Developments in Recent Years
A key element of AIB's pre-crisis market positioning was its involvement in the Irish property sector, which was the fastest growing segment of the Irish economy. From the late 1990s to 2006, the mortgage market in Ireland expanded rapidly as housing prices soared, driven in part by economic and wage growth and a low interest rate environment.
The global financial system began to experience difficulties in mid-2007resulting in severe dislocation of international financial markets around the world with unprecedented levels of illiquidity in the global capital markets and significant declines in the values of asset classes. Governments throughout the world took action to support their financial systems and banks, given the critical role which properly functioning financial systems and banks play in economies.
Global financial market conditions triggered a substantial deterioration in domestic economic conditions and property values. In2008, as the Irish economy started to decline and as interest rates continued to increase, housing oversupply persisted and mortgage delinquencies increased. Declining residential and commercial property prices also led to a significant slowdown in the construction sector in Ireland. As a result, loan impairments in the Irish construction and property and residential mortgage sectors, to which AIB was heavily exposed, increased substantially. These dynamics began to present funding and liquidity issues for AIB as well as a rapid deterioration in the Group's capital base.
The Irish Government recognised the pressing need to stabilise Irish financial institutions and to create greater certainty for all stakeholders. A number of measures were implemented by the Irish Government in response to the crisis including:
• 30 September 2008 - the Minister for Finance guaranteed certain liabilities of covered institutions, including AIB, until 29 September 2010.
• 13 May 2009 - A €3.5 billion subscription into AIB by the National Pension Reserve Fund Commission ('NPRFC') for the 2009 Preference Shares and 2009 Warrants.
• December 2009 - The Minister for Finance established the Credit Institutions (Eligible Liabilities Guarantee) ('ELG') Scheme which facilitates participating institutions issuing debt securities and taking deposits during an issuance window and with a maximum maturity of 5 years. AIB joined the ELG Scheme on 21 January 2010.
• December 2009 -The Irish Government established the National Asset Management Agency ('NAMA') which has acquired certain performing and non-performing land and development and associated loans from participating banks, with the aim of freeing up banks' balance sheets and facilitating the easier flow of credit throughout the Irish economy. AIB transferred approximately €20 billion of assets to NAMA during 2010 and 2011.
• 30 March 2010 - The original Prudential Capital Assessment Review ('PCAR') announced by the Central Bank of Ireland ('the Central Bank') assessed the capital requirement of Irish credit institutions in the context of expected losses and other financial developments, under both base and stress-case scenarios, over the period from 2010 to 2012. A requirement was imposed on AIB, among other credit institutions, to strengthen and increase its capital base to help restore confidence in the Irish banking sector.
• 10 September 2010 - AIB announced the sale of its Polish interests to Banco Santander S.A. for a total cash consideration of €3.1 billion. This transaction completed on 1 April 2011 and AIB generated core tier 1 capital of approximately €2.3 billion as a result of the disposal.
• 4 November 2010 - AIB disposed of its stake in M&T generating core tier 1 capital of €0.9 billion.
• AIB also disposed of Goodbody Holdings Limited; AIB International Financial Services Limited; AIB Jerseytrust Limited; its 49.99% shareholding in Bulgarian-American Credit Bank and AIB Asset Management Holdings (Ireland) Limited, including AIB Investment Managers.
• 23 December 2010 - a direction order under the Credit Institutions (Stabilisation) Act 2010 with the consent of AIB, directed AIB to issue €3.8 billion of new equity capital to the NPRFC. This issuance ultimately resulted in the NPRFC's shareholding in AIB increasing to 92.8%. This also resulted in the delisting of AIB's ordinary shares from both the Main Securities Market of the Irish Stock Exchange and from the Official List maintained by the UK Financial Services Authority. AIB's ordinary shares were subsequently admitted, in January 2011, to the Enterprise Securities Market of the Irish Stock Exchange. Furthermore, AIB announced in August 2011 that its American Depository Shares ('ADSs') were delisted and ceased to be traded on the New York Stock Exchange.
• On 24 February 2011, AIB acquired deposits of €7 billion and NAMA senior bonds with a nominal value of EUR12 billion fromAnglo Irish Bank, pursuant to a transfer order issued by the High Court under the Credit Institutions (Stabilisation) Act 2010. AIB also acquired Anglo Irish Bank Corporation (International) PLC in the Isle of Man, including customer deposits of almost €1.6 billion.
• 31 March 2011 - The Central Bank of Ireland published its 'Financial Measures Programme Report', which detailed the outcome ofPCAR 2011 and Prudential Liquidity Assessment Review ('PLAR') 2011 for certain Irish credit institutions, including AIB and EBS.The Central Bank stated that it had set a new capital target for AIB and EBS with a total of €14.8 billion of additional capital to be generated. This additional capital requirement was satisfied in July 2011 through
- AIB's placing of €5.0 billion of new ordinary shares with the NPRFC at €0.01 per share, following which the NPRFC owned 99.8% of the ordinary shares of AIB.AIB had 521,261,151,503 ordinary shares outstanding at 31 December 2013;
- Capital contributions totalling €6.1 billion from the Minister for Finance and the NPRFC;
- The issue of €1.6 billion of contingent capital notes at par to the Minister;
- Burden-sharing measures undertaken with the Group's subordinated debt-holders;
- July 2011 - AIB completed the acquisition of EBS for a nominal cash payment of €1.00. This transaction represented a significant consolidation within the Irish banking sector, resulting in the formation of one of two pillar banks in Ireland.
• In addition, the following notable events occurred during 2013
- In 2013, AIB disposed of its investment in ALH and re-acquired Ark Life, exclusively held for resale.
- From 28 March 2013 the ELG Scheme ended for all new liabilities reflecting improved and more stabilised funding conditions.
- The Central Bank of Ireland conducted a Balance Sheet Assessment (BSA) / Asset Quality Review (AQR) which concluded in November 2013. AIB did not have to raise additional capital to meet ongoing regulatory capital requirements of 10.5% core tier one capital ratio as a result of this process.