Annual Report, including the Corporate Governance Statement, and consider
whether it is consistent with the audited financial statements.We consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in
order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.
150
Independent auditors’ report (continued)
Opinion
In our opinion, the financial statements give a true and fair view of the state of affairs of the Group and the Company as at
31 December 2004 and of the profit of the Group for the year then ended and have been properly prepared in accordance
with the Companies Acts, 1963 to 2003 and all Regulations to be construed as one with those Acts.
We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion,
proper books of account have been kept by the Company and proper returns, adequate for the purposes of our audit, have been
received from branches not visited by us.The balance sheet of the Company is in agreement with the books of account.
In our opinion, the information given in the Report of the Directors on pages 56 to 57 is consistent with the financial statements.
The net assets of the Company, as stated in the balance sheet on page 72, are more than half of the amount of its called up share
capital and, in our opinion, on that basis there did not exist at 31 December 2004 a financial situation which, under Section 40(1)
of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the Company.
Chartered Accountants
Registered Auditors
Dublin
21 February 2005
151
Additional financial information
The following consolidated profit and loss account for the years ended 31 December 2003 and 2002 have been presented to facilitate
comparisons to the financial statements presented in this report.
Year ended 31 December 2003
Year ended 31 December 2002
Continuing Discontinued
activities
€ m
activities
€ m
Continuing Discontinued
activities
€ m
activities
€ m
Total
€ m
Total
€ m
Interest receivable:
Interest receivable and similar income arising from
debt securities and other fixed income securities
Other interest receivable and similar income
Less: interest payable
Net interest income
Other finance income
Other income
Total operating income
Total operating expenses
Group operating profit before provisions
Provisions for bad and doubtful debts
Provisions for contingent liabilities and commitments
Amounts written off fixed asset investments
Group operating profit
Share of operating profits of associated undertakings
Share of restructuring and integration costs in
associated undertaking
Amortisation of goodwill in acquisition of
associated undertaking
Profit/(loss) on disposal of property
(Loss)/profit on disposal of business
Group profit on ordinary activities
before taxation
Taxation on ordinary activities
Group profit on ordinary activities
after taxation
Equity and non-equity minority interests
in subsidiaries
Dividends on non-equity shares
Group profit attributable to the ordinary
shareholders of Allied Irish Banks, p.l.c.
Dividends on equity shares
Transfer to reserves
Profit retained
700
2,773
(1,633)
1,840
14
1,124
2,978
1,839
1,139
142
9
16
972
143
(20)
(42)
32
(142)
943
299
644
10
5
15
629
12
125
(43)
94
(2)
106
198
121
77
10
–
–
67
–
–
–
–
1
68
19
49
1
–
1
48
712
2,898
783
3,164
163
643
946
3,807
(1,676)
(2,117)
(285)
(2,402)
1,934
12
1,230
3,176
1,960
1,216
152
9
16
1,039
143
(20)
(42)
32
(141)
1,830
63
1,055
2,948
1,747
1,201
110
2
43
1,046
9
–
–
6
–
521
(1)
459
979
571
408
84
–
12
312
–
–
–
(1)
–
2,351
62
1,514
3,927
2,318
1,609
194
2
55
1,358
9
–
–
5
–
1,011
318
1,061
232
311
74
1,372
306
693
829
237
1,066
11
5
16
677
452
51
503
174
20
8
28
4
–
4
24
8
32
801
233
1,034
429
45
474
560
152
Accounts in sterling, US dollars and Polish zloty
Summary of consolidated profit and loss account
for the year ended 31 December 2004
Group operating profit before provisions
Provisions
Group operating profit
Income from associated undertakings
Profit on disposal of property
Profit on disposal of businesses
Group profit on ordinary activities before taxation
Taxation
Group profit on ordinary activities after taxation
Group profit attributable to the ordinary
shareholders of Allied Irish Banks, p.l.c.
Dividends on equity shares
Earnings per € 0.32 share – basic
Earnings per € 0.32 share – adjusted
Earnings per € 0.32 share – diluted
Summary of consolidated balance sheet
31 December 2004
Assets
Loans and advances to banks
Loans and advances to customers
Debt securities and equity shares
Intangible fixed assets
Tangible fixed assets
Other assets
Long-term assurance assets
attributable to policyholders
Liabilities
Deposits by banks
Customer accounts
Debt securities in issue
Other liabilities
Subordinated liabilities
Equity and non-equity minority interests in subsidiaries
Shareholders’ funds
Long-term assurance liabilities to policyholders
€ m
1,378
135
1,243
149
9
17
1,418
336
1,082
1,047
511
122.9c
133.1c
122.4c
STG £m
STG £ 0.7051
= € 1
US $m
US $ 1.3621
= € 1
PLN m
PLN 4.0845
= € 1
972
95
877
105
6
12
1,000
237
763
738
360
86.7p
93.9p
86.3p
1,877
184
1,693
203
12
23
1,931
458
1,473
1,425
696
167.4¢
181.3¢
166.7¢
5,628
551
5,077
609
37
69
5,792
1,372
4,420
4,276
2,087
502.1 PLN
543.8 PLN
499.9 PLN
€ m
Stg £m
US $m
PLN m
2,320
64,836
24,271
380
785
6,402
1,636
45,713
17,112
268
553
4,514
3,160
88,313
33,060
518
1,069
8,720
9,476
264,823
99,135
1,552
3,206
26,149
3,246
2,288
4,421
13,258
102,240
72,084
139,261
417,599
20,428
51,397
11,805
5,732
2,765
1,212
5,581
3,320
14,403
36,237
8,323
4,041
1,949
855
3,935
2,341
27,825
70,008
16,080
7,807
3,766
1,651
7,602
4,522
83,438
209,931
48,217
23,412
11,294
4,950
22,796
13,561
102,240
72,084
139,261
417,599
153
Five year financial summary
2004
Summary of consolidated
US $m profit and loss account
2,773 Net interest income before exceptional items
– Deposit interest retention tax
2,773 Net interest income after exceptional items
25 Other finance income
1,648 Other income before exceptional item
–
Exceptional foreign exchange dealing losses
4,446 Total operating income after exceptional items
2,569 Total operating expenses
1,877 Group operating profit before provisions
184
Provisions
1,693 Group operating profit
274
Share of operating profits of associated undertakings
Share of restructuring & integration costs in
–
associated undertaking
Amortisation of goodwill on acquisition of
(71)
12
23
associated undertaking
Profit on disposal of property
Profit/(loss)on disposal of businesses
1,931 Group profit before taxation
458 Taxation on ordinary activities
41
7 Dividends on non-equity shares
Equity and non-equity minority interests
Group profit attributable to the ordinary
1,425
shareholders of Allied Irish Banks, p.l.c.
696 Dividends on equity shares
2.0 Dividend cover – times
167.4¢
181.3¢
166.7¢
Earnings per € 0.32 share – basic
Earnings per € 0.32 share – adjusted
Earnings per € 0.32 share – diluted
2004
Summary of consolidated
US $m balance sheet
139,261 Total assets
91,473 Total loans
113,913 Total deposits
2,619 Dated capital notes
470 Undated capital notes
677 Reserve capital instruments
Equity and non-equity minority
interests in subsidiaries
Shareholders’ funds: non-equity interests
Shareholders’ funds: equity interests
1,651
248
7,354
13,019 Total capital resources
154
2004
€ m
2,036
–
2,036
18
1,210
–
3,264
1,886
1,378
135
1,243
201
–
(52)
9
17
1,418
336
30
5
1,047
511
2.0
122.9c
133.1c
122.4c
2004
€ m
102,240
67,156
83,630
1,923
345
497
1,212
182
5,399
9,558
2003
€ m
1,934
–
1,934
12
1,230
–
3,176
1,960
1,216
177
1,039
143
(20)
(42)
32
(141)
1,011
318
11
5
2002
€ m
2,351
–
2,351
62
1,514
–
3,927
2,318
1,609
251
1,358
9
–
–
5
–
1,372
306
24
8
677
1,034
Year ended 31 December
2000
€ m
2001
€ m
2,258
–
2,258
67
1,426
(789)
2,962
2,284
678
204
474
4
–
–
6
93
577
55
23
15
484
2,022
(113)
1,909
71
1,304
–
3,284
1,997
1,287
134
1,153
3
–
–
5
–
1,161
319
38
20
784
335
2.3
91.6c
106.7c
91.0c
452
1.5
78.8c
109.5c
78.4c
2003
€ m
80,960
53,326
66,195
1,276
357
497
158
196
4,942
7,426
429
2.4
119.1c
122.7c
117.9c
380
1.3
56.2c
108.6c
55.9c
Year ended 31 December
2000
€ m
2001
€ m
2002
€ m
85,821
58,483
72,190
1,287
389
496
274
235
4,180
6,861
89,061
57,445
72,813
1,594
426
496
312
279
4,554
7,661
80,318
50,239
65,210
1,836
413
–
272
264
4,719
7,504
Other financial data
Return on average total assets
Return on average ordinary shareholders’ equity
Dividend payout ratio
Average ordinary shareholders’ equity
as a percentage of average total assets
Allowance for loan losses as a percentage
of total loans to customers at year end
Net interest margin
Tier 1 capital ratio
Total capital ratio
2004
%
1.17
20.2
48.8
5.6
1.0
2.42
7.9
10.7
2003
%
0.90
14.5
66.8
6.0
1.3
2.72
7.1
10.4
Year ended 31 December
2000
%
2001
%
0.62(1)
10.4(1)
78.5
5.8
1.9
2.99
6.5
10.1
1.12(2)
17.4(2)
42.7
6.1
1.9
3.02
6.3
10.8
2002
%
1.24
23.7
41.5
5.1
1.6
3.00
6.9
10.1
(1)Excluding the impact of the exceptional foreign exchange dealing losses, the return on average total assets was 1.23% and the return on average
ordinary shareholders’ equity was 20.4%.
(2)Excluding the impact of the deposit interest retention tax settlement, the return on average total assets was 1.26% and the return on average
ordinary shareholders’ equity was 19.5%.
US $
Supplementary information
for US investors
Per American Depositary Share (ADS):(1)
3.35 Net income per alternative presentation (note 63)
1.63 Dividend(3)
17.26 Net assets per alternative presentation (note 63)
Amounts in accordance with US GAAP:
1,573m Net income
1,563m Net income attributable to ordinary stockholders
3.67 Net income per ADS
21.74 Net assets per ADS
136,555m Total assets
9,258m Ordinary stockholders’ equity
2004
€
2003
€
Year ended 31 December
2000
€
2001
€
2002
€
2.46
1.20
12.67
1.58
1.05
11.50
2.34
0.98
9.62
1.70
0.88
10.62
1.49(2)
0.78
10.53
1,155m
1,148m
2.69
15.96
1,523m
1,518m
3.53
13.90
100,253m 79,565m
5,972m
6,797m
926m
918m
2.11
13.61
86,432m
5,911m
630m
615m
1.43
13.15
571m(4)
551m(5)
1.29(6)
11.69
88,560m 78,216m
5,002m
5,664m
(1)With effect from close of business on 13 May 1999 the number of ordinary shares represented by one American Depositary Share was amended
from six to two. Prior year data has been restated to reflect this change.
(2)€ 1.73 (US$ 1.61) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(3)The actual dividend payable to US stockholders will depend on the €/US $ exchange rate prevailing.
(4)€ 674m (US$ 628m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(5)€ 654m (US$ 609m) when adjusted to exclude the impact of the deposit interest retention tax settlement.
(6)€ 1.53 (US$ 1.42) when adjusted to exclude the impact of the deposit interest retention tax settlement.
Other financial data in accordance
with US GAAP:
Return on average total assets
Return on average ordinary stockholders’ equity
Dividend payout ratio
Average ordinary stockholders’ equity
2004
%
2003
%
Year ended 31 December
2000
%
2001
%
2002
%
1.30
19.21
44.5
2.00
25.10
29.8
1.10
15.88
46.6
0.79
10.82
61.7
0.83(1)
11.32(1)
60.7
as a percentage of average total assets
6.57
7.87
6.69
6.84
6.64
(1)Excluding the impact of the deposit interest retention tax settlement, the return on average total assets was 0.97% and the return on average
ordinary shareholders’ equity was 13.29%.
155
Credit Card Centre
Donnybrook House,
Donnybrook, Dublin 4.
Telephone + 353 1 668 5500
Facsimile + 353 1 668 5901
credcard@aib.ie
AIB Capital Markets
AIB International Centre,
IFSC, Dublin 1.
Telephone + 353 1 874 0222
Facsimile + 353 1 679 5933
AIB Global Treasury
AIB International Centre,
IFSC, Dublin 1.
Telephone + 353 1 874 0222
Facsimile + 353 1 679 5933
12 Old Jewry, London EC2R 8DP.
Telephone + 44 20 7606 3070
Facsimile + 44 20 7726 6683
AIB Investment
Managers Limited
AIB Investment House,
Percy Place, Dublin 4.
Telephone + 353 1 661 7077
Facsimile + 353 1 661 7038
AIB International Financial
Services Limited
AIB International Centre, IFSC, Dublin 1.
Telephone + 353 1 874 0777
Facsimile + 353 1 874 3050
Goodbody Stockbrokers
Ballsbridge Park, Ballsbridge, Dublin 4.
Telephone + 353 1 667 0400
Facsimile + 353 1 667 0422
AIB Corporate Banking
Bankcentre, Ballsbridge, Dublin 4.
Telephone + 353 1 660 0311
Facsimile + 353 1 668 2508
AIB Corporate Finance Limited
85 Pembroke Road,
Ballsbridge, Dublin 4.
Telephone + 353 1 667 0233
Facsimile + 353 1 667 0250
AIB Irish Capital Management
Limited
85 Pembroke Road, Ballsbridge, Dublin 4.
Telephone + 353 1 668 8860
Facsimile + 353 1 668 8831
AIB/BNY Securities Services
(Ireland) Limited
Guild House, Guild Street, IFSC, Dublin 1.
Telephone + 353 1 642 8099
Facsimile + 353 1 829 0833
Corporate Banking Britain
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone + 44 20 7090 7130
Facsimile + 44 20 7090 7101
Principal addresses
Ireland & Britain
Group Headquarters
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone + 353 1 660 0311
http://www.aibgroup.com
AIB Bank (ROI)
Bankcentre, Ballsbridge, Dublin 4.
Telephone + 353 1 660 0311
Facsimile + 353 1 660 2487
First Trust Bank
First Trust Centre, PO Box 123,
92 Ann Street, Belfast BT1 3AY.
Telephone + 44 28 9032 5599
From ROI 048 9032 5599
Facsimile + 44 28 9043 8338
From ROI 048 9043 8338
Allied Irish Bank (GB)
Bankcentre, Belmont Road,
Uxbridge, Middlesex UB8 1SA.
Telephone + 44 1895 272 222
Facsimile + 44 1895 619 305
AIB Finance & Leasing
Sandyford Business Centre,
Blackthorn Road,
Sandyford, Dublin 18.
Telephone + 353 1 660 3011
Facsimile + 353 1 295 9773
aibfinl@aib.ie
Ark Life Assurance
Company Limited
8 Burlington Road, Dublin 4.
Telephone + 353 1 668 1199
Facsimile + 353 1 637 5737
info@arklife.ie
156
Principal addresses (continued)
USA
Poland
Rest of the World
Bank Zachodni WBK S.A.
Rynek 9/11, 50-950 Wroclaw.
Telephone + 48 71 370 1000
Facsimile + 48 71 370 2478
AIB European Investments
(Warsaw) Sp. z o.o.
Krolewska Building, 4th floor,
ul.Marszalkowska 142,
00-061 Warsaw.
Telephone + 48 22 586 8002
Facsimile + 48 22 586 8001
Allied Irish Banks plc
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8000
Facsimile + 1 212 339 8007/8
AIB Corporate Banking
North America
4th floor,
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 515 6788
Facsimile + 1 212 339 8325
AIB Treasury Services
405 Park Avenue, New York,
NY 10022.
Telephone + 1 212 339 8080
Facsimile + 1 212 339 8006
AIB Bank (CI) Limited
AIB House, PO Box 468,
Grenville Street, St Helier,
Jersey JE4 8WT, Channel Islands.
Telephone + 44 1534 883 000
Facsimile + 44 1534 883 112
AIB Corporate Banking
Germany
Reuterweg 49, D-60323,
Frankfurt am Main, Germany.
Telephone + 49 69 971 4210
Facsimile + 49 69 971 42116
AIB Bank (Isle of Man) Limited
PO Box 186, 10 Finch Road,
Douglas, Isle of Man IM99 1QE.
Telephone + 44 1624 639639
Facsimile + 44 1624 639636
AIB Hungary
Dohány Utca 12,
H-1074 Budapest,
Hungary.
Telephone + 36 1 328 6805
Facsimile + 36 1 328 6801
All numbers are listed with international codes.To dial a location from within the same jurisdiction, drop the country code after the +
sign and place a 0 before the area code.This does not apply to calls to First Trust from Ireland (Republic).
157
Additional information for shareholders
1.
Internet-based Shareholder Services
Ordinary Shareholders with access to the internet may
- check their shareholdings on the Company’s Share Register;
- check recent dividend payment details; and
- download standard forms required to initiate changes in details held by the Registrar,
by accessing AIB’s website at www.aibgroup.com, clicking on the ‘Check your Shareholding’ option, and following the on-
screen instructions. When prompted, the Shareholder Reference Number (shown on the shareholder’s share certificate, dividend
counterfoil and personalised circulars) should be entered. These services may also be accessed via the Registrar’s website at
www.computershare.com.
Shareholders may also use AIB’s website to access the Company’s Annual Report and Accounts.
2. Stock Exchange Listings
Allied Irish Banks, p.l.c. is an Irish-registered company. Its ordinary shares are traded on the Irish Stock Exchange, the London
Stock Exchange and, in the form of American Depositary Shares (ADSs), on the New York Stock Exchange (symbol AIB). Each
ADS represents two ordinary shares and is evidenced by an American Depositary Receipt (ADR). The Company’s non-
cumulative preference shares are listed on the Irish Stock Exchange, and are eligible for trading in the USA, in the form of
American Depositary Shares, in the National Association of Securities Dealers, Inc.’s PORTAL system under rule 144A.
3. Registrar
The Company's Registrar is:
Computershare Investor Services (Ireland) Ltd., Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18.
Telephone: +353 1 216 3100. Facsimile: +353 1 216 3151.
Website: www.computershare.com e-mail: web.queries@computershare.ie
4. Payment of Dividends direct to a bank account
Ordinary Shareholders resident in Ireland or the UK may have their dividends paid direct to a designated bank account, under
advice of full details of the amounts so credited. Shareholders who wish to avail of this facility should contact the Registrar (see
3 above).
5. American Depositary Shares
American Depositary Shares provide US residents wishing to invest in overseas securities with a share certificate and dividend
payment in a form familiar and convenient to them.
The Company’s ordinary share and non-cumulative preference share ADR programmes are administered by The Bank of
New York – see address on page 162.
6. Dividend Reinvestment Plan - US ADR Holders
AIB’s ordinary share ADR holders who wish to re-invest their dividends may participate in The Bank of New York’s Global Buy
Direct program, details of which may be obtained from The Bank of New York at 1 800 943 9715.
7. Direct Deposit of Dividend Payments - US ADR Holders
Ordinary Share ADR holders may elect to have their dividends deposited direct into a bank account through electronic funds
transfer. Information concerning this service may be obtained from The Bank of New York at 1 888 269 2377.
158
8. Dividend Withholding Tax (‘DWT’)
Note:The following information, which is given for the general guidance of shareholders, does not purport to be a definitive guide to relevant
taxation provisions. It is based on the law and practice as provided for under Irish tax legislation. Shareholders should take professional advice if
they are in any doubt about their individual tax positions. Further information concerning DWT may be obtained from: DWT Section, Office
of the Revenue Commissioners, Government Offices, Nenagh, Co.Tipperary, Ireland.
Telephone +353 67 33533. Facsimile +353 67 33822. E-mail: infodwt@revenue.ie.
General
With certain exceptions, which include dividends received by certain non-resident shareholders who have furnished valid
declaration forms (see below), dividends paid by Irish resident companies are subject to DWT at the standard rate of income tax,
currently 20%. The following summarises the position in respect of different categories of shareholder:
A. Irish Resident Shareholders
– Individuals
DWT is deducted from dividends paid, whether in the form of cash or as new shares, to individuals resident in the Republic of
Ireland for tax purposes. Individual shareholders are liable to Irish income tax on the amount of the dividend before
deduction of DWT, and the DWT is available either for offset against their income tax liability, or for repayment, where it
exceeds the total income tax liability.
– Shareholders not liable to DWT
The following classes of shareholder who receive the dividend in a beneficial capacity are exempt from DWT, provided the
shareholder furnishes a properly completed declaration, on a standard form (see below), to the Registrar, not less than three
working days prior to the relevant dividend payment record date:
- Companies resident in the Republic of Ireland for tax purposes;
- Qualifying Employee Share Ownership Trusts;
- Exempt Approved Pension Schemes;
- Qualifying Fund Managers who receive the dividend in respect of benefit of an approved retirement fund or minimum
retirement fund;
- Qualifying Savings Managers who receive the dividend in connection with assets held in a Special Savings Account;
- Collective Investment Undertakings;
- Charities exempt from income tax on their income;
- Athletic/amateur sports bodies whose income is exempt from income tax;
- Designated stockbrokers receiving a dividend for the benefit of the holder of a Special Portfolio Investment Account
(‘SPIA’);
- Certain permanently incapacitated persons who are exempt from income tax; trusts established for the benefit of such
persons; and Thalidomide victims exempt from income tax in respect of income arising from the investment of certain
compensation payments.
Copies of the relevant declaration form may be obtained from the Company’s Registrar at the address shown at 3 above, or
from the Revenue Commissioners at the above address.
Once lodged with the Company’s Registrar, the declaration form remains current from its date of issue until the exempt
shareholder notifies the Registrar that entitlement to exemption is no longer applicable. Where DWT is deducted from
dividends paid to a shareholder not liable to DWT, the shareholder may apply to the Revenue Commissioners, at the address
shown above, for a refund of the DWT so deducted.
– Qualifying Intermediaries (other than American Depositary Banks – see D below)
Dividends received by a shareholder who is a qualifying intermediary on behalf of a shareholder not liable to DWT may be
received without deduction of DWT. A ‘qualifying intermediary’ is a person who receives dividends on behalf of a third party,
is resident for tax purposes in the Republic of Ireland or in a relevant territory*, and:
* A ‘relevant territory’ means a member state of the European Communities, other than the Republic of Ireland, or a country
with which the Republic of Ireland has entered into a double taxation agreement.
159
Additional information for shareholders (continued)
8. Dividend Withholding Tax (‘DWT’) (continued)
– Qualifying Intermediaries (other than American Depositary Banks – see D below) (continued)
–
holds a licence under the Central Bank Act, 1971, or a similar authorisation under the law of a relevant territory, or is owned
by a company which holds such a licence;
–
is a member firm of the Irish Stock Exchange or of a recognised stock exchange in a relevant territory; or
otherwise is, in the opinion of the Irish Revenue Commissioners, a person suitable to be a qualifying intermediary;
–
and who (a) enters into a qualifying intermediary agreement with the Irish Revenue Commissioners and (b) is authorised by
them as a qualifying intermediary.
Information concerning the conditions to be satisfied by intending qualifying intermediaries may be obtained from the Irish
Revenue Commissioners at the address shown above. A qualifying intermediary should ensure that it receives completed
declarations from underlying shareholders eligible for DWT exemption, so as to be in a position to notify the Company’s
Registrar, in advance of each dividend record payment date, of the extent to which the dividend payable to the qualifying
intermediary is to be paid without deduction of DWT.
A shareholder wishing to ascertain whether an entity is a qualifying intermediary should contact the Irish Revenue
Commissioners at the address shown above.
B.
Shareholders not resident for tax purposes in the Republic of Ireland
The following categories of shareholder not resident for tax purposes in the Republic of Ireland may claim exemption from
DWT, as outlined below:
(a) an individual who is neither resident nor ordinarily resident in the Republic of Ireland and who is resident for tax purposes
in a relevant territory (as defined at * on page 159);
(b) an unincorporated entity resident for tax purposes in a relevant territory;
(c) a company which is resident in a relevant territory and controlled by a non-Irish resident/residents;
(d) a company not resident in the Republic of Ireland, and which is controlled by a person or persons resident for tax purposes
in a relevant territory; or
(e) a company, not resident in the Republic of Ireland, the principal class of whose shares are traded on a recognised stock
exchange in a relevant territory or on such other stock exchange as may be approved by the Minister for Finance, including
a company which is a 75% subsidiary of such a company;
or
a company not resident in the Republic of Ireland that is wholly-owned by two or more companies, each of whose principal
class of shares is so traded.
To claim exemption, any such shareholder must furnish a valid declaration, on a standard form (available from the Irish Revenue
Commissioners and from the Company’s Registrar), to the Registrar not less than three working days in advance of the relevant
dividend payment record date, and:
– Categories (a) and (b) above: The declaration must be certified by the tax authority of the country in which the shareholder is
resident for tax purposes. Where the shareholder is a trust, the declaration must be accompanied by (i) a certificate signed by the
trustee(s) showing the name and address of each settlor and beneficiary; and (ii) a certificate from the Irish Revenue
Commissioners, certifying that they have noted the information provided by the trustees.
– Categories (c), (d) and (e) above: The company’s auditor must certify the declaration. In addition, where the company is
resident in a relevant territory, the declaration must be certified by the tax authority of the country in which the shareholder is
resident for tax purposes.
Once lodged with the Company’s Registrar, declaration forms remain current from their date of issue until 31 December in the
fifth year following the year of issue, or, within such period, until the shareholder notifies the Registrar that entitlement to
exemption is no longer applicable.
Dividends received by a shareholder who is a qualifying intermediary on behalf of a qualifying non-resident person may be
received without deduction of DWT – see ‘Qualifying Intermediaries’ under ‘Irish-Resident Shareholders’ at A above.
160
C. Dividend Statements
Each shareholder receives a statement showing the shareholder’s name and address, the dividend payment date, the amount of the
dividend, and the amount of DWT, if any, deducted. In accordance with the requirements of legislation, this information is also furnished
to the Irish Revenue Commissioners.
D. American Depositary Receipt (‘ADR’) Holders
on the register of ADRs maintained by AIB’s ADR programme administrator, the Bank of New York (‘BONY’), or
in the records of a further intermediary through which the dividend is paid
An ADR holder whose address:
-
-
is located in the United States of America is exempt from DWT, provided BONY or the intermediary concerned, as the case
may be, satisfies certain conditions. In such circumstances, there is no requirement for the holder to make a declaration in order
to obtain exemption from Irish DWT.
US Withholding Tax
Note:The following information, which is given for the general guidance of ADR holders, does not purport to be a definitive guide to relevant
taxation provisions. While it is believed to be accurate at the time of finalising this Report for publication, ADR holders should take professional
advice if they are in any doubt about their individual tax positions.
Notwithstanding entitlement to exemption from Irish DWT, referred to above, ADR holders should note that US-resident
holders of ADRs may, in certain circumstances, be liable to a US withholding tax on dividends received on such ADRs. This
would arise, for example, where a US resident, being the beneficial owner of ADRs issued by an overseas company, fails to
provide the depositary bank - or, where applicable, the Registered Broker - with a Form W-9 (tax certified document), showing,
inter alia, the holder’s Social Security Number or Taxpayer Identification Number. Non-US residents holding ADRs are required
to submit a Form W-8BEN to the depositary bank/Registered Broker, as appropriate, to become tax certified and to avoid US
withholding tax.
ADR holders with queries in this regard should contact either (i) The Bank of New York, in the case of holders registered direct
with that institution – see address on page 162; (ii) the holder’s Registered Broker, where applicable; or (iii) the holder’s
financial/taxation adviser.
161
Additional information for shareholders (continued)
Shareholding analysis
as at 31 December 2004
Size of shareholding
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – over
Total
Geographical division
Republic of Ireland
Elsewhere
Total
Shareholder Accounts*
%
Number
Number
12,962,703
46,035,761
32,677,129
94,948,456
682,921,732
Shares**
%
1
5
4
11
79
57
30
7
6
–
100
869,545,781
100
85
15
277,272,669
592,273,112
100
869,545,781
32
68
100
38,285
20,045
4,654
4,032
376
67,392
56,992
10,400
67,392
* Shareholder account numbers reflect US ADR account holders (17,000 approx) held in a single nominee account
** Excludes 48,889,789 shares held as Treasury Shares – see note 47 on page 114.
Financial calendar
Annual General Meeting:
Wednesday, 27 April 2005, commencing at 11.00 a.m., at Jurys Hotel, Ballsbridge, Dublin 4.
Dividend payment dates - Ordinary Shares:
–
–
Final Dividend 2004 – 28 April 2005
Interim Dividend 2005 – 23 September 2005
Interim results:
Unaudited interim results for the half-year ending 30 June 2005 will be announced on 3 August 2005.The Interim Report for the half-year
ending 30 June 2005 will be published as a press advertisement in early-August 2005, and will also be available on the Company’s website –
www.aibgroup.com.
Shareholder enquiries should be addressed to:
For holders of Ordinary Shares:
Computershare Investor Services (Ireland) Ltd.
Heron House,
Corrig Road,
Sandyford Industrial Estate,
Dublin 18, Ireland.
Telephone +353 1 216 3100
Facsimile +353 1 216 3151
Website (for on-line shareholder enquiries):
www.aibgroup.com – click on ‘Check your Shareholding’
or
www.computershare.com
For holders of ADRs in the United States:
The Bank of New York,
Shareholder Relations,
PO Box 11258,
Church Street Station,
New York, NY 10286-1258, USA.
Telephone 1-888-BNY-ADRS / 1-888-269-2377
Website: www.adrbny.com
or
Ann Kerman,
AIB Shareholder Relations,
300 North 2nd Street,
7th Floor,
Suite 711,
Harrisburg PA 17101,
USA.
Telephone 1-800-458-0348
Email: ann.l.kerman@aibny.com
162
Index
A
Accounting policies
Accounts
D
64
64
Dealing profits
Debt securities
Accounts in sterling, US dollars, etc.
153
Debt securities in issue
Acquisition of a strategic stake
in M&T
Administrative expenses
Deferred taxation
Deposits by banks
Depreciation
75
80
I
79 & 122
Independent auditors’ report
92
108
102
106
81
Intangible fixed assets
Interest payable
Interest rate sensitivity
Internal control
International Financial Reporting
Additional financial information
152
Derivatives
39 & 119
Standards
AIB and its people
Amortisation of goodwill
Amounts (written back)/written
off fixed asset investments
Approval of accounts
Associated undertakings
Audit Committee
Auditors
Auditors’ remuneration
12
81
81
148
97
60
57
84
Directors
Directors’ interests
Directors’ remuneration
Dividend income
Dividends
Divisional commentary
E
Average balance sheets and
Earnings per share
interest rates
139
Employees
Equity shares
Exchange rates
6
134
132
79
86
26
87
137
95
14 & 138
L
Loans and advances to banks
Loans and advances to customers
Long-term assurance business
Profit/(loss) on disposal
of businesses
M
Market risk
Minority interests
36
86 & 111
B
Balance sheet
Exceptional foreign exchange
N
71
dealing losses
140
Nomination and Corporate
Governance Committee
61
C
F
Capital management
31
Fair value
Cash flow statement
25 & 73 & 130
Financial and other information
Financial calendar
Financial highlights
Financial review
Five year financial summary
Form 20-F
125
138
162
3
31
154
137
O
Operational risk
Other interest receivable
Other finance income
Other liabilities
Other operating income
Outlook
Own shares
G
Group Chief Executive’s review
8
Central government bills
Chairman’s statement
Class actions
Commitments
Contingent liabilities
and commitments
Corporate and social responsibility
Corporate and Social Responsibility
Committee
Corporate Governance
Credit risk
Critical accounting policies
Customer accounts
87
4
118
137
117
11
60
58
34 & 90
14
107
150
100
79
128
62
42
88
89
103
83
41
79
79
108
80
25
116
163
Index (continued)
P
Performance review
Principal addresses
Profit and loss account
Profit and loss account reserves
Profit retained
Provisions for bad and
14
156
69
113
86
S
Securitised assets
Segmental information
Share capital
Share premium account
Share repurchases
Shareholder information
doubtful debts
23 & 91
Shares in Group undertakings
Provisions for liabilities
Statement of Director’s
and charges
109
Responsibilities
91
75
112
113
114
158
99
149
R
Reconciliation of movements
Statement of total recognised gains
and losses
Subordinated liabilities
25 & 74
110
in shareholders’ funds
74
Remuneration Committee
61 & 132
T
Related Party Transactions
Report of the Directors
Reporting currency
Reserves
Restructuring costs
Retirement benefits
Risk management
136
56
137
113
80
81
33
Tangible fixed assets
Taxation
Turnover
101
24 & 85
75
U
US reporting purposes –
Supplementary Group
financial information
140
164