Anglo loans 'breached' standards

The transfer of more than €7 billion to Anglo Irish Bank during 2008 in a bid to shore up its balance sheet breached lending standards at Irish Life & Permanent (IL&P), its chairwoman Gillian Bowler told shareholders at the company’s agm at the RDS in Dublin today.

"The Anglo transactions represented a serious breach of the high standards to which this company and our staff aspire” but said new controls will ensure such behaviour won’t happen again," she said.

“We are committed to managing this business by the highest ethical standards and will take whatever steps are necessary to achieve that.”

“The fact that they could have occurred without any reference to the board was the biggest shock and disappointment and we’ve taken steps that will prevent a recurrence,” she added.

Denis Casey resigned as chief executive last February along with two other senior executives in February following the disclosure of deposits into Anglo Irish and Ms Bowler said today IL&P expects to appoint a new chief executive next month.

Following recommendations from international consultants Oliver Wyman, which reviewed the firm’s corporate governance framework, a new head of group risk will be appointed and will sit on the executive management team. The functions of the internal audit and risk management teams will also be separated from the finance department, the company said.

Ms Bowler also described the creation of the National Asset Management Agency as a "positive step".

IL&P said impairment provisions for the next three years will be about 1.6 per cent of overall loans, at the upper end of previous guidance.

Shares in the bancassurer were up over 4 per cent at €2.55 by 3pm after it said difficult trading conditions had led to a fall in life sales and lending and rising arrears.

Sales at its Irish life insurance unit fell 41 per cent in the first quarter, the company said. New residential mortgage lending was about 80 per cent below the 2008 first quarter figure.

Irish Life & Permanent also said it plans to change its corporate structure and separate its banking business from its insurance arm. The insurance arm has been the group's main profit-driver and has been weighed down by rising bad debts at the bank.

Irish Life will seek shareholder approval later this year to create the new holding company. The company said on an analyst conference call this morning that it plans to separate its insurance, banking and asset management units into three distinct companies.

“The government will be giving equity to most of the banking institutions in Ireland,” Kevin Murphy, Irish Life’s acting CEO, told analysts.

“As a result of that it is inevitable that the Government will take the opportunity to look at the strategic shape of Irish financial services.”

The main advantage of the new structure “is that we can do separate deals for life company or bank,” Mr Murphy added.

Loan arrears have increased across all portfolios and said the deterioration in the Irish economy will see an increase in higher levels of incurred but not reported (IBNR) provisions this year in its Irish residential mortgage book. The bank said it expects its total loan book to decline this year.

Impaired car and consumer loans were “quickly translating into losses” and said it expects these to peak this year.

“Non-performing loan cases (over 90 days in arrears or impaired) were 2.6 per cent at the end of March, up from 2 per cent at December 2008,” the lender said in a statement.

The group, which is the largest mortgage provider in the State, said liquidity conditions had eased for permanents tsb, which relies on wholesale market funding.

In its UK residential mortgage book non-performing loans were 4.2 per cent at the end of March, up from 3 per cent in December.

However, arrears fell in April and IL&P said the trends were encouraging and that a corner may have been turned in that market with the possibility that provisioning for bad loans will peak this year.

IL&P is not exposed to commercial property lending and as a result has had not equired State recapitalisation like its larger rivals Allied Irish Banks and Bank of Ireland.

"Things are fairly weak as expected but not necessarily as diabolical as a lot of people thought," Sebastian Orsi, analyst with Merrion Capital said of IL&P's trading statement ahead of its annual general meeting.

IL&P's share price has fallen by over three quarters in the past 12 months, trailing even larger drops in Bank of Ireland and Allied Irish Bank (AIB).

IL&P's share price has fallen by 76 per cent over the last 12 months and at €2.55 price it has a market capitalisation of €683 million. Its share price has fallen by less than AIB or Bank of Ireland.

Additional reporting Bloomberg/PA