IL&P chairwoman apologises for €7bn Anglo transaction

Irish Life & Permanent (ILP) chairwoman Gillian Bowler has apologised “unreservedly” for the movement of over €7 billion in deposits between the lender and Anglo Irish Bank last year.

Speaking as ILP reported a larger-than-expected 42 per cent drop in full-year operating profit this morning of €341 million for 2008, Ms Bowler said the ILP board had not known about the provision of short-tem loans of €7.5 billion to Anglo Irish to bolster Anglo Irish’s books at its year-end last September.

"The transactions were wrong. The Board did not approve them . . . didn't know about them and [the Board] certainly would not have committed had we known about them," Ms Bowler said on RTE's Morning Irelandprogramme. "On behalf of the board I apologise unreservedly that they did happen."

The Permanent tsb bank saw an 86 per cent fall in operating profits to €30 million before the imposition of a €170 million goodwill writedown of the bank which ILP purchased in 2001.

ILP said its impairment provisions last year totalled €204 million, compared with €28 million in 2007, and included

bad debt charges and losses on debt securities held at Lehman Brothers and three Icelandic banks.

"Our bank is a mortgage bank, and those impairments will be significantly less than that faced by the sector generally," group finance director David McCarthy told a news conference today.

He said ILP expected operating profit to fall a further 30 per cent this year as sales shrink and bad debts bite, but the reduction in new business would ease capital requirements.

Under a previous stress model, Irish Life & Permanent had been forecasting loan-loss provisions of 60-80 basis points. "We don't need any capital. That has been recognised by the Government."

ILP says it now expects loan loss provisions to come somewhere between its base case of 103 basis points over 2009-2011 and its stress case of 160 basis points. That would result in a bad debt charge of around 132 basis points over the three-year cycle.

It said the impairment charge for residential mortgages in the Republic last year had risen to €27 million from €1 million the year earlier and it said the number of mortgages more than 30 days i n arrears has risen 37 per cent to 6,200.

ILP lost between €600 million and €700 million in corporate deposits this year, Mr McCarthy said at a press conference in Dublin today. This was “more than made up for” through increased retail deposits, he said.

He added that merger talks between Irish Life and the Educational Building Society were on hold while the government mulls over whether to create a UK-style insurance scheme for soured debt, the establishment of a "bad bank" or some other solution to the sector's loan loss problems.

"I suspect that those talks are on hold until maybe the government has fully concluded on what is likely to happen next," he said.

Mr McCarthy said ILP expected operating profit to fall a further 30 per cent this year as sales shrink and bad debts bite, but the reduction in new business would ease capital requirements.

Under a previous stress model, ILP had been forecasting loan-loss provisions of 60-80 basis points. "The big driver of impairment on the mortgage portfolio is unemployment," Mr McCarthy said, pointing out that

under the stress case, unemployment was estimated at 14 per cent.

LIP’s fall in operating profit last year was ahead of the 30 per cent drop it signalled in November, after loan loss provisions jumped towards the end of the year.

Investment returns at the insurance unit fell by €640 million. Global stock markets plunged in 2008 as the financial crisis deepened, cutting returns on investments.

The transaction with Anglo was revealed early last month and led to the resignation of IL&P’s chief executive, Denis Casey, and two other directors. There are a number of separate investigations ongoing into this transaction.

Ms Bowler said the group was aiding inquiries into the transactions and had commissioned international consultants to ensure there would be no repeat of the scandal.

Ms Bowler said the results reflected the economic slump in the second half of last year, which had hit both its banking and life and pensions sectors.

“The economic slowdown impacted on sales in the life business and through increasing impairments in the banking business,” she said.

“However the bank remains very strong and it’s clear that, because it’s a provider of personal home loans to retail customers, we’re clearly not faced with the massive impairment charges faced by many other banks.”

Additional reporting agencies