Annual Report 2005

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EXPERIENCE THE DIFFERENCE

Dublin Cork Galway Limerick Waterford London Banbury

Birmingham Glasgow Manchester Isle of Man Geneva Prague

Annual Repor t & Accounts 2005

Belfast

2005 Twenty years of uninterrupted profit growth

Vienna Boston New York Dubai

Anglo Irish Bank

Annual Repor t & Accounts 2005

Business Lending Treasur y Wealth Management www.angloirishbank.com

COVER ARTWORK_l

12/9/05

9:44 AM

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2005 was a year of record growth and investment for the Group. The Bank continues to leverage and strengthen its franchise in all target markets through the execution of its focused strategy. We are confident that by consistently delivering for our customers, the Group will create and sustain superior returns for shareholders into the future.

20 years of uninterrupted profit growth

Contents 01

Financial highlights

38 Consolidated profit and loss account

02 Group profile

39 Consolidated balance sheet

04 Chairman’s statement

40 Company balance sheet

10

41

Group Chief Executive’s review

Consolidated cash flow statement

18 Board of Directors

42 Statement of total recognised gains and losses

20 Senior Executive Board

42 Reconciliation of movements in shareholders’ funds

24 Corporate social responsibility

43 Notes to the financial statements

30 Report of the Directors

100 Consolidated profit and loss account (USD, GBP, CHF)

31

101 Consolidated balance sheet (USD, GBP, CHF)

Statement of Directors’ responsibilities

32 Corporate governance statement

102 Shareholder information

36 Independent Auditors’ report

104 Anglo Irish Bank locations

Front cover, left to right: 222 East 41st Street, New York; Head Office, St. Stephen’s Green, Dublin; Reception, Head Office, St. Stephen’s Green, Dublin;Warrenmount Secondary School, Dublin. Back cover:The Whitgift Centre, Croydon, London.

Designed and produced by Designbank Ltd. Tel: 6604177.

01

685.2

An excellent year

73.21

13.54

11.28 57.26 504.1

Five year compound annual growth rate in pre-tax profits and customer lending of 39% and 33% respectively

9.40

39.02 346.5 6.27 29.07

261.3

5.22 4.35

21.59

194.8 16.78

Profit before taxation (€m)

Earnings per share (cent)

48,264

2005

2004

2003

2002

2001

2000

2005

2004

2003

2002

2001

2000

2005

2004

2003

2002

2001

2000

133.6

Dividends per share (cent)

41,716

34,421

34,340

24,390 29,096

22,426

25,520

11,522

13,844

Total funding (€m)

2005

2004

Profit before taxation

685.2

504.1

Earnings per share

73.21c

57.26c

Dividends per share

13.54c

11.28c

34%

35%

Total assets

48,264

34,340

Advances to customers*

34,421

24,390

Total funding

41,716

29,096

4,647

3,873

Total capital resources *Including securitised assets

2005

2004

2003

Advances to customers* (€m)

€m

Return on ordinary equity

2002

2005

2004

2003

2002

2001

2000

2005

2004

2003

2002

2001

Total assets (€m)

2001

8,304

9,852

11,058

2000

15,771

2000

14,297

16,853

19,412

Financial highlights

18,077

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ANGLO IRISH BANK Annual Report & Accounts

Group profile

Anglo Irish Bank, with total assets in excess of €48 billion, is Ireland’s third largest bank and fourth largest company listed on the Irish Stock Exchange.Through the consistent application of a focused strategy, the Group has been one of the best performing banks globally over the past ten years. We operate in three core areas – business lending, treasury and wealth management. Not a universal bank, we focus on providing tailored, differentiated products where we can deliver superior service to our customers. The success of our offering is firmly based upon the commitment of our people, now in excess of 1,400 across eight countries. The Bank’s centralised business model is a key factor enabling consistent delivery for our customers and successful risk management. It also provides significant operational leverage resulting in an efficient cost income ratio of below 30%, delivering €70 of every €100 of incremental revenue to profits.

Business Lending Secured term lending is the Bank’s core area of expertise and main driver of income and profitability. We lend principally to the midcorporate and professional sectors. Lending services are offered in three core markets: Ireland, the United Kingdom and North Eastern USA – where the Bank has built strong, indigenous client franchises. The Group has extensive experience and expertise in assisting customers in both local and cross border transactions in these markets and in Europe. The Bank’s model is identical across all regions. We seek to build relationships with strong people, where cashflows are secure and supported by collateral. Lending transactions are approved at the Group’s centralised credit committee in Dublin.The regular participation of all lenders at credit committee, either physically or by video conference, uniquely empowers them in their dealings with customers whilst ensuring consistent, high quality underwriting.

Products • Corporate lending • Commercial mortgages • Asset finance • Invoice discounting • Film finance

Treasury Treasury’s primary responsibility is the origination of funding and management of the Bank’s liquidity and interest rate risk. It also contributes significant income through its trading, international finance and corporate treasury sales activities. Group funding, liquidity and risk management are co-ordinated centrally, with funding primarily sourced through the Bank’s personal and corporate deposit taking operations in Ireland, the United Kingdom, the Isle of Man and Austria.The Bank has also developed an excellent franchise in the international capital markets, enhancing its funding profile and capital base. The Bank is also a significant participant in the international interbank markets, managing a treasury relationship with over 350 banks. Our Corporate Treasury Sales Division is positioned as a specialist provider of foreign exchange and interest rate management services.These are provided in Ireland, the United Kingdom,Austria and through our representative office in Boston. Trade finance business is conducted in Ireland and the United Kingdom.

Products • Interest rate risk management • Foreign exchange risk management • Corporate deposits • Personal deposits • International finance • Capital markets

03

USA

Ireland

Isle of Man

UK

Switzerland

Austria

Czech Republic

UAE

Boston New York

Dublin Cork Galway Limerick Waterford

Douglas

London Banbury Belfast Birmingham Glasgow Manchester

Geneva

Vienna

Prague

Dubai

Wealth Management Wealth Management provides private banking, funds management and retirement planning services from offices in Ireland, the United Kingdom, the Isle of Man, Austria, Switzerland and most recently, the UAE. Operating as a single cohesive division, we are positioned as a niche provider of tailored investment opportunities to a high net worth client base. Our emphasis is on the protection and creation of wealth through financial planning and asset diversification. In addition,Anglo Irish Assurance Company, an integral part of Wealth Management, provides a range of investment and retirement solutions.

Products • Investment products • Deposits • Funds management • Inheritance planning • Retirement planning

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ANGLO IRISH BANK Annual Report & Accounts

Chairman’s statement

Sean FitzPatrick Chairman

05

Anglo Irish Bank had an impressive year with your Group producing its best results to date. This demonstrates the continuing ability of our focused strategy and business model to deliver strong profit growth and excellent returns to shareholders. Pre-tax profits increased by 36% to €685 million. EPS and profit attributable to ordinary shareholders grew by 28% and 29% to 73.21 cent and €491 million respectively, generating a return on ordinary equity of 34%. Your Bank’s performance in 2005 has contributed to a five-year total shareholder return in excess of 800%, making it the leader amongst its peers. Dividend Your Board recommends a final ordinary dividend of 9.03 cent per share, bringing the total dividends for the year to 13.54 cent, an increase of 20%. The total amount payable to shareholders in the form of ordinary dividends for 2005 is €91.4 million. Dividend cover remains strong at 5.4 times as the Bank retains significant capital directed at future growth opportunities in each of our markets. It is proposed that the final ordinary dividend be paid on 13 February 2006 to shareholders on the Bank’s register as at the close of business on 2 December 2005. Withholding tax may apply on the dividend depending on the tax status of each shareholder. Shareholders will again be offered the option of receiving dividends in the form of cash or shares.

People Our success is firmly based upon the skill, professionalism and commitment of our people. On behalf of all stakeholders, I thank them for once again delivering this year. The Bank invests significantly in the recruitment, training and development of talented professionals. We will continue to benefit from this important investment in future years. Board We announced recently the appointment of Declan Quilligan as Chief Executive Designate of the Group’s UK operations, succeeding John Rowan who retires from the Bank at the end of 2005. John joined the Bank in 1985 and was appointed to the Board in 1998. Over the last 20 years he has played a very significant role in the successful building of our franchise in the UK and in the overall management of the Group. On behalf of the Board, I thank John for all he has given to Anglo Irish Bank and wish him every success for the future. I look forward to welcoming Declan to the Board in December. A member of the Senior Executive Board since 1999, Declan joined the Bank in 1990 and has held a variety of senior management positions, most recently as Director of the Banking Ireland Division. Your Board is confident that under Declan’s leadership our UK team will take full advantage of the significant opportunities available to the Bank to grow its franchise in this major market over the coming years.

The scale of opportunities available to the Bank remains very significant. I believe the strength, flexibility and scalability of our centralised business model will enable the Bank to capitalise on these opportunities, thereby delivering strong returns for our shareholders.We look forward to a strong performance in 2006 and beyond.

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ANGLO IRISH BANK Annual Report & Accounts

Corporate Social Responsibility (‘CSR’) Leading successful financial services companies around the world are those that not only deliver superior investor returns and excellent customer service, but who also consider ethical, social and environmental issues for all stakeholders. The Bank recognises its wider obligations to society and the community it serves and believes there is a strong link between CSR and long-term success. The annual report includes details of the Group’s activities and achievements in the CSR area. Strategy The Bank is well positioned and the fundamentals of our business model and strategy remain as relevant today as ever before. Business lending will continue to be the key driver of the Group’s growth. We will seek to further deepen our lending franchise with new and existing clients in Ireland, the UK and North America. The success of Treasury provides an excellent platform to deliver the Group’s funding needs whilst also providing a highly efficient and valuable source of revenue diversification. Our Wealth Management Division’s aim is to become the leading niche provider of financial management services to high net worth clients. This makes it a natural and complementary offering to the Bank’s wider customer base.

Our organically focused growth will be delivered with full regard for all matters concerning risk. Outlook Your Board is confident of the Bank’s future prospects. The seamless management transition is reflected in the current year’s record performance across all businesses. Economic growth during 2005 was strong in the key regions in which we operate and that trend is expected to continue into next year. The scale of opportunities available to the Bank remains very significant. I believe the strength, flexibility and scalability of our centralised business model will enable the Bank to capitalise on these opportunities, thereby delivering strong returns for our shareholders. We look forward to a strong performance in 2006 and beyond.

Sean FitzPatrick Chairman 22 November 2005

07

Anglo Irish Bank Head Office is located at St. Stephen’s Green, Dublin 2, Ireland.

08

Anglo arranged and structured the syndicated project finance and long-term facilities for the development of Dundrum Town Centre in Dublin. Located just south of Dublin’s city centre, it is Ireland’s largest shopping complex, and is let to many well-known Irish and UK tenants on long-term leases. As part of the transaction structuring, our Treasury Division provided a comprehensive interest rate risk management solution to our customer.

Dundrum Town Centre, Dublin

ANGLO IRISH BANK Annual Report & Accounts

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ANGLO IRISH BANK Annual Report & Accounts

Group Chief Executive’s review

David Drumm Group Chief Executive

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2005 was a year of record growth and investment for the Group. This excellent performance was achieved across all our divisions and geographies. The Bank continues to leverage and strengthen its franchise in all target markets through the consistent execution of its focused strategy. The performance highlights for the period include: Profitability • Pre-tax profits of €685 million, an increase of 36% • Record EPS of 73.21 cent, an increase of 28% Shareholder Value • Return on ordinary equity of 34% • 20% increase in ordinary dividends to 13.54 cent per share Operational Performance • Record growth in lending of €9.8 billion, an increase of 40% • Excellent asset quality with non-performing loans representing 0.54% of closing loan balances • Total funding increased by 43% to €41.7 billion • Strong Tier 1 Capital Ratio at 8.4% • Employee numbers grew to 1,411, a 17% increase year-on-year • Cost income ratio highly efficient at 27% • Lending work in progress of €6.0 billion at year-end Operations Business Lending Focused business lending remains the Bank’s core activity and key profit driver. The 2005 results are based on record net loan growth of €9.8 billion

bringing year-end loan balances to €34.4 billion. This represents an increase of 40% on a constant currency basis. The record performance has been achieved right across our chosen markets and sectors. Despite the continuing competitive nature of the sector, our lending margins remain stable. This reflects the Bank’s unique service offering, distinguished by a consistent delivery and ability to execute for customers. Strong levels of repeat business in each market bear testament to this. Our Bank’s model of backing proven operators with secure cash flows supported by collateral ensures consistent underwriting. Asset quality is paramount. Every loan is individually assessed and stress tested to ensure the transaction would survive tougher conditions. As demonstrated by the Bank’s growth, our centralised model has the capacity to continue delivering for customers while maintaining effective risk management. Non-performing loans represent just 0.54% of total Group lending, continuing the improving trend of the last number of years.We acknowledge that the economic climate in 2005 remained benign. The current high quality of the book leaves the Bank well positioned to move forward with confidence. Lending – Ireland Irish business lending grew very strongly from €13.3 billion to €19.4 billion, an increase of 46%. Each of our offices; Cork, Dublin, Galway, Limerick and Waterford contributed to this performance. The consolidation of our lending operations into a single Ireland Lending Division from the beginning of the year has worked well and ensures consistent service delivery to our clients across the entire market. The level of growth evidences the continued strength of the Bank’s Irish franchise. During the year deals were completed across the spectrum of

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ANGLO IRISH BANK Annual Report & Accounts

small through to larger ticket transactions, highlighting the Bank’s ability to deliver to the needs of all our clients. Over the past number of years certain Irish clients have sought high quality investment opportunities in the UK, USA and Europe. Often working in close collaboration with local market incumbents, these clients bring valuable expertise to particular opportunities, whilst achieving selective diversification in their asset portfolio. We have now placed an experienced team on the ground in Prague, to work with all our clients who choose to invest in Europe. Unlike in our core markets, we are not seeking to build an indigenous European lending franchise. However, we see this as an excellent opportunity to further deepen and enhance relationships with some key longstanding clients of the Group. More importantly, given our visibility of cash flows and cross collateralisation of the client’s total asset base, we can undertake such business on a low risk basis. We look forward to significant growth opportunities in future years. The outlook for the Irish economy remains positive. Strong GDP and employment growth, significant infrastructural investment, buoyant consumer demand, low inflation and favourable demographics all combine to support this sentiment. We expect interest rates to increase from current historical low levels, but in a measured and controlled manner. This environment will assist our customers and I am confident that the Bank will continue to enhance and capitalise on the strength of our existing business and relationships.

Lending – UK Loan growth generated by our UK Division continued to flourish with a 27% net increase in loan balances to €12.5 billion. This represents a strong performance in a highly liquid market. The Bank’s franchise is now well recognised in its target market and we are experiencing significant growth from our existing customers as well as a steady increase in high quality new referrals. Our footprint has expanded in the UK during 2005. We moved to new and larger premises in both Birmingham and Manchester to facilitate expansion of our teams on the ground in these markets. The Bank recruited experienced lenders at all levels in the UK. This investment reflects our strong belief that there is significant potential across key urban regions in the UK. Amongst the larger European economies, the UK has performed strongly. The upward movement in interest rates would appear to have peaked. We believe that the continuing positive outlook for employment should provide a sound platform for economic activity going forward. We are confident in our UK business and believe that it will be a key growth engine of the Group in the future. Lending – North America The Bank has continued to build on the foundations established over the last seven years with loan balances increasing 81% from 2004 levels to almost €2.5 billion, on a constant currency basis. During the year we invested significantly in both people and infrastructure. Our team in Boston has grown to in excess of 40 people today. In December the Bank moved to new and larger premises to facilitate our planned future growth. Our North American business demonstrates the international mobility of our business model. As a response to clients’ needs we have established a

13

Looking out further, our unique service offering to customers, based on a secured lending model, has proven to be both transportable and scalable and provides long-term potential to build upon our existing franchises in all our key markets.

representative office in New York. All credit decisions and business support remain at head office in Dublin which ensures the consistent quality of loans and client service.

Ireland, the UK and Austria. In addition, we have begun to replicate the success of our established retail funding activities in Ireland and the Isle of Man into the UK.

The regional economy in the North East of the USA continues to perform well having absorbed the continuing increase in interest rates to more normal levels. Growth in employment and real incomes continues to be strong. Our small position makes correlation with the wider economy of less relevance. However, the general strength of the market is beneficial.

Corporate Treasury Sales recorded strong revenue growth, particularly in the UK and North American markets, by providing innovative solutions to corporate customers in managing their interest rate and foreign exchange exposures. All treasury activity is channelled through our centralised trading desk in Dublin enabling highly effective risk and cost control.

Growth levels in the USA during this period were clearly exceptional. However, the Bank does expect to generate high quality organic growth through repeat business and a widening client base, as we build upon the strong foundations now in place. Treasury Our Treasury Division had an exceptional year. It continued to provide a strong and well-diversified funding base to facilitate the Bank’s controlled asset growth and also generated record fee income through corporate treasury sales. Total funding increased by a record €12.5 billion on a constant currency basis to €41.7 billion, an increase of 43%. Retail and corporate customer deposits increased 29% to €25.2 billion demonstrating the inherent ability of the Bank to deliver in such a competitive environment. The Bank has a strong corporate funding franchise in

Wealth Management Wealth Management had an excellent year with a particularly strong performance by our Irish Private Bank. The Division has operations in Austria, Ireland, Isle of Man, Switzerland, the UK and most recently the UAE with the opening of a representative office in Dubai. The growth potential of this business is significant. It also provides a compelling entrée to new potential customers of the Group while deepening relationships with existing clients, thereby protecting the Bank’s franchise. Our core objective remains to position the business as a niche provider of financial wealth management services for a high net worth client base.

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ANGLO IRISH BANK Annual Report & Accounts

Capital Record profit retentions in the year helped bring the Bank’s ordinary equity base to nearly €1.7 billion. This represents an increase of 36% in the period. Driven primarily by strong retentions, our ordinary equity base has expanded fivefold since 2000. In June, the Bank further enhanced its capital base with the issue of Stg£300 million Tier 1 eligible preference shares. The issue was well received by the market. This followed the issue of €600 million Tier 1 eligible securities in September 2004. These transactions, together with the significant internal capital generation, provide an excellent foundation for future growth. The Bank’s Tier 1 and Total Capital ratios now stand at 8.4% and 11.8% respectively. International Financial Reporting Standards (IFRS) Our results for the year ended 30 September 2005 are prepared under Irish generally accepted accounting practices (Irish GAAP). In line with all listed entities in the European Union,Anglo Irish Bank is required to adopt IFRS for accounting periods commencing after 1 January 2005. Accordingly, the Bank’s first full reporting period under IFRS will be the year ended 30 September 2006. In June this year, we provided our assessment of the anticipated impact of the change to IFRS on the Bank.We indicated that EPS for the six months ended 31 March 2005 would have been circa 4% lower than under Irish GAAP and that the impact on our Tier 1 regulatory capital was expected to be marginally positive. We estimate that the impact on our full year numbers to 30 September 2005 will be of a similar magnitude. It is our intention to provide restated IFRS 2005 comparative numbers to the market in March 2006.

It is important to recognise that this change in reporting requirements has no impact on the economics, cash flows or strength of the business. It mainly reflects timing differences in the recognition of income and expense and presentation changes to the income statement and balance sheet. Investment This year was one of significant investment in our people base, growing staff by 17% to just over 1,400. Investment was well spread throughout divisions and geographies with about two thirds in direct client management and the remainder in Finance, IT, Risk and other key support functions. We continued to devote sizeable resources to people development and training during the year. Considerable infrastructural investment has also been undertaken with the implementation of a single platform, multi-location Wealth Management back office support system, and the ongoing development of a new bespoke banking engine.We also engaged in the further enhancement of certain Treasury systems. In addition, the Bank undertook moves to new office space in Birmingham, Boston, Manchester, New York and Waterford during the year providing flexible expansion solutions for the future. These ongoing investments provide an excellent structural platform for the Bank to underpin future business growth opportunities in an efficient and controlled manner. Notwithstanding this level of investment, the Bank’s cost income ratio is 27%, demonstrating the inherent efficiency of our model.

15

Board I wish to echo the sentiments of our Chairman and thank John Rowan for his significant contribution over the past 20 years. John’s greatest legacy is undoubtedly the strong team and franchise which the Bank has established in the UK. I am confident that Declan Quilligan’s appointment as Chief Executive – UK will enable the Bank to further exploit the undoubted opportunity that this major market offers. Strategy The Bank will retain its focus on our core business of secured senior debt financing in our three established markets of Ireland, the UK and the USA. The diverse sources of funding and capital available to the Bank provide ample scope to exploit the significant growth opportunities available to us. As always, asset quality will remain the cornerstone of our lending model. Our Treasury and Wealth Management businesses enjoyed another excellent year and we look forward to further growth. Given the considerable opportunities available to us in our key markets the Board’s strategy continues to be based on organic growth. However, we will consider acquisition opportunities as they arise where they meet the stringent criteria we impose. The Bank’s ability to deliver upon its strategy is predicated on the commitment and talent of our people. I thank them for their continued outstanding contribution during 2005. We will further invest in our people to enable us execute this clear and focused strategy.

Outlook I am confident of the Bank’s future prospects. Our record lending growth of €9.8 billion in 2005, together with a sizeable pipeline at 30 September of €6.0 billion, mean we enjoy a strong start to the 2006 financial year. Looking out further, our unique service offering to customers, based on a secured lending model, has proven to be both transportable and scalable and provides long-term potential to build upon our existing franchises in all our key markets. Accordingly, I believe the Bank will continue to create and sustain superior returns for shareholders into the future.

David Drumm Group Chief Executive 22 November 2005

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ANGLO IRISH BANK Annual Report & Accounts

The Whitgift Centre, one of the UK’s busiest shopping centres comprising over one million square feet of prime retail and office space, is situated in Croydon, London’s largest borough. Several leading national retailers anchor the centre with the UK Government occupying 75% of the office space. In addition to financing the acquisition debt, our Wealth Management Division raised significant equity from private clients, providing them with the opportunity to invest alongside a professional investment property customer of the Bank. The transaction was structured through our 100% subsidiary, Anglo Irish Assurance Company and our Treasury Division provided an interest rate risk management solution in respect of the long-term debt.

The Whitgift Centre, Croydon, London

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ANGLO IRISH BANK Annual Report & Accounts

Board of Directors

Sean FitzPatrick (57)

David Drumm (39)

Lar Bradshaw (45)

was appointed Chairman in January 2005, having been Chief Executive of Anglo Irish Bank Corporation plc since 1986. A Chartered Accountant, he also serves as Non-executive Director of the Dublin Docklands Development Authority, Greencore plc, Aer Lingus, Gartmore Irish Growth Fund plc and as a member of the Council of the Institute of Chartered Accountants in Ireland.

was appointed Group Chief Executive in January 2005, having been Divisional Director and Head of Lending Ireland since 2003. A Chartered Accountant, he joined the Bank in 1993 following a number of years in corporate finance. After working initially in the Banking Division in Dublin, he established the North American Division in 1998.

who joined the Board in October 2004, is a former Director of McKinsey Inc. and Managing Director of McKinsey Ireland. He holds an MBA degree from the International Institute for Management Development in Switzerland and has been Chairman of the Dublin Docklands Development Authority since 1997.

Patricia Jamal (62)

William McAteer (55)

Gary McGann (55)

joined the Board in January 2003. She is a former Managing Director and Head of Global Financial Institutions in Barclays Capital.

a Chartered Accountant, was appointed Finance Director of the Group in June 1992. He was previously Managing Director of Yeoman International Leasing Limited, prior to which he was a Partner with Price Waterhouse.

who joined the Board in January 2004, is Chief Executive Officer of the Jefferson Smurfit Group. He is Chairman of the Dublin Airport Authority and is President of IBEC. He is also a Director of Aon McDonagh Boland Group and United Drug plc. He holds a BA degree from University College Dublin, a Masters degree in Management Science and is a Fellow of the Association of Chartered Certified Accountants.

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Executive Director An independent Non-executive Director A member of the Audit Committee A member of the Nomination and Succession Committee A member of the Remuneration Committee A member of the Risk and Compliance Committee

Tom Browne (43)

Fintan Drury (47)

Michael Jacob (60)

who joined the Board in January 2004, is responsible for lending operations in Ireland and the Bank’s Wealth Management Division. He joined the Bank in 1990 and was appointed Head of Dublin Banking in 1997. He holds MBS and BBS degrees and is a member of both the Institute of Bankers and the Institute of Marketing in Ireland.

who joined the Board in May 2002, is Chairman of the RTE Authority, Paddy Power plc and Platinum One, a sports, sponsorship and event management agency. He is a former news journalist with RTE and in 1988 founded Drury Communications, a corporate communications consultancy from which he retired in 1999.

has been a Director since 1988 and is a Fellow of the Chartered Institute of Management Accountants. He is Chairman of the Lett Group of Companies, Deputy Chairman of SIAC Construction Limited, President of the Royal Dublin Society and a Director of other companies.

John Rowan (47)

Ned Sullivan (57)

Patrick Wright (64)

joined the Board in October 1998. A Chartered Accountant, he joined the Bank in 1985 and is Chief Executive of the Bank’s operations in the United Kingdom.

who joined the Board in November 2001, is Chairman of Greencore plc and McInerney Holdings plc. He is the former Chairman of the President's Award – Gaisce, former Group Managing Director of Glanbia plc and previously held a number of senior management positions in Grand Metropolitan plc. He holds B.Comm and MBS degrees.

joined the Board in February 2000. He is Chairman of Aon McDonagh Boland Group and former Chairman of the RTE Authority. He is an Honorary Fellow of the National College of Ireland and a Fellow of the Irish Management Institute.

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ANGLO IRISH BANK Annual Report & Accounts

Senior Executive Board

Pat Whelan

Declan Quilligan

David Drumm

William McAteer

Bernard Daly

joined the Bank in 1989 and has held a number of senior management positions in our lending operations. He is currently Director of Group Risk and Operations.

joined the Bank in 1990. Previously Director of Lending Ireland, he was appointed Chief Executive Designate of the Group’s UK operations in September 2005.

joined the Bank in 1993. After working initially in Lending Ireland, he established the US Banking Division in 1998. He returned to head up Lending Ireland in 2003 and was appointed Group Chief Executive in January 2005.

has been with the Bank since 1992. He holds the position of Group Finance Director.

joined the Bank in 1993 having spent 15 years in various executive positions in the Central Bank of Ireland. He became Director of Treasury in 2001 and assumed his current role as Group Company Secretary in September 2003.

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John Rowan

Peter Butler

Brian Murphy

Tom Browne

Tony Campbell

has been with the Bank since 1985 and is due to retire from his position as Chief Executive – UK at the end of 2005.

joined the Bank in 1987 and assumed his current role as Managing Director of Wealth Management Ireland Division in January 2005.

is Director of Group Treasury. He joined the Bank in 2003 after 20 years in senior banking roles both in Ireland and overseas.

joined the Bank in 1990. He is Managing Director for lending operations throughout Ireland and the Bank’s Wealth Management Division.

joined the Bank in 1991. He held several senior management positions in Lending before moving on to establish Private Banking in Ireland. He is now Chief Executive of the Bank’s North American Division.

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ANGLO IRISH BANK Annual Report & Accounts

In 2005 the Bank provided a facility to refinance the acquisition debt of Earls Court and Olympia. A world famous London icon with an exceptionally powerful brand, it attracts millions of visitors each year to exhibitions, conferences, concerts and other large events. This prominent transaction, where the Bank provided a combined debt finance and interest rate risk management solution to our client, reflects the broadening and strengthening of the Bank’s UK franchise.

Earls Court and Olympia, London

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ANGLO IRISH BANK Annual Report & Accounts

Corporate social responsibility

Leading companies are those that not only deliver superior shareholder returns and excellent customer service but also consider ethical, social and environmental issues for all stakeholders.The Bank recognises its wider obligations to its employees, society and the community it serves and believes there is a strong link between Corporate Social Responsibility (‘CSR’) and long-term success. The Bank aspires to a set of values which recognises the interests of all stakeholders and the contributions they make.To this end, we adopt the highest standards of integrity, corporate governance, environmental awareness and community support.We recognise that being a good corporate citizen not only involves achieving our business aims but embraces a wider contribution to the interests of all our stakeholders.

The Market Place Our customers are fundamental to the Bank’s growth and our ability to continue to develop the business. Financial services is an intensely competitive market. If we do not offer the highest standards of product and service then our customers will take their business elsewhere. Anglo Irish Bank does not adopt a ‘one size fits all’ approach to the service we provide our customers. Each client has individual needs and our aim is to provide a personalised approach which responds to those specific requirements. To ensure that we continue to provide the highest quality service and commitment, our customer support staff are divided into specialised and highly focused teams who understand the individual needs of our customers. Each team provides a point of contact for a specified group of customers and this personalised approach allows us to respond efficiently and effectively to their specific requirements. Moreover we have a comprehensive internal complaints procedure which is structured to deal comprehensively with any instance of customer dissatisfaction.

At a corporate level, we adopt the highest standards of compliance with regulatory requirements and aim to operate to the spirit and not just the letter of regulations. We aim to treat our suppliers with the same courtesy with which we treat our customers.We have service level agreements with all our major suppliers which ensure, amongst other things, that they are paid for their goods and services promptly and efficiently. The Workplace The Bank is its people.Without a talented, dedicated and motivated staff, the Bank cannot aspire to provide the excellent level of service which our customers deserve. For this reason, staff recruitment, training and development are given the highest priority. Our people, who now number over 1,400 in 19 locations in 8 countries, are the key to the Bank’s success over the past 20 years. The Bank is fully committed to equal opportunities recruitment and employment. Our strategy is to recruit the best, whatever the level and provide them with comprehensive training and support to allow them maximise their long-term potential.

25

Anglo Irish Bank volunteers and students from Warrenmount Secondary School.

This is achieved through: • Regular communication on the performance of the Bank’s various divisions and of our future plans and strategies; • Ensuring staff are challenged, supported and empowered and those with ambitions to rise within the organisation have the opportunity to do so; and • Adopting a meritocratic approach which ensures that high achievers are motivated and adequately rewarded. It is the policy of Anglo Irish Bank that our people share in the Bank’s success. Employee share ownership, which fosters a proprietorial approach among staff, is actively encouraged. Since 2000, a Save As You Earn scheme has allowed staff in applicable locations to acquire shares at a discount to the prevailing market price.The scheme was further extended in 2005 to include our staff in Vienna and will be offered to staff in Geneva and North America before the end of this year. It is a source of great strength to the Bank that a very significant number of staff now hold shares.

The Bank also recently announced its intention to further invest in its people through the introduction of enhanced pension benefits, recognising the importance of making adequate provision for retirement. Staff who participate in the Bank’s Defined Contribution Plan will be incentivised to make additional voluntary contributions (‘AVCs’). The Bank will match AVCs on a one-for-one basis up to predefined levels.This places the Group at the forefront of pensions best practice.We believe this new initiative will greatly assist in attracting new people to the Bank while underpinning our strong record of staff retention.

26

ANGLO IRISH BANK Annual Report & Accounts

The Community CSR extends beyond the work place and the market place and this has been endorsed and promoted at the highest level within the Bank. We strongly believe that CSR in the community does not simply mean making passive financial contributions to charities and other organisations. To this end, the Bank and many of our employees are actively engaged in assisting a number of social development projects, not least our involvement since 2000 in a mentoring programme for secondary level pupils of Warrenmount School in the heart of Dublin’s historic Liberties district. Our involvement with Warrenmount has been recognised by the Chambers of Commerce of Ireland in its CSR Awards. To date the Bank has supported more than 70 staff members’ participation in the Warrenmount initiative which has the ultimate aim of encouraging, motivating and supporting students to reach their full potential by helping them to develop their social, interpersonal, communication and workplace skills. The Bank has also made a financial commitment to the school over the seven year period of the programme. In the UK the Bank is also a member of Business in the Community and we will be embarking on a volunteer programme with schools in the Tower Hamlets area of London. For the past two years, the Bank has been involved in a Give As You Earn (‘GAYE’) scheme with Children Direct, a partnership of five respected childrens’ charities:Temple Street Childrens’ Hospital; the ISPCC; Enable Ireland; Focus Ireland and ACTIONAID Ireland.

Under this programme employees make donations to the GAYE scheme by monthly deduction from salary and the contributions are matched euro for euro by the Bank. On average, more than one third of the Bank’s employees donate to the GAYE scheme resulting in an annual contribution to Children Direct of almost €100,000. In all locations staff are encouraged to nominate charities towards which the Bank will make donations. During the year the Bank made substantial contributions to a wide range of Irish, UK and worldwide charities. Community life is enriched by cultural and sporting activities and support for these activities is a core part of the Bank’s CSR programme. In the past year, the Bank has continued its long time association with the Abbey Theatre through our sponsorship of the Writer-in-Association award. Playwright and director, Conor McPherson is the recipient of this year’s award, following in the footsteps of such theatrical luminaries as Tom Murphy, Frank McGuinness, Bernard Farrell and Thomas Kilroy. The Bank has also continued its long standing sponsorship of the RTE National Symphony Orchestra’s (‘NSO’) annual concert series. We feel that the Abbey Theatre, the NSO and other cultural organisations contribute to social and cultural life in Ireland and we remain fully committed to maintaining and strengthening the links between business and the arts.

27

The Bank’s involvement in supporting sporting activities is highlighted by our sponsorship of the Irish Sailing Association and the Anglo Irish Bank Munster National steeplechase at Limerick Racecourse. But we believe that our commitment to both cultural and sporting activities must extend beyond high profile sponsorships and to this end the Bank has contributed directly to some 250 local sports clubs and community based cultural activities. The Environment The Bank adopts environmentally aware practices throughout all its operations.We believe that if employees adopt an environmentally sensitive approach at work then they can adopt that same approach outside the workplace. The Bank has implemented a waste management and recycling initiative across the Group. Staff are encouraged to maximise electronic communication and reduce paper usage. A range of energy saving measures have been introduced and all computer consumables are recycled in line with our environmental policies. Summary Corporate Social Responsibility may be seen by some as a cost factor with no discernible return on the investment involved. At Anglo Irish Bank however, we have no doubt that the initiatives we have implemented in the market place, in the work place and in the community will benefit the Bank, its shareholders, customers, employees and the community at large and we look forward to further developing our CSR initiatives in the years ahead.

Below: maintaining the link between business and the arts – the RTE National Symphony Orchestra and The Abbey Theatre. (L to R) David Drumm, Conor McPherson and Fiach MacConghail.

28

ANGLO IRISH BANK Annual Report & Accounts

222 East 41st Street is a prime, recently renovated office building located in central Manhattan, New York. It is occupied on long-term leases by well established tenants in the professional service and government sectors.The acquisition of this property was led by our Private Bank in Dublin, whose clients provided the equity.They worked closely with the New York office, who provided local market expertise, a suitable debt structure for the transaction and appropriate interest rate risk management.

222 East 41st Street, Manhattan, New York

29

30

Report of the Directors

The Directors present their report and the audited financial statements for the year ended 30 September 2005. Results The Group profit on ordinary activities before taxation for the year amounted to €685.2 million and has been dealt with as shown in the consolidated profit and loss account on page 38. Review of activities The principal activity of the Group is the provision of banking services. The Chairman’s statement and the Group Chief Executive’s review on pages 4 to 15 report on developments during the year, on events since 30 September 2005 and on likely future developments. The financial statements for the year ended 30 September 2005 are set out in detail on pages 38 to 99. Dividends An interim dividend of 4.51c per share was paid on 18 July 2005. Subject to shareholders’ approval, it is proposed to pay a final dividend on 13 February 2006 of 9.03c per share to all registered shareholders at the close of business on 2 December 2005. Dividend withholding tax (‘DWT’) may apply on the proposed final dividend depending on the tax status of each shareholder. Shareholders will be offered the choice of taking new ordinary shares in lieu of the proposed final dividend, after deduction of DWT where applicable. Capital resources Details of changes in capital resources during the year are included in notes 28 to 34 of the financial statements. Directors and Secretary The names of the current Directors appear on pages 18 and 19, together with a short biographical note on each Director. Tiarnan O Mahoney retired from the Board on 2 December 2004. Peter Murray and Anton Stanzel retired as Directors on 28 January 2005. John Rowan will retire from the Board on 31 December 2005. Sean FitzPatrick and Fintan Drury retire by rotation as Directors in accordance with the articles of association and, being eligible, offer themselves for re-election. Michael Jacob offers himself for re-election as, having served more than nine years on the Board, he is subject to annual re-election under the Combined Code. Declan Quilligan will be co-opted to the Board on 31 December 2005. Bernard Daly served as Secretary throughout the year. The interests of the current Directors and Secretary in the share capital of the Company are shown in the Remuneration Committee’s report on behalf of the Board set out in note 46 to the financial statements.

Substantial shareholdings Details of interests in excess of 3% of the ordinary share capital which have been notified to the Company are shown on page 102. Group undertakings and foreign branches Particulars of the principal subsidiary undertakings within the Group required to be declared under Section 16 of the Companies (Amendment) Act, 1986 are shown in note 17. The Company has established branches, within the meaning of EU Council Directive 89/666/EEC, in Austria and the United Kingdom. Corporate governance The Directors’ corporate governance statement appears on pages 32 to 35. Books and accounting records The Directors are responsible for ensuring that proper books and accounting records, as outlined in Section 202 of the Companies Act, 1990, are kept by the Company. To ensure compliance with these requirements the Directors have appointed professionally qualified accounting personnel with appropriate expertise and have provided adequate resources to the finance function. These books and accounting records are maintained at the Company’s registered office at Stephen Court, 18/21 St. Stephen’s Green, Dublin 2. Auditors The Auditors, Ernst & Young, have expressed their willingness to continue in office. Directors: Sean FitzPatrick, David Drumm,William McAteer. Secretary: Bernard Daly. 22 November 2005

ANGLO IRISH BANK Annual Report & Accounts

Statement of Directors’ responsibilities

The following statement, which should be read in conjunction with the Auditors’ report on pages 36 and 37, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the Auditors in relation to the financial statements. Irish company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year and of the profit or loss of the Group for that year.With regard to the financial statements on pages 38 to 99, the Directors have determined that it is appropriate that they continue to be prepared on a going concern basis and consider that in their preparation: • suitable accounting policies have been selected and applied consistently; • judgements and estimates that are reasonable and prudent have been made; and • applicable accounting standards have been followed.

The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the financial statements are prepared in accordance with accounting standards generally accepted in Ireland and comply with the Companies Acts, 1963 to 2005 and the European Communities (Credit Institutions:Accounts) Regulations, 1992. They also have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and of the Group and to prevent and detect fraud and other irregularities.

31

32

Corporate governance statement

The Directors of the Company are committed to maintaining the highest standards of corporate governance and, in particular, have regard to the principles set out in ‘The Combined Code on Corporate Governance’ published in July 2003. This Corporate Governance statement describes how the Company applies the principles of the Combined Code and comments also on its compliance with the Code’s provisions. Except where stated, the Directors believe that the Group has complied fully with the provisions of the Combined Code throughout the financial year ended 30 September 2005. Board of Directors The Board provides leadership and control for the Bank. It delegates the management and day-to-day running of the Bank to the Group Chief Executive and senior management but keeps reserved specific items for its decision. These include agreement of strategic objectives, annual plans and performance targets, monitoring and control of operations, review of the performance of Board Committees and approval of specific senior appointments. The Board consists of twelve Directors, eight of whom are Non-executive Directors. A short biographical note on each Director is set out on pages 18 and 19. Michael Jacob is the senior independent Non-executive Director. The Non-executive Directors have varied backgrounds, skills and experience and are independent of management. All Directors bring their independent judgement to bear on issues of strategy, performance, resources, key appointments and standards of conduct. The Board meets at least nine times annually. Additional meetings are arranged if required. It has a formal written schedule of matters reserved to it for decision. The Board receives regular management reports and information on corporate and business issues to enable reviews of performance against business targets and objectives to be undertaken. Details of attendance by Directors at scheduled meetings of the Board and its Committees during the year ended 30 September 2005 are set out on page 35. Roles of Chairman and Group Chief Executive The roles of the Chairman and Group Chief Executive are distinct and separate, with a clear division of responsibilities. These responsibilities are set out in writing and have been approved by the Board. The Chairman is responsible for the leadership and effectiveness of the Board and the Non-executive Directors. He promotes continuing high standards of corporate governance and ensures there is effective communication with shareholders.

The Group Chief Executive has the responsibility to ensure that the strategic direction agreed by the Board is followed and formulates policy proposals for the Board’s consideration. He provides leadership, both through his advice to the Board and his management of the day-to-day operations of the Bank, including the management of human, financial and physical resources. He has the central role in maintaining and enhancing a culture of high performance and motivation in the Bank. Together with the Finance Director, he has responsibility for ongoing relationships with shareholders. Independence of the Board The Board has determined that each of the Non-executive Directors is independent. In reaching that conclusion, the Board took into account a number of factors that might appear to affect the independence of some of the Directors, including length of service on the Board and cross-directorships. In each case the Board is completely satisfied that the independence of the relevant Directors is not compromised. Appointments to the Board The Board has put in place a rigorous and transparent procedure for the appointment of new Directors. Directors are appointed initially for a three year term and may be appointed for further three year terms. New Directors are proposed for election at the Annual General Meeting following their appointment. Appointments to the Board are made based on merit and using objective criteria. The terms and conditions of appointment of Non-executive Directors are available for inspection at the registered office during normal business hours, and at the Annual General Meeting. Induction is provided to all Directors on appointment and Directors regularly update and refresh their skills and knowledge. The induction process includes provision of an opportunity for new Non-executive Directors to meet major shareholders. The Directors have access to the advice and services of the Group Company Secretary who is responsible for ensuring that Board procedures are followed and that there is compliance with applicable rules and regulations. The Directors also have access to independent professional advice, at the Group’s expense, if and when required. Committees of the Board have similar access. Performance evaluation The Board and its Committees undertake an annual evaluation of their performance. The Committees report their findings and any resulting recommendations to the Board. In addition, the Chairman conducts evaluations of the performance of the Board, individual Directors and Board Committees annually.

ANGLO IRISH BANK Annual Report & Accounts

An evaluation of the performance of the Chairman is conducted by the senior independent Non-executive Director, taking into account the views of the other Directors. The Chairman meets at least once a year with the Non-executive Directors without the Executive Directors and has a private discussion at least once a year with every Director on a wide range of issues affecting the Group, including any matters which the Directors, individually, wish to raise. Each Director discusses his or her own performance with the Chairman. The Board discusses the results of the evaluation and uses the process to constructively improve the effectiveness of the Board. Re-election Any term of office for a Director beyond six years (two three year terms) is subject to rigorous review and terms longer than nine years (three terms) are subject to annual re-election. All Directors must submit themselves for re-election every three years. The names of Directors submitted for election or re-election are accompanied by biographical and other details in order to allow shareholders to make an informed decision. Board Committees There are four Board Committees and each has specific terms of reference, which are reviewed periodically. Remuneration Committee Members: Michael Jacob (Chairman), Sean FitzPatrick and Ned Sullivan. All members of the Remuneration Committee are Non-executive Directors. The Committee is responsible for the formulation of the Group’s policy on remuneration in relation to all Executive Directors and other senior executives. The Committee’s terms of reference are available, on request through the Group Company Secretary, and on the Bank’s website. The Committee’s report on behalf of the Board on Directors’ remuneration and interests is set out in note 46 to the financial statements. Audit Committee Members: Ned Sullivan (Chairman), Lar Bradshaw, Gary McGann and Patrick Wright. The Audit Committee receives reports on various aspects of control, reviews the Group’s financial statements, determines as to whether proper books of account have been kept in accordance with the Companies Acts and ensures that no restrictions are placed on the scope of the statutory audit or on the independence of the Internal Audit function.

The Audit Committee has unrestricted access to both the Group internal and external Auditors. It meets with the external Auditors at least once each year. The independence and objectivity of the external Auditors is considered periodically together with the scope and results of the audit and its cost effectiveness.The Committee’s terms of reference are available, on request through the Group Company Secretary, and on the Bank’s website. Risk and Compliance Committee Members: Michael Jacob (Chairman),Tom Browne, Fintan Drury and Patricia Jamal. The Risk and Compliance Committee’s role is to oversee risk management and compliance. It reviews, on behalf of the Board, the key risks and compliance issues inherent in the business and the system of internal control necessary to manage them and presents its findings to the Board. The Committee meets at least five times during the year and reviews its processes and effectiveness annually. The Committee’s terms of reference are available, on request through the Group Company Secretary, and on the Bank’s website. Nomination and Succession Committee Members: Sean FitzPatrick (Chairman), David Drumm, Fintan Drury, Michael Jacob, Ned Sullivan and Patrick Wright. This Committee is responsible for recommending the appointment of Directors to the Board and for reviewing senior management succession plans. Its key roles are recommending to the Board all appointments to and removals from the Board as well as re-appointments; ensuring a suitable induction programme is in place for all new Directors; regularly reviewing the Board’s structure, size, composition and balance; ensuring adequate succession planning is in place, particularly for the Chairman and Group Chief Executive; reviewing all appointments to and departures from the Senior Executive Board; encouraging the establishment of formal management development programmes. External search consultants have been used in the past for the appointment of Non-executive Directors. The Committee’s terms of reference are available, on request through the Group Company Secretary, and on the Bank’s website. Internal controls The Directors acknowledge their overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. The system is designed to manage rather than eliminate the risk of failure to achieve the Group’s business objectives and provides reasonable but not absolute assurance against material financial misstatement or loss.

33

34

Corporate governance statement continued

Such losses could arise because of the nature of the Group’s business in undertaking a wide range of financial services that inherently involve varying degrees of risk.

establishing that appropriate action is being taken by management to address issues highlighted. The Audit Committee also meets with and receives reports from the external Auditors.

The Board confirms that during the year under review and up to the date of approval of the annual report and financial statements there was in place an ongoing process for identifying, evaluating and managing the significant risks faced by the Group and that this process is regularly reviewed by the Board and accords with the Code.The key elements of the procedures established by the Board to provide effective internal control include:

Following each meeting of the Audit Committee and the Risk and Compliance Committee, the Committee Chairmen report to the Board and minutes of such meetings are circulated to all members of the Board.

• An organisation structure with clearly defined authority limits and reporting mechanisms to higher levels of management and to the Board, which supports the maintenance of a strong control environment. • A Group Risk Management function and a Group Compliance function with responsibility for ensuring that risks are identified, assessed and managed throughout the Group. The Group Credit Committee together with the Group Asset and Liability Committee provide support to the Audit Committee and the Risk and Compliance Committee in ensuring that efficient procedures are in place to manage risk. • An annual budgeting and monthly financial reporting system for all Group business units which enables progress against plans to be monitored, trends to be evaluated and variances to be acted upon. • A comprehensive set of policies and guidelines relating to capital expenditure, computer security, business continuity planning, asset and liability management (including interest, currency and liquidity risk), operational risk management, credit risk management and compliance. The Group Internal Audit function reports to the Group Chief Executive and the Audit Committee. It helps the Group accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of the risk management, control and governance processes. Group Internal Audit also systematically reviews the controls listed above, which are embedded within the operations of the Group. Emphasis is focused on areas of greatest risk as identified by risk analysis. In addition, the systems of internal control are subject to regulatory supervision by the Irish Financial Regulator and other regulators overseas. The Audit Committee and the Risk and Compliance Committee review the effectiveness of the Group’s internal controls annually. This involves reviewing the work and the reports of the Internal Audit, Risk Management and Compliance functions and

The Directors confirm that, with the assistance of reports from the Audit Committee and the Risk and Compliance Committee, they have reviewed, in accordance with the Combined Code, the effectiveness of the systems of internal control in existence in the Group for the year ended 30 September 2005 and for the period up to and including the date of approval of the financial statements. The review undertaken covers all aspects of control including financial, operational and compliance controls and risk management. Going concern The Directors confirm that they are satisfied that the Company and the Group have adequate resources to continue to operate for the foreseeable future and are financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Relations with shareholders The Group gives relations with shareholders a high priority. The Directors are kept informed on shareholder relations through regular reports to the Board by the Group Chief Executive and Finance Director and through feedback from shareholders, brokers and investment bankers. There is regular dialogue with individual institutional shareholders, financial analysts and brokers. Presentations are given at the time of major announcements and these provide opportunities for Directors to hear the views of shareholders directly. All shareholders are encouraged to attend the Annual General Meeting and notice is sent to shareholders at least twenty one working days in advance of the meeting. At the Annual General Meeting separate resolutions are proposed on each substantially separate issue.When an issue has been determined at the meeting on a show of hands, the Chairman indicates to the meeting the number and proportion of proxy votes for and against that resolution. The Chairmen of the Remuneration Committee,Audit Committee, Risk and Compliance Committee and Nomination and Succession Committee are available to answer relevant questions at the Annual General Meeting. The Group uses its internet site (www.angloirishbank.com) to provide investors with the full text of each annual and interim report, and copies of presentations to analysts and investors.

ANGLO IRISH BANK Annual Report & Accounts

The website also provides detailed financial data, Company information, information on credit ratings and all Stock Exchange and other press releases. Shareholders can access annual reports and accounts and interim reports for the previous five years. The website allows shareholders to subscribe to automatic e-mail alerts for the above mentioned information.

Attendance at scheduled meetings during the year ending 30 September 2005 Name

Board

Audit

Remuneration

Risk and Compliance

Nomination and Succession

A*

B*

A*

B*

A*

B*

A*

B*

A*

B*

Sean FitzPatrick, Chairman

10

10

-

-

2

2

-

-

3

3

David Drumm, Group Chief Executive

10

10

-

-

-

-

-

-

3

3

Lar Bradshaw

10

10

7

4+

-

-

-

-

-

-

Tom Browne

10

10

-

-

-

-

6

1 ++

-

-

Fintan Drury

10

9

-

-

-

-

6

4

3

3

Michael Jacob

10

10

-

-

2

2

6

6

3

3

Patricia Jamal

10

10

-

-

-

-

6

6

-

-

William McAteer

10

10

-

-

-

-

-

-

-

-

Gary McGann

10

7

7

6

-

-

-

-

-

-

Peter Murray (Retired 28/01/2005)

10

3

-

-

2

-

-

-

3

1

Tiarnan O Mahoney (Retired 2/12/2004)

10

2

-

-

-

-

6

1

-

-

John Rowan

10

9

-

-

-

-

-

-

-

-

Ned Sullivan

10

10

7

7

2

2

-

-

3

3

Anton Stanzel (Retired 28/01/2005)

10

3

7

3

-

-

-

-

-

-

Patrick Wright

10

5

7

5

-

-

-

-

3

3

* Column A indicates the number of scheduled meetings held and Column B indicates the number of scheduled meetings attended during the period the Director was a member of the Board or Committee and was eligible to attend. + Lar Bradshaw was appointed to the Audit Committee on 25 February 2005. ++ Tom Browne was appointed to the Risk and Compliance Committee on 22 March 2005.

35

36

Independent Auditors’ report to the members of Anglo Irish Bank Corporation plc

We have audited the Group’s financial statements for the year ended 30 September 2005, which comprise the consolidated profit and loss account, consolidated balance sheet, company balance sheet, consolidated cash flow statement, statement of total recognised gains and losses, reconciliation of movements in shareholders’ funds and the related notes 1 to 49. These financial statements have been prepared on the basis of the accounting policies set out therein. 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’ responsibilities for preparing the annual report and the financial statements in accordance with applicable Irish law and accounting standards are set out in the statement of Directors’ responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, Auditing Standards issued by the Auditing Practices Board for use in Ireland and the United Kingdom and the Listing Rules of the Irish Stock Exchange. 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.We also report to you our opinion as to: whether proper books of account have been kept by the Company; whether proper returns adequate for our audit have been received from branches not visited by us; whether at the balance sheet date there exists a financial situation which may require the convening of an Extraordinary General Meeting of the Company; and whether the information given in the Directors’ report is consistent with the financial statements. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit and whether the Company’s balance sheet is in agreement with the books of account and returns.

We also report to you if, in our opinion, any information specified by law or the Listing Rules regarding Directors’ remuneration and transactions with the Group is not given and, where practicable, include such information in our report. We review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the 2003 Financial Reporting Council’s Code specified for our review by the Listing Rules of the Irish Stock Exchange 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 other information contained in the annual report and consider whether it is consistent with the audited financial statements. This other information comprises the Directors’ report, Chairman’s statement, Group Chief Executive’s review and the corporate governance statement.We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

37

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.

In our opinion the information given in the Directors’ report is consistent with the financial statements. In our opinion the Company balance sheet does not disclose 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. Ernst & Young Registered Auditors Dublin 22 November 2005

Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 30 September 2005 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the provisions of the Companies Acts, 1963 to 2005 and the European Communities (Credit Institutions:Accounts) Regulations, 1992. We have obtained all the information and explanations we consider 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 purpose of our audit have been received from branches not visited by us. The Company’s balance sheet is in agreement with the books of account and returns.

The following two notes have been added to the Auditors’ report in compliance with the guidance issued by the Auditing Practices Board in bulletin 2001/1 ‘The electronic publication of auditors’ reports’. Notes: 1.

The maintenance and integrity of the Anglo Irish Bank website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2.

Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

38

Consolidated profit and loss account FOR THE YEAR ENDED 30 SEPTEMBER 2005

Notes

Interest receivable and similar income Interest receivable and similar income arising from Debt securities and other fixed income securities Other interest receivable and similar income Interest payable and similar charges Net interest income Other income Fees and commissions receivable Fees and commissions payable Dealing profits Other operating income Total operating income Operating expenses Administrative expenses Depreciation and goodwill amortisation Provisions for bad and doubtful debts - specific

2 13

2005 €m

2004 €m

110.2 1,966.6 (1,356.8) 720.0

50.4 1,402.5 (929.4) 523.5

241.5 (22.3) 16.0 21.8 977.0

183.9 (16.3) 12.8 19.3 723.2

247.2 15.2 29.4 291.8

185.4 14.6 19.1 219.1

Group profit on ordinary activities before taxation

3

685.2

504.1

Taxation on profit on ordinary activities Group profit on ordinary activities after taxation

4

(140.2) 545.0

(107.7) 396.4

Minority interests Dividends on preference shares Group profit attributable to ordinary shareholders

5 6 7

(45.8) (8.2) 491.0

(17.0) 379.4

8 34

(91.4) 399.6

(75.2) 304.2

Basic earnings per €0.16 ordinary share

9

73.21c

57.26c

Diluted earnings per €0.16 ordinary share

9

71.74c

56.19c

Dividends per €0.16 ordinary share

8

13.54c

11.28c

Dividends on €0.16 ordinary shares Group profit retained for year

Directors: Sean FitzPatrick, David Drumm,William McAteer.

Secretary: Bernard Daly.

ANGLO IRISH BANK Annual Report & Accounts

Consolidated balance sheet A S AT 3 0 S E P T E M B E R 2 0 0 5

Notes

Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Securitised assets Less: non-returnable proceeds

10 11 12 14 14

363.2 5,847.4 23,723.8 666.0 (634.8) 31.2 2,534.4 26.1 69.6 59.4 577.7 439.4 33,672.2 667.6 34,339.8

7,150.7 25,159.7 9,405.1 61.0 433.1 457.3 5.3 42,672.2

2,605.9 19,546.0 6,944.5 50.1 255.6 392.0 5.4 29,799.5

1,181.7 661.1 692.4 2,535.2 108.9 600.2 2.4 1,400.6 2,112.1 4,647.3 47,319.5 944.1 48,263.6

1,133.3 656.2 843.4 2,632.9 107.1 157.6 0.9 974.2 1,239.8 3,872.7 33,672.2 667.6 34,339.8

36

2,169.5

910.4

36

6,011.0

4,055.0

15 16 18 19 20

Life assurance assets attributable to policyholders Total assets

22

Capital resources Subordinated liabilities Perpetual capital securities Equity and non-equity minority interests

23 24 25 8 26 27

28 29 30

Called up share capital Share premium account Other reserves Profit and loss account Total shareholders’ funds including non-equity interests Total capital resources

31 32 33 34

Life assurance liabilities attributable to policyholders Total liabilities and capital resources

22

Memorandum items Contingent liabilities Guarantees Commitments Commitments to lend Directors: Sean FitzPatrick, David Drumm,William McAteer.

2004 €m

566.7 6,253.6 34,099.0 322.0 (307.0) 15.0 4,933.1 46.7 65.5 88.9 776.7 474.3 47,319.5 944.1 48,263.6

Debt securities Equity shares Intangible fixed assets - goodwill Tangible fixed assets Other assets Prepayments and accrued income

Liabilities Deposits by banks Customer accounts Debt securities in issue Proposed ordinary dividends Other liabilities Accruals and deferred income Provisions for liabilities and charges

2005 €m

Secretary: Bernard Daly.

39

40

Company balance sheet A S AT 3 0 S E P T E M B E R 2 0 0 5

Notes

Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Securitised assets Less: non-returnable proceeds Debt securities Equity shares Investments in Group undertakings Intangible fixed assets - goodwill Tangible fixed assets Other assets Prepayments and accrued income Total assets Liabilities Deposits by banks Customer accounts Debt securities in issue Proposed ordinary dividends Other liabilities Accruals and deferred income Provisions for liabilities and charges Capital resources Subordinated liabilities Called up share capital Share premium account Other reserves Profit and loss account Total shareholders’ funds including non-equity interests

10 11 12 14 14

345.3 4,844.8 22,495.7 666.0 (634.8) 31.2 2,523.4 3.2 602.0 0.4 20.5 236.9 350.1 31,453.5

9,667.5 22,320.5 9,226.2 61.0 397.6 398.0 0.2 42,071.0

4,629.0 17,437.8 6,748.9 50.1 235.2 267.2 0.2 29,368.4

28

1,181.7

1,133.3

31 32 33 34

108.9 600.2 1.3 1,088.4 1,798.8

107.1 157.6 1.3 685.8 951.8

2,980.5

2,085.1

45,051.5

31,453.5

36

2,140.1

873.1

36

4,837.4

3,098.3

15 16 17 18 19 20

23 24 25 8 26 27

Total liabilities and capital resources

Directors: Sean FitzPatrick, David Drumm,William McAteer.

2004 €m

558.2 4,693.0 33,392.2 322.0 (307.0) 15.0 4,921.6 11.4 612.9 0.4 28.2 398.5 420.1 45,051.5

Total capital resources

Memorandum items Contingent liabilities Guarantees Commitments Commitments to lend

2005 €m

Secretary: Bernard Daly.

ANGLO IRISH BANK Annual Report & Accounts

Consolidated cash flow statement FOR THE YEAR ENDED 30 SEPTEMBER 2005

Note

Reconciliation of operating profit to net operating cash flows Operating profit Increase in accruals and deferred income Increase in prepayments and accrued income Financing costs of subordinated liabilities Financing costs of perpetual capital securities Interest earned on debt securities and other fixed income securities Amortisation of premiums and discounts on debt securities Provisions for bad and doubtful debts Loans and advances written off net of recoveries Depreciation and goodwill amortisation Profit on disposal of debt securities and equity shares Net cash flow from trading activities Net increase in deposits Net increase in loans and advances to customers Net increase in loans and advances to banks Net increase in other assets Net increase/(decrease) in other liabilities Exchange and other movements Net cash flow from operating activities Returns on investment and servicing of finance Tax paid Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Financing Decrease in cash

37 37 37 37 37

2005 €m

2004 €m

685.2 56.7 (27.3) 45.7 53.2 (101.5) (8.7) 29.4 (10.2) 15.2 (6.8) 730.9

504.1 124.8 (178.6) 32.2 52.8 (48.3) (2.1) 19.1 (11.7) 14.6 (0.3) 506.6

12,619.1 (10,378.2) (667.6) (195.9) 174.6 12.0 2,294.9

6,670.8 (6,463.0) (1,561.3) (160.1) (8.2) (1.6) (1,016.8)

(50.7) (134.2) (2,442.5) (5.8) (51.2) 331.6 (57.9)

(57.2) (104.1) (1,225.2) (49.9) 1,303.7 (1,149.5)

41

42

Statement of total recognised gains and losses FOR THE YEAR ENDED 30 SEPTEMBER 2005

2005 €m

2004 €m

491.0 1.5 492.5

379.4 379.4

2005 €m

2004 €m

Preference shares issued Ordinary shares issued in lieu of cash dividends Ordinary share options exercised Investment properties revaluation Net movement in own shares Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds

491.0 (91.4) 399.6 431.6 29.3 12.8 1.5 (2.5) 872.3 1,239.8 2,112.1

379.4 (75.2) 304.2 21.0 4.2 (0.8) 328.6 911.2 1,239.8

Equity interests Non-equity interests Closing shareholders’ funds

1,680.5 431.6 2,112.1

1,239.8 1,239.8

Group profit attributable to ordinary shareholders Investment properties revaluation Total recognised gains since last annual report

Reconciliation of movements in shareholders’ funds FOR THE YEAR ENDED 30 SEPTEMBER 2005

Group profit attributable to ordinary shareholders Dividends on ordinary shares

Note of historical cost profit and loss There is no significant difference between the results as disclosed in the profit and loss account and the results on an unmodified historical cost basis.

ANGLO IRISH BANK Annual Report & Accounts

Notes to the financial statements

1. Accounting policies These financial statements have been prepared under the historical cost convention as modified by the revaluation of financial instruments held for dealing purposes, assets attributable to policyholders’ interests in the assurance business and investment properties. The financial statements comply with applicable accounting standards issued by the Accounting Standards Board and Statements of Recommended Practice issued by the British Bankers’ Association and the Irish Bankers’ Federation. Accounting policies are reviewed regularly to ensure that they are the most appropriate to the circumstances of the Group for the purposes of giving a true and fair view. There have been no changes in accounting policies since last year. The principal accounting policies adopted are as follows: a) Consolidation The consolidated financial statements include the accounts of the Company and all its Group undertakings to 30 September 2005. Where a subsidiary undertaking is acquired during the financial year, the consolidated accounts include the attributable results from the date of acquisition up to the end of the financial year. In order to reflect the different nature of the policyholders’ interests in the assurance business, the assets and liabilities attributable to policyholders are classified separately in the consolidated balance sheet. All intergroup transactions and balances are eliminated on consolidation with the exception of transactions and balances between the banking business and policyholders of the life assurance business. b) Provisions for bad and doubtful debts Loans and advances are stated in the balance sheet after deduction of provisions for bad and doubtful debts. The provisions arise as a result of a detailed appraisal of the lending portfolio. Specific provisions are made on a case-by-case basis to reduce the carrying value of each case to its expected net realisable value after taking into account factors such as the financial condition of the borrower, security held and costs of realisation. A general provision is also made to cover latent loan losses which are present in any lending portfolio but which have not been specifically identified. Loans and advances are written off when there is no longer any realistic prospect of recovery. 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. c) Income recognition Interest on loans and advances is accounted for on an accruals basis. Interest is not taken to profit where recovery is doubtful. Credit has been taken for finance charges on instalment credit and finance leasing accounts by spreading the income on each contract over the primary period of the agreement by the sum of digits method, save that an amount equivalent to the set-up costs on each agreement is credited to income at the date of acceptance. The finance charges on certain tax-based finance leases are credited to income on an after-tax actuarial basis. Lending arrangement fees are recognised as income when receivable except when they are charged in lieu of interest in which case they are credited to income over the contractual life of the loan. Other fees arising on development loans are recognised upon practical completion of the underlying development. All other fees and commissions which represent a return for services provided or risk borne are credited to income over the period during which the service is performed or the risk is borne as appropriate. d) New business costs Initial costs of obtaining new business have been charged in arriving at the profit for the year except in the case of introductory commission paid on instalment credit and finance leasing agreements which is charged against revenue over the primary period of each agreement by the sum of digits method.

43

44

Notes to the financial statements continued

1. Accounting policies continued e) Debt securities Debt securities are held for investment purposes. Premiums and discounts on debt securities having a fixed redemption date are amortised over the period from the date of purchase to the date of maturity. These investments are included in the balance sheet at amortised cost. Gains and losses arising on the realisation of debt securities, net of amortisation adjustments, are taken to the profit and loss account as and when realised. Debt 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. f) Tangible fixed assets and depreciation Tangible fixed assets other than investment properties are stated at cost and depreciation is provided on a straight line basis over their expected useful lives as follows: Freehold properties Fixtures and fittings Computer equipment and software Motor vehicles

2% per annum 12.5% to 25% per annum 25% per annum 20% per annum

Leasehold properties are depreciated on a straight line basis over the shorter of twenty years or the period of the lease or the period to the first break clause date in the lease. Only external costs incurred on computer software development are capitalised. Investment properties are included in the balance sheet at their open market value. No depreciation is charged on freehold investment properties in accordance with the requirements of Statement of Standard Accounting Practice 19-‘Accounting for Investment Properties’. This is a departure from the requirements of the European Communities (Credit Institutions:Accounts) Regulations, 1992. The Directors consider that the depreciation policy adopted for investment properties is necessary for the accounts to give a true and fair view. g) Deferred taxation Except as outlined below full provision is made for deferred taxation in respect of all timing differences that have originated but not reversed. Deferred tax assets are recognised to the extent that they are expected to be recovered. Calculations are on an undiscounted basis using taxation rates expected to apply when timing differences reverse. Deferred taxation is not provided in respect of timing differences arising from the sale of investment properties at their revalued amount unless, by the balance sheet date, there is a binding agreement to sell the revalued assets. Deferred taxation is not provided 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. h) Foreign currencies Assets and liabilities denominated in foreign currencies and commitments for the purchase and sale of foreign currencies are translated into Euro at the appropriate spot and forward rates of exchange ruling at the balance sheet dates. Profits and losses in foreign currencies are translated into Euro at the closing rates of exchange or at hedge rates where appropriate. Exchange differences, net of hedging gains and losses, which arise from the application of closing rates of exchange to the opening net assets held in foreign currencies are recorded as exchange translation adjustments on reserves. All other exchange profits and losses, which arise from normal trading activities, are included in the profit and loss account.

ANGLO IRISH BANK Annual Report & Accounts

i) Goodwill Purchased goodwill represents the excess of the purchase consideration over the fair value ascribed to the net tangible assets acquired. Purchased goodwill arising on acquisitions on or after 1 October 1998 is capitalised as an intangible asset and amortised over the estimated useful economic lives of these acquisitions, subject to a maximum period of twenty years. Prior to that date purchased goodwill had been written off against reserves in the year of acquisition. The carrying value of goodwill is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. j) Capital instruments The issue expenses of capital instruments other than equity and non-equity shares are deducted from the proceeds of issue and, where appropriate, are amortised in the profit and loss account so that the finance costs are allocated to accounting periods over the economic life of these instruments at a constant rate based on their carrying amount. The issue expenses of equity and non-equity capital instruments with an indeterminate economic life are not amortised. Premiums arising on the issue of equity and non-equity shares are credited to the share premium account. Premiums and discounts arising on the issue of other non-equity capital instruments are included as part of the balance sheet liability and are amortised in the profit and loss account over the economic life of these instruments at a constant rate based on their carrying amount. k) Derivatives Derivative instruments used for trading purposes include swaps, futures, forwards, forward rate agreements and options in the interest rate and foreign exchange markets. These derivatives, which include all customer and proprietary transactions together with any associated hedges, are measured at fair value. Income earned on customer transactions is included in fees and commissions receivable. Other gains and losses are included in dealing profits.Where market prices are not readily available internally generated prices are used. These prices are calculated using recognised formulae for the type of transaction. Unrealised gains and losses are reported gross in other assets or other liabilities after allowing for the effects of qualifying netting agreements where the Group has the right to insist on net settlement that would survive the insolvency of the counterparty. Derivative instruments used for hedging purposes include swaps, futures, forwards, forward rate agreements and options in the interest rate, foreign exchange and equity markets. Gains and losses on these derivatives which are entered into for specifically designated hedging purposes are taken to the profit and loss account in accordance with the accounting treatment of the underlying transaction. Profits and losses related to qualifying hedges of firm commitments and anticipated transactions are deferred and taken to the profit and loss account when the hedged transactions occur. The criteria required for an instrument to be classified as a designated hedge are: (i) Adequate evidence of the intention to hedge must be established at the outset of the transaction. (ii) The transaction must match or eliminate a proportion of the risk inherent in the assets, liabilities, positions or cash flows being hedged. Changes in the derivative’s fair value must be highly correlated with changes in the fair value of the underlying hedged item for the entire life of the contract. Where these criteria are not met transactions are measured at fair value. Hedge transactions which are superseded, cease to be effective or are terminated early are measured at fair value. Any profit or loss arising is deferred and reported in other assets or other liabilities. This profit or loss is amortised over the remaining life of the asset, liability, position or cash flow which had previously been hedged. When the underlying asset, liability or position is terminated, or an anticipated transaction is no longer likely to occur, the hedging transaction is measured at fair value and any profit or loss arising is recognised in full in dealing profits. The unrealised profit or loss is reported in other assets or other liabilities.

45

46

Notes to the financial statements continued

1. Accounting policies continued l) Operating leases Rentals on operating leases are charged to the profit and loss account in equal instalments over the lease term. m) Trading properties Trading properties are held for resale and are stated at the lower of cost and net realisable value. n) Securitised assets Assets sold under securitisation arrangements whereby the Group retains significant rights to benefits but where its maximum loss is limited to a fixed monetary amount are included in the balance sheet at their gross amount less the non-returnable proceeds received on securitisation using a linked presentation. The contribution earned from securitised assets is included in other operating income. o) Equity shares Investments in equity shares and other similar instruments are stated at cost less provisions for permanent diminution in value.The Group has made investments where its interest is 20% or more. The results of these undertakings are not equity accounted in the Group results as these interests form part of an investment portfolio. p) Pensions The Group’s contributions to defined benefit pension schemes are based on the recommendations of an independent qualified actuary and are charged in the profit and loss account so as to spread pension costs over eligible employees’ service lives at stable contribution rates.Variations from the regular cost are spread over the average remaining service life of the relevant employees. The costs of the Group’s defined contribution pension schemes are charged in the profit and loss account in the year in which these costs are incurred. Differences between the amounts funded and the amounts charged in the profit and loss account are treated as either provisions or prepayments in the balance sheet. q) Dividends Dividends proposed after the year end are recorded as a liability at the balance sheet date in accordance with applicable Irish legislation. Scrip dividends are initially recorded at the cash amount as an appropriation in the profit and loss account.When scrip shares are issued in place of dividends the cash equivalent, net of dividend withholding tax where applicable, is written back to retained profits. Shares issued in lieu are set-off against the share premium account. r) Share options When share options are granted to employees the charge expensed to the profit and loss account is the difference between the market value of the shares at the time the grant invitations are made and the payments due from employees. Under the terms of the Group’s Save As You Earn (‘SAYE’) schemes employees may have the option to purchase shares at a discount to the market price at the time these options are granted. In accordance with the exemption for SAYE schemes permitted by Urgent Issue Task Force 17 this discount to the market price is not expensed to the profit and loss account. All non-SAYE options have been granted at the market price on the invitation date so no share option expense has occurred. s) Own shares The cost of shares in the parent Company held by employee share trusts which have not vested unconditionally in the employees is deducted in arising at consolidated shareholders’ funds. Dividend income received on these shares is excluded in arriving at Group profit before taxation and deducted from the aggregate of dividends paid and proposed. Shares held by these employee share trusts are excluded from the earnings per share calculations.

ANGLO IRISH BANK Annual Report & Accounts

t) Fiduciary and trust activities The Group acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, unit trusts, investment trusts and pension schemes. These assets are not consolidated in the accounts as the Group does not have beneficial ownership. Fees and commissions earned in respect of these activities are included in the profit and loss account. 2. Administrative expenses Staff costs: Wages and salaries Social welfare costs Pension costs Other staff costs Other administrative costs

The average number of persons employed by the Group during the year, analysed by geographic location, was as follows: Republic of Ireland United Kingdom and Isle of Man Rest of the World

3. Group profit on ordinary activities before taxation

2005 €m

2004 €m

138.2 16.7 10.1 2.0 167.0 80.2 247.2

97.3 10.6 9.5 2.6 120.0 65.4 185.4

2005

2004

740 393 190 1,323

691 327 143 1,161

2005 €m

2004 €m

0.7 11.1 4.1 9.0 2.3 45.7 53.2

0.6 10.5 4.1 8.0 1.4 32.2 52.8

93.1 17.1 32.8 4.3 2.5 7.9 8.1

50.4 32.7 0.3 7.4 5.4

The Group profit on ordinary activities before taxation is arrived at after charging: Auditors’ remuneration Depreciation of tangible fixed assets Amortisation of intangible fixed assets – goodwill Operating lease rentals – property – equipment Financing costs of subordinated liabilities Financing costs of perpetual capital securities and after crediting: Income from listed investments Income from unlisted investments Finance leasing and hire purchase income Profit on disposal of investment securities – debt securities – equity shares Dealing profits – interest rate contracts – foreign exchange contracts

The Group profit on ordinary activities before taxation is not materially affected by the results of acquisitions or discontinued operations during the year.

47

48

Notes to the financial statements continued

4. Taxation on profit on ordinary activities Current tax Irish Corporation Tax – current year – prior years Double taxation relief Irish Bank Levy Foreign tax – current year – prior years Deferred tax Current year

2005 €m

2004 €m

80.1 (1.5) (23.9) 5.2 85.3 (2.3) 142.9

56.2 0.1 (19.2) 5.2 65.8 (0.1) 108.0

(2.7) 140.2

(0.3) 107.7

Effective tax rate

20.5%

21.4%

The deferred tax credit arising from the origination and reversal of timing differences was as follows:

2005 €m

2004 €m

(3.6) 0.9 (2.7)

0.7 (1.0) (0.3)

85.7

63.0

50.6 5.2 3.6 (3.8) 1.6 142.9

38.5 5.2 (0.7) 2.0 108.0

Leased assets Other timing differences

The reconciliation of current tax on profits on ordinary activities at the standard Irish Corporation Tax rate to the Group’s actual current tax charge is analysed as follows: Profit on ordinary activities before taxation at 12.5% Effects of: Foreign earnings subject to different rates of tax Irish Bank Levy Leasing rentals in excess of capital allowances Prior years Other Current tax

In 2003 the Irish Government introduced a levy based on the domestic deposit taking business of Irish banks and building societies. The Group’s share of this levy is €5.2m per annum for the three years to 31 December 2005. The Government indicated that the levy will not be continued beyond 2005. 5. Minority interests

2005 €m

2004 €m

44.7 1.1 45.8

16.2 0.8 17.0

The profit attributable to minority interests is analysed as follows: Non-equity interests (Note 30) Equity interests

ANGLO IRISH BANK Annual Report & Accounts

6. Dividends on preference shares Accrued dividend on preference shares

2005 €m

2004 €m

8.2

-

7. Group profit attributable to ordinary shareholders €465.1m (2004: €331.7m) of the Group profit attributable to ordinary shareholders is dealt with in the accounts of the parent undertaking. As permitted by Regulation 5 (2) of the European Communities (Credit Institutions:Accounts) Regulations, 1992 a separate profit and loss account for the parent undertaking has not been presented. 8. Dividends on €0.16 ordinary shares Paid Interim dividend of 4.51c per share (2004: 3.76c) Proposed Final dividend of 9.03c per share (2004: 7.52c)

2005 €m

2004 €m

30.4

25.1

61.0 91.4

50.1 75.2

In accordance with the scrip dividend scheme, shares to the value of €29.3m (2004: €21.0m) were issued in lieu of dividends. This amount has been added to the profit and loss account reserve (Note 34). The comparative dividends per share have been adjusted for the two-for-one share split on 22 April 2005. 9. Earnings per €0.16 ordinary share The calculation of basic earnings per share is based on the Group profit of €491.0m (2004: €379.4m) which is after taxation, minority interests and preference dividends and on the weighted average number of equity shares in issue of 670.7m (2004: 662.6m). In accordance with Financial Reporting Standard 14 – ‘Earnings per Share’, dividends arising on shares held by employee share trusts (Note 35) are excluded in arriving at profit before taxation and deducted from the aggregate of dividends paid and proposed. The weighted average number of shares held by the trusts are excluded from the earnings per share calculations. The effect of options granted under the employee share option and SAYE schemes is to increase the weighted average number of equity shares for the calculation of diluted earnings per share by 13.7m (2004: 12.6m) to 684.4m (2004: 675.2m). The comparative earnings per share calculations have been adjusted for the two-for-one share split on 22 April 2005. 10. Cash and balances at central banks These amounts include only those balances at central banks which may be withdrawn without notice. 11. Loans and advances to banks

Repayable on demand Other loans and advances to banks Analysed by remaining maturity: Three months or less One year or less but over three months Five years or less but over one year Amounts include: Due from Group undertakings

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

682.1

943.5

554.6

868.9

3,649.1 1,599.4 323.0 6,253.6

3,574.5 1,106.6 222.8 5,847.4

2,224.3 1,610.3 303.8 4,693.0

2,920.7 845.3 209.9 4,844.8

40.2

-

49

50

Notes to the financial statements continued

12. Loans and advances to customers

Amounts receivable under finance leases Amounts receivable under hire purchase contracts Other loans and advances to customers

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

144.4 323.4 33,631.2 34,099.0

172.4 289.5 23,261.9 23,723.8

116.5 106.2 33,169.5 33,392.2

166.6 105.9 22,223.2 22,495.7

2,392.7

876.1

Amounts include: Due from Group undertakings Remaining maturity analysis: Repayable on demand Three months or less One year or less but over three months Five years or less but over one year Over five years Provisions for bad and doubtful debts

4,528.4 3,084.3 6,392.4 13,702.1 6,701.2 34,408.4 (309.4) 34,099.0

3,957.9 2,595.1 3,687.2 8,896.7 4,875.9 24,012.8 (289.0) 23,723.8

6,343.3 2,846.7 5,557.8 12,613.2 6,319.4 33,680.4 (288.2) 33,392.2

4,549.4 2,366.2 3,250.3 8,119.3 4,480.1 22,765.3 (269.6) 22,495.7

There are no significant concentrations of loans and advances to customers by individual sector or industry. A geographic analysis is included in Note 40. The cost of assets acquired by the Group during the year for letting under finance leases and hire purchase contracts amounted to €269.2m (2004: €286.6m). 13. Provisions for bad and doubtful debts

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

At beginning of year Exchange movements Charge against profits – specific Write-offs Recoveries of previous write-offs At end of year

289.0 1.2 29.4 (12.6) 2.4 309.4

280.6 1.0 19.1 (12.3) 0.6 289.0

269.6 1.1 27.1 (11.9) 2.3 288.2

261.1 0.7 18.5 (11.1) 0.4 269.6

Specific General Total

77.0 232.4 309.4

57.8 231.2 289.0

73.7 214.5 288.2

56.2 213.4 269.6

Non-performing loans

186.8

148.3

172.5

137.2

Non-performing loans are loans and advances on which interest is no longer being credited to the profit and loss account.

ANGLO IRISH BANK Annual Report & Accounts

14. Securitised assets Securitised assets Less: non-returnable proceeds

2005 €m

322.0 (307.0) 15.0

2004 €m

666.0 (634.8) 31.2

Anglo Irish Bank Corporation plc (‘Anglo’) sold portfolios of commercial investment property loans from its United Kingdom loan book to Monument Securitisation (CMBS) No. 1 plc and Monument Securitisation (CMBS) No. 2 Limited (‘the Monument companies’) in September 2000 and June 2002 respectively. The Group does not own directly or indirectly any of the share capital of the Monument companies or their parent companies. Anglo receives fee income for continuing to administer the loans under the terms of servicing agreements with the Monument companies. The Monument companies funded these transactions by issuing mortgage-backed notes, the lowest ranking of which were purchased by Anglo. The issue terms of the notes include provisions whereby neither the Monument companies nor the noteholders have recourse to the Group and no Group Company is obliged or intends to support any losses of the Monument companies or the noteholders should they arise. Anglo is not obliged to repurchase any of the assets from the Monument companies. The Monument companies entered into certain interest rate hedges to manage their interest rate positions. These contracts were entered into with third party banks. The contribution earned by the Group during the year in respect of securitised assets is included in other operating income and is analysed as follows:

Interest receivable Interest payable Fee income Operating expenses Contribution from securitised assets

2005 €m

2004 €m

34.3 (30.2) 0.6 (1.6) 3.1

49.8 (41.7) 0.4 (2.0) 6.5

On 7 February 2005 the Group exercised its option to repurchase the remaining mortgages outstanding on Monument Securitisation (CMBS) No. 1 plc. The balances on these mortgages had reduced to €122.2m at the time of repurchase.

51

52

Notes to the financial statements continued

15. Debt securities

The Group Listed: Government stocks Other listed public bodies Private sector investments Unlisted: Bank and building society certificates of deposit

Due within one year Due one year and over

The Company Listed: Government stocks Other listed public bodies Private sector investments Unlisted: Bank and building society certificates of deposit

Due within one year Due one year and over

2005

2004

Book Value €m

Market Value €m

Book Value €m

Market Value €m

224.6 10.0 4,097.3 4,331.9

233.1 10.0 4,117.5 4,360.6

166.4 12.4 2,355.6 2,534.4

177.3 12.5 2,378.4 2,568.2

601.2 4,933.1

601.7 4,962.3

2,534.4

2,568.2

1,986.1 2,947.0 4,933.1

669.5 1,864.9 2,534.4

215.7 10.0 4,094.7 4,320.4

224.1 10.0 4,114.4 4,348.5

156.8 12.4 2,354.2 2,523.4

167.2 12.5 2,376.9 2,556.6

601.2 4,921.6

601.7 4,950.2

2,523.4

2,556.6

1,977.3 2,944.3 4,921.6

666.6 1,856.8 2,523.4

Market value is market price for quoted securities and Directors’ estimate for unquoted securities. At 30 September 2005 the amount of unamortised premiums net of discounts on debt securities held as financial fixed assets was €1.0m (2004: €8.5m net discounts) for the Group and €1.1m (2004: €8.5m net discounts) for the Company. At 30 September 2005 debt securities held by the Group and the Company subject to repurchase agreements amounted to €1,625.8m (2004: €379.7m). 16. Equity shares

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

46.7

26.1

11.4

3.2

Equity shares and other similar instruments Unlisted investments at cost less amounts written off Held as financial fixed assets

In the opinion of the Directors the value of the individual unlisted investments is not less than their book amount.

ANGLO IRISH BANK Annual Report & Accounts

17. Investments in Group undertakings

Investments in subsidiary undertakings at cost less amounts written off Principal subsidiary undertakings Anglo Irish Asset Finance plc Anglo Irish Asset Management Limited Anglo Irish Assurance Company Limited Anglo Irish Bank (Austria) A.G. Anglo Irish Bank Corporation (I.O.M.) P.L.C. Anglo Irish Bank (Suisse) S.A. Anglo Irish Capital Funding Limited Anglo Irish International Financial Services Limited Anglo Irish Limited Anglo Irish Property Lending Limited Anglo Irish Trust Company Limited Buyway Group Limited CDB (U.K.) Limited Irish Buyway Limited Knightsdale Limited Sparta Financial Services Steenwal B.V. Anglo Aggmore Limited Partnership Anglo Irish Capital UK Limited Partnership

Principal activity Finance Fund management Life assurance and pensions Banking Banking Banking Finance Finance Finance Finance Trust services Investment holding Investment holding Finance Finance Finance Investment holding Property Finance

2005 €m

2004 €m

612.9

602.0

Country of registration United Kingdom Republic of Ireland Republic of Ireland Austria Isle of Man Switzerland Cayman Islands Republic of Ireland Isle of Man United Kingdom Isle of Man Republic of Ireland United Kingdom Republic of Ireland Republic of Ireland Republic of Ireland The Netherlands United Kingdom United Kingdom

All of the Group undertakings are included in the consolidated accounts. The Group holds 75% of the capital contributed to the Anglo Aggmore Limited Partnership. The capital contributors earn a return of 10% per annum on their capital and thereafter the Group is entitled to 50% of the remaining profits of this partnership. The Group is the general partner of Anglo Irish Capital UK Limited Partnership. The Group owns all of the issued ordinary share capital of each of the other subsidiary undertakings listed. Each subsidiary undertaking operates principally in the country in which it is registered. A complete listing of Group undertakings will be annexed to the annual return of the Company in accordance with the requirements of the Companies Acts. Investments in certain subsidiary undertakings operating as credit institutions are not directly held by the parent undertaking.

53

54

Notes to the financial statements continued

18. Intangible fixed assets – goodwill

The Group €m

The Company €m

Cost At 1 October 2004 and 30 September 2005

82.9

0.6

Accumulated amortisation At 1 October 2004 Charge for the year At 30 September 2005

13.3 4.1 17.4

0.2 0.2

Net book value At 30 September 2005 At 30 September 2004

65.5 69.6

0.4 0.4

The goodwill arising on acquisitions completed after 30 September 1998 is amortised in equal instalments over its estimated useful economic life of twenty years. The cumulative amount of positive goodwill which has been eliminated against reserves to 30 September 1998, net of goodwill attributable to disposed businesses, amounted to €47.2m. This goodwill was eliminated as a matter of accounting policy [see Note 1(i)]. 19. Tangible fixed assets The Group Cost or valuation At 1 October 2004 Exchange movement Additions Disposals Revaluation Writedown At 30 September 2005 Accumulated depreciation At 1 October 2004 Charge for the year Disposals At 30 September 2005 Net book value At 30 September 2005 At 30 September 2004

Freehold investment properties €m

Equipment and motor vehicles €m

Freehold properties €m

Leasehold properties €m

5.1 5.1

12.5 11.9 (0.3) 24.1

60.8 0.1 14.6 (1.3) 74.2

103.7 0.3 39.1 (1.6) 2.6 (1.0) 143.1

-

0.9 0.1 1.0

4.8 1.7 (0.3) 6.2

38.6 9.3 (0.9) 47.0

44.3 11.1 (1.2) 54.2

39.7 25.3

4.1 4.2

17.9 7.7

27.2 22.2

88.9 59.4

25.3 0.2 12.6 2.6 (1.0) 39.7

Total €m

ANGLO IRISH BANK Annual Report & Accounts

19. Tangible fixed assets continued The Company

Leasehold properties €m

Equipment and motor vehicles €m

Total €m

Cost At 1 October 2004 Exchange movement Additions Disposals At 30 September 2005

11.7 1.6 (0.3) 13.0

39.5 0.1 12.4 (1.0) 51.0

51.2 0.1 14.0 (1.3) 64.0

Accumulated depreciation At 1 October 2004 Charge for the year Disposals At 30 September 2005

4.6 0.9 (0.2) 5.3

26.1 5.0 (0.6) 30.5

30.7 5.9 (0.8) 35.8

7.7 7.1

20.5 13.4

28.2 20.5

Net book value At 30 September 2005 At 30 September 2004

The open market value of the freehold investment properties is estimated by the Directors at €39.7m (2004: €25.3m). All of the Group’s leasehold properties are in respect of leases with a duration of less than fifty years. The Group occupies properties with a net book value of €16.0m (2004: €11.9m) in the course of carrying out its own activities. As at 30 September 2005 the Group had annual commitments under non-cancellable operating leases as set out below. Property €m

Equipment €m

2.0 8.2 10.2

0.2 2.0 1.0 3.2

Operating leases which expire: Within one year One to five years Over five years

55

56

Notes to the financial statements continued

20. Other assets

Foreign exchange and interest rate contracts Trading properties Deferred taxation (Note 21) Sundry debtors

The Group 2005 €m

2004 €m

2005 €m

2004 €m

371.2 366.1 37.6 1.8 776.7

214.6 326.4 34.5 2.2 577.7

362.0 35.5 1.0 398.5

207.4 28.3 1.2 236.9

2005 €m

2004 €m

2005 €m

2004 €m

34.5 2.7 0.4 37.6

33.9 0.3 0.3 34.5

28.3 4.8 2.2 0.2 35.5

27.2 0.8 0.3 28.3

44.2 (7.5) 0.9 37.6

43.9 (11.1) 1.7 34.5

39.8 (6.2) 1.9 35.5

39.6 (12.7) 1.4 28.3

21. Deferred taxation

At beginning of year Credit for year Group transfer Exchange movement and other adjustments At end of year Analysis of deferred taxation: General bad debt provisions Capital allowances on assets leased to customers Other timing differences

The Company

The Group

The Company

It is estimated that a taxation liability of €0.4m would arise if the freehold investment properties were sold at their open market value on 30 September 2005. This potential tax liability has not been recognised in the financial statements. No deferred taxation has been provided on the unremitted profits of foreign subsidiaries. As these profits are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future.

ANGLO IRISH BANK Annual Report & Accounts

22. Life assurance business The assets and liabilities attributable to policyholders are classified separately in the consolidated balance sheet. The life assurance assets attributable to policyholders consist of:

Property Cash Equities Managed funds

2005 €m

2004 €m

413.0 241.3 147.9 141.9 944.1

255.9 228.1 125.1 58.5 667.6

At 30 September 2005 the above life assurance assets attributable to policyholders included 894,369 (2004: 682,880 after adjusting for the two-for-one share split) ordinary shares in Anglo Irish Bank Corporation plc with a market value of €10.1m (2004: €5.0m). The Group has no beneficial interest in these shares. 23. Deposits by banks

Repayable on demand Other deposits by banks with agreed maturity dates Analysed by remaining maturity: Three months or less One year or less but over three months Five years or less but over one year Over five years

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

21.3

21.4

291.4

302.3

6,975.6 133.9 19.9 7,150.7

2,534.1 30.5 19.9 2,605.9

9,091.2 263.8 21.1 9,667.5

4,244.1 30.5 49.2 2.9 4,629.0

2,537.1

2,033.2

Amounts include: Due to Group undertakings 24. Customer accounts

Repayable on demand Other deposits by customers with agreed maturity dates or Periods of notice analysed by remaining maturity: Three months or less One year or less but over three months Five years or less but over one year Over five years Amounts include: Due to Group undertakings

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

2,893.5

3,768.9

1,403.2

2,354.6

19,842.2 1,625.2 668.3 130.5 25,159.7

13,097.5 1,843.1 748.6 87.9 19,546.0

18,671.5 1,476.0 641.4 128.4 22,320.5

12,513.4 1,747.8 735.5 86.5 17,437.8

212.9

189.3

57

58

Notes to the financial statements continued

25. Debt securities in issue

Medium term note programme Other debt securities in issue: Commercial paper programme Certificates of deposits Other Analysed by remaining maturity: Medium term note programme Three months or less One year or less but over three months Five years or less but over one year Over five years Other debt securities in issue Three months or less One year or less but over three months Five years or less but over one year

The Group 2005 €m

2004 €m

2005 €m

2004 €m

5,795.0

4,524.2

5,795.0

4,524.2

1,824.3 1,547.2 238.6 9,405.1

1,223.8 990.9 205.6 6,944.5

1,824.3 1,547.2 59.7 9,226.2

1,223.8 990.9 10.0 6,748.9

543.3 819.9 4,429.8 2.0

295.3 1,228.5 3,000.4 -

543.3 819.9 4,429.8 2.0

295.3 1,228.5 3,000.4 -

3,312.8 297.3 9,405.1

2,037.1 373.2 10.0 6,944.5

3,153.9 277.3 9,226.2

1,848.1 366.6 10.0 6,748.9

26. Other liabilities

Foreign exchange and interest rate contracts Current taxation Deferred acquisition consideration Sundry liabilities

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

351.7 57.2 24.2 433.1

187.2 48.5 5.8 14.1 255.6

342.8 31.7 23.1 397.6

180.3 41.4 13.5 235.2

27. Provisions for liabilities and charges

Pension provisions Other provisions for liabilities and charges

The Company

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

5.1 0.2 5.3

5.2 0.2 5.4

0.2 0.2

0.2 0.2

The pension provisions relate to an unfunded defined contribution plan for the Group’s Austrian employees. This scheme is administered in accordance with best local practice and regulations in Austria.

ANGLO IRISH BANK Annual Report & Accounts

28. Subordinated liabilities US$20m 9.1% Subordinated Notes 2006 US$15m 9.05% Subordinated Notes 2009 (a) US$100m 8.53% Subordinated Notes 2011 (b) US$25m Floating Rate Subordinated Notes 2011 (c) €150m Floating Rate Subordinated Notes 2011 (d) €750m Floating Rate Subordinated Notes 2014 (e) US$165m Subordinated Notes Series A 2015 (f) US$35m Subordinated Notes Series B 2017 (g) Stg£50m Undated Subordinated Notes (h) Other subordinated liabilities

Repayable as follows: One year or less Between one and two years Between two and five years Over five years

2005 €m

2004 €m

16.6 149.9 747.0 136.7 29.0 73.3 29.2 1,181.7

16.1 12.1 80.5 20.1 149.7 746.2 72.7 35.9 1,133.3

28.8 7.7 9.3 1,135.9 1,181.7

6.7 28.3 29.1 1,069.2 1,133.3

All of the above issues have been issued by the Parent Bank and are unsecured and subordinated in the right of repayment to the ordinary creditors, including depositors of the Bank.The prior approval of the Irish Financial Regulator is required to redeem these issues prior to their final maturity date.There is no foreign exchange rate exposure as the proceeds of these issues are retained in their respective currencies. (a) The US$15m 9.05% Subordinated Notes 2009 were redeemed on 15 October 2004. (b) The US$100m 8.53% Subordinated Notes 2011 were redeemed on 28 September 2005. (c) The US$25m Floating Rate Subordinated Notes 2011 were redeemed on 28 September 2005 and bore interest at six month LIBOR plus 1.5% per annum to 28 September 2005. (d) The €150m Floating Rate Subordinated Notes 2011 bear interest at three month EURIBOR plus 1.7% per annum to 5 April 2006 and thereafter at three month EURIBOR plus 2.7% per annum. (e) The €750m Floating Rate Subordinated Notes 2014 bear interest at three month EURIBOR plus 0.45% per annum to 25 June 2009 and thereafter at three month EURIBOR plus 0.95% per annum. (f) The US$165m Subordinated Notes Series A 2015 were issued on 28 September 2005 and bear interest at 4.71% per annum to 28 September 2010 and thereafter at three month LIBOR plus 0.92% per annum. (g) The US$35m Subordinated Notes Series B 2017 were issued on 28 September 2005 and bear interest at 4.80% per annum to 28 September 2012 and thereafter at three month LIBOR plus 0.93% per annum. (h) Interest on the Stg£50m Undated Subordinated Notes is fixed at 9.875% per annum to 13 March 2006 and thereafter at the then current five year gross redemption yield on United Kingdom government security plus 2.9% per annum, reset every five years. On 5 October 2005 the Parent Bank issued Stg£300m Cumulative Callable Fixed to Floating Rate Undated Subordinated Securities (‘securities’).This issue raised Stg£296.2m net of discount and issue costs. Interest on these securities is fixed at 5.25% per annum to 5 October 2015 and thereafter resets at three month LIBOR plus 1.68% per annum.

59

60

Notes to the financial statements continued

29. Perpetual capital securities

Stg£200m Step-up Callable Perpetual Capital Securities Stg£250m Tier One Non-Innovative Capital Securities

The Group 2005 €m

2004 €m

291.6 369.5 661.1

289.2 367.0 656.2

On 28 June 2001 Anglo Irish Asset Finance plc (‘issuer’) issued Stg£200m 8.5325% Step-up Callable Perpetual Capital Securities (‘securities’) at par value which have the benefit of a subordinated guarantee by Anglo Irish Bank Corporation plc (‘guarantor’). The securities are perpetual securities and have no maturity date. However, they are redeemable in whole or in part at the option of the issuer, subject to the prior approval of the Irish Financial Regulator and of the guarantor, at their principal amount together with any outstanding payments on 28 June 2011 or on any coupon payment date thereafter. The securities bear interest at a rate of 8.5325% per annum to 28 June 2011 and thereafter at a rate of 4.55% per annum above the gross redemption yield on a specified United Kingdom government security, reset every five years. The interest is payable semi-annually in arrears on 28 June and 28 December. On 23 July 2002 Anglo Irish Asset Finance plc issued Stg£160m 7.625% Tier One Non-Innovative Capital Securities (‘TONICS’) at an issue price of 99.362%. A further tranche of Stg£90m TONICS was issued on 21 March 2003 at an issue price of 106.378% plus accrued interest. These issues also have the benefit of a subordinated guarantee by Anglo Irish Bank Corporation plc. The TONICS are perpetual and have no maturity date. However, they are redeemable in whole but not in part at the option of the issuer, subject to the prior approval of the Irish Financial Regulator and of the guarantor, at their principal amount together with any outstanding payments on 23 July 2027 or on any coupon payment date thereafter. Interest is payable annually in arrears on 23 July on the TONICS at a rate of 7.625% per annum until 23 July 2027. Thereafter, the TONICS will bear interest at a rate of 2.4% per annum above six month LIBOR, payable semi-annually in arrears. The rights and claims of the holders of the securities and the TONICS are subordinated to the claims of the senior creditors of the issuer or of the guarantor (as the case may be) in that no payment in respect of the securities or the TONICS or the guarantees in respect of them shall be due and payable except to the extent that the issuer or the guarantor (as applicable) is solvent and could make such a payment and still be solvent immediately thereafter and the guarantor is in compliance with applicable regulatory capital adequacy requirements. Upon any winding up of the issuer or the guarantor, the holders of the securities and the TONICS will rank pari passu with the holders of preferred securities and preference shares issued by or guaranteed by the issuer or the guarantor and in priority to all other shareholders of the issuer and of the guarantor.

ANGLO IRISH BANK Annual Report & Accounts

30. Equity and non-equity minority interests

Equity interests in subsidiary undertakings Non-equity interests in subsidiary undertakings: €600m Perpetual Preferred Securities US$125m Series A Preference Shares €160m Series B Preference Shares

The Group 2005 €m

2004 €m

3.5

1.8

588.5 100.4 692.4

588.5 97.5 155.6 843.4

On 30 September 2004 the limited partners of the Anglo Irish Capital UK Limited Partnership (‘issuer’) contributed capital in the form of 600,000 Non-Voting Non-Cumulative Perpetual Preferred Securities (‘preferred securities’) of €1,000 each issued at par. The preferred securities have the benefit of a subordinate guarantee by Anglo Irish Bank Corporation plc (‘guarantor’). The issuer is a limited partnership organised under the laws of England and Wales and its general partner is Anglo Irish Capital GP Limited, a wholly owned subsidiary of the guarantor. The transaction raised €588.5m net of issue costs. The preferred securities are perpetual and have no repayment date. However, they are redeemable in whole, but not in part, at the option of Anglo Irish Capital GP Limited and subject to the prior approval of the Irish Financial Regulator, at their issue price together with any outstanding payments on 30 March 2010 or on any distribution date thereafter. Cash distributions to the limited partners are payable semi-annually in arrears on 30 March and 30 September. The distribution rate on the preferred securities was fixed at 6% per annum to 30 September 2005 and thereafter resets every six months at a rate linked to the Euro ten year constant maturity swap, subject to a cap of 9% per annum. Anglo Irish Capital Funding Limited (‘issuer’) issued 5,000,000 Series A Floating Rate Non-Cumulative Guaranteed Non-Voting Preference Shares of US$25 each on 4 June 1997. On 24 March 1999 a further 6,400,000 Series B 7.75% Non-Cumulative Guaranteed Non-Voting Preference Shares of €25 each were issued which netted €155.6m after issue costs. Both these issues have the benefit of a subordinate guarantee by Anglo Irish Bank Corporation plc (‘guarantor’). The 6,400,000 Series B 7.75% Non-Cumulative Guaranteed Non-Voting Preference Shares of €25 each were redeemed at par on 31 December 2004. The holders of the US$ preference shares are entitled to receive a non-cumulative preferential dividend in four quarterly instalments in arrears on 4 March, 4 June, 4 September and 4 December in each year. The coupon rate is three month US Dollar LIBOR plus 2.5% per annum. The holders of the Euro preference shares were entitled to receive a non-cumulative preferential dividend of 7.75% per annum in four quarterly instalments in arrears on 31 March, 30 June, 30 September and 31 December in each year. The US$ preference shares are redeemable at the option of the issuer, subject to the prior consent of the guarantor and the Irish Financial Regulator, in whole or in part, at par on any dividend date from 4 June 2002. Anglo Irish Bank Corporation plc has guaranteed the holders of the preferred securities and the US$ preference shares with respect to their rights to distributions and on liquidation. These guarantees give, as nearly as possible, the holders of the preferred securities and the US$ preference shares rights equivalent to those which the holders would be entitled to if they held preferred securities or preference shares in Anglo Irish Bank Corporation plc itself. No distributions can be paid in respect of the preferred securities or the US$ preference shares by the issuers or the guarantor if the guarantor is not in compliance with applicable regulatory capital adequacy requirements. The distribution entitlements on the preferred securities and the preference shares are accrued on a daily basis and the total cost of €44.7m (2004: €16.2m) is included in minority interests in the profit and loss account (Note 5).

61

62

Notes to the financial statements continued

31. Called up share capital Authorised 760,000,000 Ordinary shares of €0.16 each 50,000,000 Non-cumulative preference shares of €1 each 50,000,000 Non-cumulative preference shares of Stg£1 each 50,000,000 Non-cumulative preference shares of US$1 each

Allotted, called up and fully paid Equity: Ordinary shares of €0.16 each Non-equity: Non-cumulative preference shares of Stg£1 each

2005 €m

2004 €m

121.6 50.0 73.3 41.5 286.4

121.6 121.6

108.5

107.1

0.4 108.9

107.1

Ordinary shares On 28 January 2005 the shareholders approved a resolution to sub-divide each existing ordinary share of €0.32 in the share capital of the Company into two ordinary shares of €0.16 each, thereby doubling the number of ordinary shares in issue. The resolution was brought into effect from the close of business on 22 April 2005. For ease of comparison all ordinary share amounts and prices in this note have been adjusted to reflect the two-for-one share split. During the year ended 30 September 2005 the allotted, called up and fully paid ordinary share capital was increased from 669,079,274 to 678,130,548 ordinary shares as follows: In February 2005 2,227,220 ordinary shares were issued to those holders of ordinary shares who elected, under the terms of the scrip dividend election offer, to receive additional ordinary shares at a price of €8.62 instead of all or part of the cash element of their final dividend entitlement in respect of the year ended 30 September 2004. In July 2005 1,077,457 ordinary shares were issued to those holders of ordinary shares who elected, under the terms of the scrip dividend election offer, to receive additional ordinary shares at a price of €9.36 instead of all or part of the cash element of their interim dividend entitlement in respect of the year ended 30 September 2005. During the year 4,931,746 ordinary shares were issued to option holders on the exercise of options under the terms of the employee share option scheme at prices ranging from €1.17 to €6.30 and 814,851 ordinary shares were issued to option holders on the exercise of options under the terms of the SAYE scheme at prices ranging from €0.90 to €7.14. The Company operates a number of share incentive plans. The purpose of these plans is to motivate Group employees to contribute towards the creation of long-term shareholder value. Before being adopted all of the share incentive plans were approved by shareholders and complied with the guidelines operated by the Irish Association of Investment Managers. Further details are given below: Employee Share Option Scheme On 15 January 1999 the shareholders approved the establishment of the employee share option scheme which replaced the scheme originally approved by shareholders in 1988.

ANGLO IRISH BANK Annual Report & Accounts

Under the terms of the scheme all qualifying employees may be invited to participate in the scheme at the discretion of the Directors. Options are granted at the middle market price on the day on which the shares were dealt in immediately preceding the date of the invitation. During the continuance of the scheme each participant is limited to a maximum entitlement of scheme shares equivalent to an aggregate value of four times that employee’s annual emoluments. Basic tier options may not be transferred or assigned and may be exercised only between the third and tenth anniversaries of their grant, or at such earlier time as approved by the Directors. Second tier options may not be transferred or assigned and may be exercised only between the fifth and tenth anniversaries of their grant, or at such earlier time as approved by the Directors. In the ten year period from 15 January 1999 the maximum number of basic and second tier options granted under the scheme may not exceed 10% of the issued ordinary share capital of the Company from time to time. Both the basic and second tier options which may be granted are each restricted to 5% of the issued ordinary share capital of the Company from time to time. The exercise of basic tier options granted since 15 January 1999 is conditional upon earnings per share growth of at least 5% compound per annum more than the increase in the Irish consumer price index. The exercise of second tier options granted since 15 January 1999 is conditional upon earnings per share growth of at least 10% compound per annum more than the increase in the Irish consumer price index and the Company’s shares must also rank in the top quartile of companies as regards growth in earnings per share on the Irish Stock Exchange. At 30 September 2005 options were outstanding over 18,516,000 (2004: 18,397,746) ordinary shares at prices ranging from €1.17 to €10.93 per share. These options may be exercised at various dates up to September 2015. During the year options over 5,170,000 shares were granted and options over 120,000 shares lapsed. SAYE Scheme On 14 January 2000 the shareholders approved the establishment of the Anglo Irish Bank SAYE scheme. This scheme has Irish, UK and Austrian versions in order to conform with relevant revenue legislation in these jurisdictions. The Irish version permits eligible employees to enter into a savings contract with the Company for a three, five or seven year period to save a maximum of €320 per month for the appropriate contract period and to use the proceeds of the savings contract to fund the exercise of options granted under the scheme. At 30 September 2005 options were outstanding over 2,763,028 (2004: 3,213,778) ordinary shares at option prices ranging from €0.90 to €7.14, which represented a 25% discount to the market price on the date that employees were invited to enter into these contracts. These options are exercisable, provided the participants’ savings contracts are completed, at various dates between October 2005 and July 2012. A variation of the Anglo Irish Bank SAYE scheme was introduced for all UK staff of the Group in 2001. This scheme permits eligible employees to enter into a savings contract with an outside financial institution for a three, five or seven year period to save a maximum of Stg£250 per month for the appropriate contract period and to use the proceeds of the savings contract to fund the exercise of options granted under the scheme. At 30 September 2005 options were outstanding over 775,381 (2004: 791,094) ordinary shares at option prices ranging from Stg£1.05 to Stg£5.73, which represented a 20% discount to the average market price over the week preceding the date that employees were invited to enter into these contracts. These options are exercisable at various dates between September 2006 and April 2013.

63

64

Notes to the financial statements continued

31. Called up share capital continued A further variation of the Anglo Irish Bank SAYE scheme was introduced during the year for all Austrian staff. This scheme permits eligible employees to save up to a maximum of €320 per month for five years and to use the proceeds of the savings contract to fund the exercise of options granted under the scheme. At 30 September 2005 options were outstanding over 138,830 ordinary shares at an option price of €7.13, which represented a 25% discount to the market price on the date that employees were invited to enter into these contracts. These options are exercisable, provided the participants’ savings contract are completed, between June 2010 and December 2010. ESOP On 14 January 2000 the shareholders also approved the establishment of the Anglo Irish Bank Employee Share Ownership Plan (‘ESOP’). The plan’s trustee may purchase ordinary shares of the Company in the open market. Eligible employees may be granted options to acquire shares held by the trustee on similar terms and exercise conditions as those applicable to basic tier options under the employee share option scheme. At 30 September 2005 options were outstanding over 1,486,700 (2004: 422,008) shares at prices ranging from €1.20 to €10.93. During the year options over 1,240,000 shares were granted. The total number of ordinary shares which may be the subject of ESOP options may not, when aggregated with the ordinary shares the subject of options granted under the SAYE scheme, exceed 5% of the issued ordinary share capital of the Company from time to time. Preference shares On 28 January 2005 the shareholders increased the authorised share capital by approving the creation of 50,000,000 non-cumulative preference shares of €1 each, 50,000,000 non-cumulative preference shares of Stg£1 each and 50,000,000 non-cumulative preference shares of US$1 each. On 15 June 2005 300,000 non-cumulative preference shares of Stg£1 each were issued at a price of Stg£997.99 per share. The issue raised Stg£294.3m after issue expenses. The holders of these preference shares are entitled to a non-cumulative preference dividend of 6.25% per annum based on a principal amount of Stg£1,000 per share payable annually in arrears on 15 June in each year to 15 June 2015. Thereafter dividends are due to be paid quarterly in arrears on 15 March, 15 June, 15 September and 15 December in each year based on a principal amount of Stg£1,000 per share and on the three month LIBOR rate plus 1.66% per annum. No preference dividends can be paid if the issuer is not in compliance with applicable regulatory capital requirements. These preference shares are redeemable at Stg£1,000 per share in whole, but not in part, at the option of the issuer, subject to the prior consent of the Irish Financial Regulator, on 15 June 2015 and on any dividend date thereafter. Upon any winding up of the issuer these preference shares rank in priority to the ordinary shares in the Company and equally among themselves and any other present and future Tier 1 capital issues of the Group. Holders of these preference shares are not entitled to vote at any general meetings of the Company, except in certain restricted circumstances. Treasury shares Under resolutions approved by shareholders on 23 January 2004 and 28 January 2005 the Company has the authority to make market purchases of any class of its own shares to the extent of 10% of its then issued share capital and to hold these shares as treasury shares. This authority has not been exercised.

ANGLO IRISH BANK Annual Report & Accounts

32. Share premium account At beginning of year Premium arising on issue of preference shares Premium on share option exercises Final scrip dividend Interim scrip dividend At end of year 33. Other reserves

Non-distributable capital reserve Investment properties revaluation reserve Exchange translation reserve

2004 €m

157.6 431.2 12.0 (0.4) (0.2) 600.2

154.7 3.5 (0.4) (0.2) 157.6

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

1.3 1.5 (0.4) 2.4

1.3 (0.4) 0.9

1.3 1.3

1.3 1.3

2004 €m

2005 €m

2004 €m

685.8 373.3 29.3 1,088.4

408.7 256.1 21.0 685.8

34. Profit and loss account

The Group 2005 €m

At beginning of year Profit retained for year Ordinary shares issued in lieu of cash dividends Net movement in own shares At end of year

2005 €m

974.2 399.6 29.3 (2.5) 1,400.6

The Company

649.8 304.2 21.0 (0.8) 974.2

35. Own shares

Ordinary shares in Anglo Irish Bank Corporation plc (‘own shares’) at cost

The Group 2005 €m

2004 €m

9.5

7.0

Own shares are held to satisfy share options granted or to be granted to employees under the Anglo Irish Bank Employee Share Ownership Plan (‘ESOP’) which was approved by shareholders in January 2000 (Note 31) and also to honour conditional share awards made to employees under the Anglo Irish Bank Deferred Share Scheme (‘DSS’). The trustee of the ESOP borrowed funds from a Group subsidiary undertaking, interest free, to enable the trustee to purchase own shares in the open market. At 30 September 2005 options were outstanding over 1,486,700 (2004: 422,008) own shares at prices ranging from €1.20 to €10.93. These options may be exercised at various dates up to September 2015. The proceeds of option exercises are used to repay the loan.

65

66

Notes to the financial statements continued

35. Own shares continued At 30 September 2005 the trustee of the DSS held 956,661 (2004: 883,622) own shares to honour conditional share awards granted between December 2002 and August 2005 to eligible Group employees as part of their remuneration package. These shares were purchased in the open market and are also funded by interest free borrowings from a Group subsidiary undertaking. These share awards are conditional on the relevant employees remaining in the Group’s employment for three years from their grant date. The costs of providing these awards has been fully provided in the profit and loss account.When the awards vest the trustee’s borrowings are fully reimbursed by the sponsoring Group employer. As at 30 September 2005 the trustees held 3,103,783 (2004: 3,176,096) own shares with a market value of €35.2m (2004: €23.4m). The dividend income received during the year on own shares of €0.4m (2004: €0.4m) is excluded in arriving at the Group profit before taxation. For ease of comparison all ordinary share amounts and prices in this note have been adjusted to reflect the two-for-one share split on 22 April 2005. 36. Memorandum items Contingent liabilities Guarantees and irrevocable letters of credit Performance bonds,VAT guarantees and Other transaction related contingencies Commitments Credit lines and other commitments to lend

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

2,095.6

819.9

2,066.2

782.6

73.9 2,169.5

90.5 910.4

73.9 2,140.1

90.5 873.1

6,011.0

4,055.0

4,837.4

3,098.3

Other contingencies The Parent Company has given guarantees in respect of the liabilities of certain of its subsidiaries.

ANGLO IRISH BANK Annual Report & Accounts

37. Notes to the cash flow statement (i) Cash flows Returns on investment and servicing of finance Interest received on debt securities and other fixed income securities Interest paid on subordinated liabilities Interest paid on perpetual capital securities Interest paid on perpetual preferred securities Preference dividends paid to minority interests Share of profits paid to minority interests Capital expenditure and financial investment Net purchases of debt securities Purchase of tangible fixed assets Net purchases of equity shares Proceeds of tangible fixed asset disposals Acquisitions and disposals Payment of deferred consideration for trust services business acquired in Isle of Man Financing Proceeds from issue of preference shares Proceeds of subordinated bond issues Proceeds of preferred securities issue in subsidiary Redemption of preference shares in subsidiary undertakings Redemption of subordinated bonds Proceeds of equity share issues Capital introduced by minority interest (ii) Analysis of subordinated liabilities At beginning of year New issues of subordinated bonds Redemption of subordinated bonds Exchange and other movements At end of year (iii) Analysis of perpetual capital securities At beginning of year Exchange and other movements At end of year (iv) Analysis of cash movements At end of year Loans and advances to banks repayable on demand Cash and balances at central banks At beginning of year Loans and advances to banks repayable on demand Cash and balances at central banks Decrease in cash

2005 €m

2004 €m

93.9 (45.7) (53.0) (36.0) (8.5) (1.4) (50.7)

44.1 (32.2) (52.6) (16.2) (0.3) (57.2)

(2,385.7) (39.1) (18.1) 0.4 (2,442.5)

(1,166.8) (37.6) (21.6) 0.8 (1,225.2)

(5.8)

-

431.6 165.7 (160.0) (119.4) 12.8 0.9 331.6

746.2 588.5 (35.8) 4.2 0.6 1,303.7

1,133.3 165.7 (119.4) 2.1 1,181.7

429.0 746.2 (35.8) (6.1) 1,133.3

656.2 4.9 661.1

645.0 11.2 656.2

682.1 566.7

943.5 363.2

(943.5) (363.2) (57.9)

(2,122.7) (333.5) (1,149.5)

67

68

Notes to the financial statements continued

38. Pensions The Group operates three defined benefit non-contributory pension schemes in Ireland. The assets of these schemes are held in separate trustee administered funds. These schemes have been closed to new members since January 1994. New Irish employees after that date join a funded scheme on a defined contribution basis. There are also funded defined contribution pension plans covering eligible Group employees in other locations as well as an unfunded defined contribution pension plan in relation to the Group’s Austrian employees (Note 27). The Group has continued to account for pensions in accordance with Statement of Standard Accounting Practice 24 ‘Accounting for Pension Costs’ (‘SSAP 24’). A new accounting standard on pensions was issued in November 2000 - Financial Reporting Standard 17 (‘FRS 17’) and it was amended in November 2002. It requires additional transitional disclosures on a phased basis in respect of defined benefit pension schemes. SSAP 24 pension disclosures The total pension costs for the Group for the year were €10.1m (2004: €9.5m) of which €3.9m (2004: €4.4m) represents the costs of defined benefit schemes and €6.2m (2004: €5.1m) relates to defined contribution pension plans. The pension costs relating to all defined benefit pension schemes have been assessed in accordance with the advice of an independent qualified actuary. Full formal actuarial valuations are carried out triennially. The last such valuations were carried out as at 1 October 2002 using the attained age method. The actuarial valuations are only available for inspection by members of the schemes. The principal actuarial assumptions adopted in these valuations were that the investment returns would be 2% higher than the annual salary increases and 3% higher than the annual pension increases. At 1 October 2002 the market value of the schemes’ assets was €51.0m and this represented 99.2% of the schemes’ liabilities at that date. The employer’s contribution rate over the average remaining service life of the members of the schemes takes account of the current actuarial funding level. The contributions paid to the defined benefit schemes during the year were €28.5m. There were €61.1m (2004: €36.5m) of prepaid contributions in respect of these schemes at the year end included in prepayments and accrued income. FRS 17 pension disclosures For the purposes of the FRS 17 disclosures the latest full actuarial valuations have been updated by a qualified independent actuary using the projected unit method mandated by FRS 17. Using this method the current service cost will increase as the members of closed schemes approach retirement. The major assumptions used by the actuary at the financial year end were as follows: Discount rate for liabilities of the schemes Rate of increase in salaries Rate of increase in pensions Inflation rate

2005 %

2004 %

2003 %

4.30 4.00 2.25 to 3.00 2.25

5.00 4.00 2.25 to 3.00 2.25

5.25 4.00 2.25 to 3.00 2.25

ANGLO IRISH BANK Annual Report & Accounts

The assets in the schemes and the expected long-term rates of return at 30 September were: Expected return 2005 %

Equities Bonds Property Hedge funds Cash Total

6.60 3.10 4.60 5.60 2.00

Market value of assets 2005 €m

55.0 6.5 3.6 6.6 35.4 107.1

Expected return 2004 %

7.50 4.50 5.50 6.00 2.00

Market value of assets 2004 €m

Expected return 2003 %

38.3 5.6 3.2 6.7 30.1 83.9

Market value of assets 2003 €m

7.75 4.75 6.25 3.50

31.0 6.7 3.1 24.6 65.4

2005 €m

2004 €m

2003 €m

107.1 (98.4) 8.7 (1.1) 7.6

83.9 (80.1) 3.8 (0.5) 3.3

65.4 (67.3) (1.9) 0.2 (1.7)

The following amounts at 30 September were measured in accordance with the requirements of FRS 17:

Total market value of schemes’ assets Present value of schemes’ liabilities Surplus/(deficit) in the schemes Related deferred tax Net pension asset/(liability)

If FRS 17 had been implemented the effect on the Group’s financial statements would have been as follows: Analysis of the amount that would have been charged to operating profit

Current service cost Past service cost Settlements and curtailments Total operating cost Expected return on assets of pension schemes Interest on liabilities of pension schemes Finance credit Net charge before tax Amount that would have been recognised in the statement of total recognised gains and losses Actual return less expected return on assets of the pension schemes Experience losses on liabilities of the pension schemes Change in assumptions underlying the present value of schemes’ liabilities Actuarial loss in the statement of total recognised gains and losses

2005 €m

2004 €m

2.6 4.2 2.0 8.8

2.9 4.0 6.9

(4.3) 4.0 (0.3)

(3.8) 3.5 (0.3)

8.5

6.6

6.3 (4.3) (17.1) (15.1)

1.9 (0.8) (3.2) (2.1)

69

70

Notes to the financial statements continued

38. Pensions continued

2005 €m

2004 €m

3.8 (2.6) (4.2) (2.0) 4.3 (4.0) 28.5 (15.1) 8.7

(1.9) (2.9) (4.0) 3.8 (3.5) 14.4 (2.1) 3.8

Net assets Net assets in consolidated accounts Pension asset on SSAP 24 basis Pension asset on FRS 17 basis Net assets on FRS 17 basis

2,112.1 (61.1) 7.6 2,058.6

1,239.8 (36.5) 3.3 1,206.6

Profit and loss account Profit and loss account in consolidated accounts Pension asset on SSAP 24 basis Pension asset on FRS 17 basis Profit and loss account on FRS 17 basis

1,400.6 (61.1) 7.6 1,347.1

974.2 (36.5) 3.3 941.0

Movement in surplus during the year Surplus/(deficit) at beginning of year Current service cost Past service cost Settlements and curtailments Expected return on assets of pension schemes Interest on liabilities of pension schemes Contributions paid Actuarial loss during year Surplus at end of year

History of experience gains and losses Difference between actual and expected return on assets Percentage of schemes’ assets at year end Experience losses on liabilities Percentage of schemes’ liabilities at year end Total amount recognised in statement of total recognised gains and losses Percentage of schemes’ liabilities at year end

2005 €m

6.3 5.9% (4.3) 4.4% (15.1) 15.3%

2004 €m

1.9 2.3% (0.8) 1.0% (2.1) 2.6%

2003 €m

(0.3) 0.5% (6.5) 9.7% (10.1) 15.0%

The three Irish defined benefit pension schemes were amalgamated into one scheme on 1 July 2005. 39. Related party transactions Subsidiary undertakings Details of the principal subsidiary undertakings are shown in Note 17. In accordance with Financial Reporting Standard 8 – ‘Related Party Disclosures’ (‘FRS 8’), transactions or balances between Group entities that have been eliminated on consolidation are not reported. Pension funds The Group provides normal investment fund management and banking services to pension funds operated by the Group for the benefit of its employees. These services are provided on similar terms as third party transactions and are not material to the Group. Directors Details of transactions with Directors requiring disclosure under FRS 8 are included in the report of the Remuneration Committee in Note 46.

ANGLO IRISH BANK Annual Report & Accounts

40. Segmental analysis The Group’s income and assets are principally attributable to banking activities. The analysis of gross income, profit before taxation, loans and advances to customers and assets by geographic location is as follows: 2005 Republic of Ireland €m

UK & IOM €m

Rest of the World €m

Group €m

1,027.5 122.5 16.0 7.8 1,173.8

1,005.8 87.6 14.0 1,107.4

43.5 31.4 74.9

2,076.8 241.5 16.0 21.8 2,356.1

407.8

266.7

10.7

685.2

1,303.9

714.1

94.1

2,112.1

Loans and advances to customers

21,988.5

11,991.7

118.8

34,099.0

Gross assets

30,432.0

16,155.2

1,676.4

48,263.6

Gross income: Interest receivable Fees and commissions receivable Dealing profits Other operating income Total gross income Profit on ordinary activities before taxation Net assets

2004 Republic of Ireland €m

UK & IOM €m

Rest of the World €m

Group €m

Gross income: Interest receivable Fees and commissions receivable Dealing profits Other operating income Total gross income

792.4 82.0 12.8 2.7 889.9

627.0 72.2 16.6 715.8

33.5 29.7 63.2

1,452.9 183.9 12.8 19.3 1,668.9

Profit on ordinary activities before taxation

292.6

202.7

8.8

504.1

Net assets

730.0

424.5

85.3

1,239.8

Loans and advances to customers

14,686.7

8,916.2

120.9

23,723.8

Gross assets

20,886.5

11,949.3

1,504.0

34,339.8

The analysis by geographic segment is based on the location of the office recording the transaction. The loans and advances to customers for the Republic of Ireland include €2,475.5m (2004: €1,328.5m) sourced in the USA. Income on capital is included in the geographical results and reflects allocations from a Group capital pool rather than representing underlying income on capital within individual operations.

71

72

Notes to the financial statements continued

41. Risk management and control The Board of Directors approves Group policy on banking and treasury credit risk which is set out in a detailed credit policy statement. The Board of Directors delegates its monitoring and control responsibilities to the Main Credit Committee for credit matters, the Group Asset and Liability Committee for market risk and liquidity issues and the Board Risk and Compliance Committee for operational risk issues. The members of these Committees include senior management from throughout the Group. The Board Risk and Compliance Committee currently comprises three Non-executive Directors and one Executive Director. Its main role is to oversee risk management and compliance. It reviews, on behalf of the Board of Directors, the key risks and compliance issues inherent in the business and the system of control necessary to manage them and presents its findings to the Board of Directors. Group Risk Management, Group Finance and Group Internal Audit are central control functions, independent of line management, whose roles include monitoring the Group’s activities to ensure compliance with financial and operating controls. The general scheme of risk, financial and operational control is designed to safeguard the Group’s assets while allowing sufficient operational freedom for the business units to earn a satisfactory return for shareholders. Credit risk The Group’s policy on banking and treasury credit risk is set out in a detailed credit policy manual which has been reviewed by the Board Risk and Compliance Committee and approved by the Board of Directors. The policy manual, which is regularly updated, is provided to all relevant staff and forms the core of our credit risk ethos. Strict parameters for all types of credit exposure are set down and all applications for credit are assessed within these parameters. The risk asset grading system allows the Group to balance the level of risk on any transaction with the return generated by the transaction. The Group operates a tiered system of discretions which ensures that all credit exposures are authorised at an appropriately senior level. The Main Credit Committee, which is the most important forum for approving credit exposures, includes Executive Directors and senior management. All credit Committees must come to a consensus before authorising a credit exposure and each credit must be signed by a valid quorum. Additionally, a Non-executive Director must countersign all exposures over a certain threshold. Credit risk on all treasury clients and interbank facilities is regularly assessed. All such treasury lines must be formally reviewed at least once a year. All lending exposures are monitored on an ongoing basis with the senior executive responsible for Group Risk Management regularly meeting each individual lender and examining their loan portfolio in detail. This ensures that potential problems are identified promptly and appropriate remedial action taken. An independent Group Risk Management function monitors credit risk on a portfolio-wide basis and, in particular, looks at the entire Group’s exposure to geographic and industrial sectors. Sectoral guidelines are in place. Restrictions on sectoral exposures are imposed when considered prudent.

ANGLO IRISH BANK Annual Report & Accounts

Market risk Market risk is the potential adverse change in Group income or the value of the Group’s net worth arising from movements in interest rates, exchange rates or other market prices. Market risk arises from the structure of the balance sheet, the execution of customer and interbank business and proprietary trading. The Group recognises that the effective management of market risk is essential to the maintenance of stable earnings, the preservation of shareholder value and the achievement of the Group’s corporate objectives. The Group’s exposure to market risk is governed by policies prepared by Group Risk Management and Group Treasury and approved by the Group Asset and Liability Committee. These policies set out the nature of risk which may be taken, the types of financial instruments which may be used to increase or reduce risk and the way in which risk is controlled. In line with these policies the Group Asset and Liability Committee approves all risk limits, which are also notified to the Board Risk and Compliance Committee. Exposure to market risk is permitted only in specifically designated business units and is centrally managed by Group Treasury in Dublin. In other units market risk is eliminated by way of appropriate hedging arrangements with Group Treasury. Market risk throughout the Group is measured and monitored by the Group Risk Management team, operating independently of the risk-taking units. Non-trading book The Group’s non-trading book consists of personal and corporate deposits and the lending portfolio, as well as Group Treasury’s interbank cash book and investment portfolio. In the non-trading areas interest rate risk arises primarily from the Group’s core banking business. This exposure is centrally managed by Group Treasury in Dublin using interest rate swaps and other conventional hedging instruments. The Group’s non-trading book exposure is analysed by its maturity profile in each currency. Limits by currency and maturity are formally approved by the Group Asset and Liability Committee and notified to the Board Risk and Compliance Committee. These limits are then subject to independent monitoring by the Group Risk Management team. Trading book – foreign exchange risk Traded foreign exchange risk is confined to Group Treasury and arises from the Group’s lending and funding activities, corporate and interbank foreign exchange business and from proprietary trading. It is monitored independently by Group Risk Management by way of open position limits and stoploss limits on a daily, monthly and annual basis. Trading book – interest rate risk The interest rate trading book consists of Group Treasury’s mark to market interest rate book. The trading book consists of interest rate swaps, currency swaps, interest rate futures, forward rate agreements and options. The risks arising from these items are monitored through a combination of position and loss constraints. These limits are formally approved by the Group Asset and Liability Committee, notified to the Board Risk and Compliance Committee and monitored daily by Group Risk Management.

73

74

Notes to the financial statements continued

41. Risk management and control continued Structural foreign exchange risk Structural foreign exchange risk represents the currency risk arising from the translation of the Group’s net investments in operations whose functional currency is not denominated in Euro. It is Group policy to eliminate this risk by matching all material foreign currency investments in such operations with liabilities in the same currency. The Group’s structural foreign exchange exposures at 30 September 2005 were as follows:

Functional currency of operation Sterling US Dollars Swiss Francs

Net investment €m

Liabilities in functional currency for hedging purposes €m

Remaining structural currency exposure €m

691.9 1.8 71.3 765.0

(691.9) (1.8) (71.3) (765.0)

-

Liquidity risk It is Group policy to ensure that resources are at all times available to meet the Group’s obligations arising from the withdrawal of customer deposits or interbank lines, the drawdown of customer facilities and asset expansion. The development and implementation of this policy is the responsibility of the Group Asset and Liability Committee. Group Treasury looks after the day to day management of liquidity and this is monitored by Group Risk Management. Limits on potential cash flow mismatches over defined time horizons are the principal means of liquidity control. The cash flow mismatch methodology involves estimating the net volume of funds which must be refinanced in particular time periods, taking account of the value of assets which could be liquidated during these periods. Limits are placed on the net mismatch in specified time periods out to six months.

ANGLO IRISH BANK Annual Report & Accounts

Operational risk Operational risk represents the risk that failed or inadequate processes, people or systems, or exposure to external events could result in unexpected losses. The risk is associated with human error, systems failure, and inadequate controls and procedures.The Group operates such measures of risk identification, assessment, monitoring and management as are necessary to ensure that operational risk management is consistent with the approach, aims and strategic goals of the Group and is designed to safeguard the Group’s assets while allowing sufficient operational freedom to earn a satisfactory return to shareholders. The Group manages operational risk under an overall strategy which is implemented by accountable executives. Potential risk exposures are assessed and appropriate controls are put in place. Recognising that operational risk cannot be entirely eliminated, the Group implements risk mitigation controls including fraud prevention, contingency planning and incident management.Where appropriate this strategy is further supported by risk transfer mechanisms such as insurance. Derivatives A derivative is an off-balance sheet agreement which defines certain financial rights and obligations which are contractually linked to interest rates, exchange rates or other market prices. Derivatives are an efficient and cost effective means of managing market risk and limiting counterparty exposures. As such they are an indispensable element of treasury management, both for the Group and for many of its corporate customers. Further details are disclosed in note 43. The accounting policy on derivatives is set out on page 45. It is recognised that certain forms of derivatives can introduce risks which are difficult to measure and control. For this reason it is Group policy to place clear boundaries on the nature and extent of its participation in derivatives markets and to apply the industry regulatory standards to all aspects of its derivatives activities. The Group’s derivatives activities are governed by policies approved by the Group Asset and Liability Committee. These policies relate to the management of the various types of risk associated with derivatives, including market risk, liquidity risk and credit risk.

75

76

Notes to the financial statements continued

42. Interest rate repricing Interest rate repricing – Euro Non-trading book

30 September 2005

Not more than three months €m

Assets Cash and balances at central banks 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 Other liabilities Capital resources Total liabilities Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap Cumulative interest rate repricing gap

554 1,666 14,503 3,033 19,756

Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

Total €m

216 152 32 400

561 248 30 839

96 542 268 906

197 164 361

498 498

554 2,539 15,642 3,527 498 22,760

(20) (585) (176) (17) (798)

(108) (108)

(474) (1,681) (2,155)

(4,860) (11,447) (4,683) (474) (3,195) (24,659)

(1,657)

1,962 (63) -

(4,729) (10,260) (4,225) (900) (20,114)

(22) (260) (224) (591) (1,097)

(89) (234) (58) (6) (387)

1,962 (1,333) 271

(120) (817)

(216) 236

1,010 1,118

596 849

(546)

(310)

808

1,657

271

-

-

ANGLO IRISH BANK Annual Report & Accounts

Interest rate repricing – Euro Non-trading book

30 September 2004

Not more than three months €m

Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

Total €m

Assets Cash and balances at central banks 355 Loans and advances to banks 1,786 Loans and advances to customers 9,691 Debt securities 1,566 Other assets Total assets 13,398

290 122 167 579

82 95 59 236

77 708 160 945

307 84 391

1,122 1,122

355 2,235 10,923 2,036 1,122 16,671

Liabilities Deposits by banks Customer accounts Debt securities in issue Other liabilities Capital resources Total liabilities

(1,369) (8,456) (3,869) (902) (14,596)

(286) (294) (580)

(233) (98) (588) (919)

(20) (713) (30) (763)

(88) (156) (244)

(1,090) (1,240) (2,330)

(1,389) (9,776) (4,261) (1,090) (2,916) (19,432)

Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap

16 (1,095) (2,277)

2,126 (849) 1,276

(44) 186 (541)

147 1,894 2,223

161 219 527

(1,208)

2,406 355 -

Cumulative interest rate repricing gap

(2,277)

(1,001)

(1,542)

681

1,208

-

-

77

78

Notes to the financial statements continued

42. Interest rate repricing continued Interest rate repricing – Stg£ Non-trading book

30 September 2005

Not more than three months €m

Assets Cash and balances at central banks 13 Loans and advances to banks 1,290 Loans and advances to customers 14,507 Securitised assets 276 Less: non-returnable proceeds (307) (31) Debt securities 322 Other assets Total assets 16,101 Liabilities Deposits by banks Customer accounts Debt securities in issue Other liabilities Capital resources Total liabilities

Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

344 466 1 1 431 1,242

148 3 3 154 305

440 41 41 7 488

211 1 1 12 224

802 802

13 1,634 15,772 322 (307) 15 926 802 19,162

Total €m

(1,561) (9,738) (2,225) (13,524)

(14) (510) (147) (73) (744)

(338) (1) (339)

(61) (553) (614)

(9) (1,092) (1,101)

(407) (4) (411)

(1,575) (10,656) (2,926) (407) (1,169) (16,733)

Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap

(2,062) (2,382) (1,867)

51 549

169 135

554 428

1,241 364

391

(2,062) (367) -

Cumulative interest rate repricing gap

(1,867)

(1,318)

(1,183)

(755)

(391)

-

-

ANGLO IRISH BANK Annual Report & Accounts

Interest rate repricing – Stg£ Non-trading book

30 September 2004 Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

Debt securities Other assets Total assets

8 1,469 9,578 544 (635) (91) 130 11,094

116 698 6 6 12 832

117 110 10 10 237

570 97 97 6 673

256 9 9 7 272

562 562

8 1,702 11,212 666 (635) 31 155 562 13,670

Liabilities Deposits by banks Customer accounts Debt securities in issue Other liabilities Capital resources Total liabilities

(622) (6,644) (1,474) (8,740)

(338) (88) (426)

(759) (106) (865)

(24) (73) (97)

(656) (656)

(233) (2) (235)

(622) (7,765) (1,668) (233) (731) (11,019)

Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap

(68) (570) 1,716

(2,064) (611) (2,269)

20 292 (316)

49 (41) 584

35 307 (42)

327

(2,028) (623) -

Cumulative interest rate repricing gap

1,716

(553)

(869)

(285)

(327)

-

-

Not more than three months €m

Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Securitised assets Less: non-returnable proceeds

Total €m

79

80

Notes to the financial statements continued

42. Interest rate repricing continued Interest rate repricing – US$ Non-trading book

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 Other liabilities Capital resources Total liabilities

30 September 2005

Not more than three months €m

Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

Total €m

1,015 2,204 305 3,524

255 137 9 401

159 11 22 192

197 168 34 399

117 16 133

75 75

1,626 2,637 386 75 4,724

(696) (2,251) (787) (100) (3,834)

(104) (4) (108)

(72) (65) (17) (154)

(4) (52) (137) (193)

(1) (29) (30)

(28) (28)

(696) (2,432) (908) (28) (283) (4,347)

Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap

39 (657) (928)

4 297

43 81

221 427

(27) 76

47

Cumulative interest rate repricing gap

(928)

(631)

(550)

(123)

(47)

-

39 (416) -

-

ANGLO IRISH BANK Annual Report & Accounts

Interest rate repricing – US$ Non-trading book

30 September 2004

Not more than three months €m

Over three months but not more than six months €m

Over six months but not more than one year €m

Over one year but not more than five years €m

Over five years €m

Non interest bearing €m

Total €m

Assets Loans and advances to banks Loans and advances to customers Debt securities Other assets Total assets

876 1,099 214 2,189

212 63 275

97 51 18 166

126 232 64 422

116 10 126

87 87

1,311 1,561 306 87 3,265

Liabilities Deposits by banks Customer accounts Debt securities in issue Other liabilities Capital resources Total liabilities

(444) (1,602) (223) (98) (2,367)

(24) (15) (41) (20) (100)

(14) (96) (80) (190)

(2) (28) (30)

-

(33) (33)

(468) (1,633) (360) (33) (226) (2,720)

Net amounts due from/(to) Group units Off-balance sheet items Interest rate repricing gap

102 (679) (755)

(115) 221 281

21 348 345

(193) 31 230

(186) (95) (155)

54

(371) (174) -

Cumulative interest rate repricing gap

(755)

(474)

(129)

101

(54)

-

-

81

82

Notes to the financial statements continued

43. Derivative transactions In the normal course of business the Group is party to various types of financial instruments used to generate incremental income, to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest and exchange rates and equity prices. These financial instruments involve to varying degrees exposure to loss in the event of a default by a counterparty (‘credit risk’) and exposure to future changes in interest and exchange rates and equity prices (‘market risk’). Details of the objectives, policies and strategies arising from the Group’s use of financial instruments, including derivative financial instruments, are presented in Note 41 on risk management and control. In respect of interest rate, exchange rate and equity contracts, underlying principal amount is used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller. Replacement cost provides a better indication of the credit risk exposures facing a bank. Replacement cost is the gross cost of replacing all contracts with external parties that have a positive fair value, without giving effect to offsetting positions with the same counterparty. The underlying principal amount and replacement cost, by residual maturity, of the Group’s over the counter and other non-exchange traded derivatives at 30 September 2005 were as follows: 2005

Underlying principal amount Exchange rate contracts Interest rate contracts Equity contracts Replacement cost Exchange rate contracts Interest rate contracts Equity contracts

2004

Within one year €m

One to five years €m

Over five years €m

Total €m

Total €m

17,489.8 12,316.5 19.9

1,169.1 31,313.0 89.4

4.0 14,842.1 136.4

18,662.9 58,471.6 245.7

27,724.3 48,884.7 136.6

86.7 66.9 5.6

5.6 253.4 23.0

293.1 12.3

92.3 613.4 40.9

148.7 224.1 35.8

The replacement cost of the Group’s over the counter and other non-exchange traded derivatives as at 30 September 2005 analysed into financial and non-financial counterparties for exchange rate, interest rate and equity contracts were as follows: 2005

Exchange rate contracts Interest rate contracts Equity contracts

2004

Financial €m

Nonfinancial €m

Total €m

Total €m

69.6 402.0 40.9 512.5

22.7 211.4 234.1

92.3 613.4 40.9 746.6

148.7 224.1 35.8 408.6

ANGLO IRISH BANK Annual Report & Accounts

The Group maintains trading positions in derivatives. Most of these positions are 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 following table represents the underlying principal amount and fair value by class of instrument utilised in the trading activities of the Group at 30 September 2005. 30 September 2005

Trading book Interest rate contracts Interest rate swaps in a favourable position in an unfavourable position Forward rate agreements in a favourable position in an unfavourable position Interest rate futures in a favourable position in an unfavourable position Interest rate caps, floors and options held in a favourable position in an unfavourable position Interest rate caps, floors and options written in a favourable position in an unfavourable position Exchange traded options held in a favourable position in an unfavourable position Exchange traded options written in a favourable position in an unfavourable position Foreign exchange contracts Forward foreign exchange in a favourable position in an unfavourable position Foreign exchange options in a favourable position in an unfavourable position Currency swaps in a favourable position in an unfavourable position

Underlying principal amount €m

Fair value €m

38,962.3 430.6 (417.7) 987.9 0.2 (0.2) 4,099.8 4,147.5 18.7 4,344.8 (18.2) 1,553.1 1,148.4 10,921.6 75.5 (68.3) 3,623.8 23.0 (22.1) 4.0 (0.3)

83

84

Notes to the financial statements continued

43. Derivative transactions continued The following table represents the underlying principal amount, weighted average maturity and fair value by class of instrument utilised in the trading activities of the Group at 30 September 2005.

Trading book Interest rate contracts Interest rate swaps-receive fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay and receive floating 1 year or less 1 to 5 years 5 to 10 years Forward rate agreements-loans 1 year or less 1 to 5 years Forward rate agreements-deposits 1 year or less 1 to 5 years Interest rate futures 1 year or less 1 to 5 years 5 to 10 years Interest rate caps, floors and options held 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate caps, floors and options written 1 year or less 1 to 5 years 5 to 10 years Over 10 years Exchange traded options held 1 year or less Exchange traded options written 1 year or less Foreign exchange contracts Forward foreign exchange 1 year or less 1 to 5 years Foreign exchange options 1 year or less 1 to 5 years Currency swaps 5 to 10 years

Underlying principal amount €m

Weighted average maturity in years

Fair value €m

3,110.5 10,358.1 4,270.4 682.8

0.5 2.9 7.6 16.9

19.9 149.1 184.2 25.7

5,428.5 9,743.0 4,573.1 693.3

0.4 2.9 7.6 16.6

(57.8) (133.2) (156.8) (17.6)

29.1 73.5 -

0.8 1.4 -

(0.2) (0.4) -

294.6 100.0

0.6 1.2

(0.2) -

393.3 200.0

0.4 1.2

0.2

2,606.4 1,493.4 -

0.7 1.5 -

-

529.6 3,313.1 300.5 4.3

0.5 2.9 6.6 13.8

1.1 13.5 3.9 0.2

606.1 3,427.1 307.3 4.3

0.5 2.8 6.5 13.8

(1.1) (13.1) (3.9) (0.1)

1,553.1

0.3

-

1,148.4

0.3

-

10,194.0 727.6

0.2 1.4

6.5 0.7

3,485.0 138.8

0.3 1.5

0.8 0.1

4.0

5.7

(0.3)

ANGLO IRISH BANK Annual Report & Accounts

The following table represents the underlying principal amount and fair value by class of instrument utilised in the trading activities of the Group at 30 September 2004. 30 September 2004

Trading book Interest rate contracts Interest rate swaps in a favourable position in an unfavourable position Forward rate agreements in a favourable position in an unfavourable position Interest rate futures in a favourable position in an unfavourable position Interest rate caps, floors and options held in a favourable position in an unfavourable position Interest rate caps, floors and options written in a favourable position in an unfavourable position Exchange traded options held in a favourable position in an unfavourable position Exchange traded options written in a favourable position in an unfavourable position Foreign exchange contracts Forward foreign exchange in a favourable position in an unfavourable position Foreign exchange options in a favourable position in an unfavourable position Currency swaps in a favourable position in an unfavourable position

Underlying principal amount €m

Fair value €m

25,874.3 240.8 (241.1) 2,901.6 1.7 (1.5) 5,207.5 2,582.8 13.8 2,786.6 (14.7) 1,254.9 1,133.0 17,187.3 205.2 (187.6) 4,131.4 23.7 (11.1) 2.1 (0.3)

85

86

Notes to the financial statements continued

43. Derivative transactions continued The following table represents the underlying principal amount, weighted average maturity and fair value by class of instrument Underlying Weighted utilised in the trading activities of the Group at 30 September 2004. Trading book Interest rate contracts Interest rate swaps-receive fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay and receive floating 1 year or less 1 to 5 years 5 to 10 years Forward rate agreements-loans 1 year or less 1 to 5 years Forward rate agreements-deposits 1 year or less 1 to 5 years Interest rate futures 1 year or less 1 to 5 years 5 to 10 years Interest rate caps, floors and options held 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate caps, floors and options written 1 year or less 1 to 5 years 5 to 10 years Over 10 years Exchange traded options held 1 year or less Exchange traded options written 1 year or less Foreign exchange contracts Forward foreign exchange 1 year or less 1 to 5 years Foreign exchange options 1 year or less 1 to 5 years Currency swaps 5 to 10 years

principal amount €m

average maturity in years

Fair value €m

2,851.3 6,414.5 3,097.7 273.0

0.4 2.7 7.5 11.7

24.4 72.9 78.3 9.4

3,386.6 6,420.8 3,059.2 230.0

0.4 2.6 7.5 11.5

(30.8) (72.6) (72.7) (7.5)

27.8 88.4 25.0

0.8 2.2 8.0

(0.8) (0.3) (0.6)

1,161.5 406.0

0.7 1.2

(0.5) 1.2

908.2 425.9

0.7 1.2

0.4 (0.9)

2,773.1 2,429.4 5.0

0.7 1.6 7.3

-

43.7 2,151.9 367.2 20.0

0.4 3.3 7.5 10.5

8.9 4.9 -

87.9 2,274.8 403.9 20.0

0.6 3.2 7.6 10.5

(9.1) (5.6) -

1,254.9

0.4

-

1,133.0

0.4

-

16,089.9 1,097.4

0.3 1.5

18.5 (0.9)

4,124.8 6.6

0.4 1.1

12.6 -

2.1

6.7

(0.3)

ANGLO IRISH BANK Annual Report & Accounts

Non-trading derivatives The operations of the Group are exposed to the risk of interest rate fluctuations to the extent that assets and liabilities mature or reprice at different times or in differing amounts. Derivatives allow the Group 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. Derivatives fluctuate in value as interest or exchange rates rise or fall just as on-balance sheet assets and liabilities fluctuate in value. If the derivatives are purchased or sold as hedges of balance sheet items, the appreciation or depreciation of the derivatives as interest or exchange rates change, will generally be offset by the unrealised appreciation or depreciation of the hedged items. To achieve its risk management objectives the Group uses a combination of derivative financial instruments, particularly interest rate and currency swaps, futures and options, as well as other contracts. Unrecognised gains and losses on hedges Gains and losses on instruments used for hedging are recognised in line with the underlying items which are being hedged. Based on market rates prevailing at the close of business on 30 September 2005, the unrecognised net losses on instruments used for hedging as at 30 September 2005 were €40.5m (2004: €10.9m). The net loss expected to be recognised in the year to 30 September 2006 is €17.5m (2004: €0.7m) and thereafter a net loss of €23.0m (2004: €10.2m) is expected. The net loss recognised in the year to 30 September 2005 in respect of previous years was €0.7m (2004: €4.2m) and the net loss arising in the year to 30 September 2005 which was not recognised in that year was €30.3m (2004: €28.3m). Non-trading derivative deferred balances Deferred balances relating to settled derivative transactions are released to the profit and loss account in the same periods as the income and expense flows from the underlying transactions. The table below summarises the deferred gains and losses at 30 September 2005. Deferred gains €m

As at I October 2004 Gains and losses arising in previous years that were recognised this year Gains and losses arising before I October 2004 that were not recognised in the year ended 30 September 2005 Gains and losses arising in the year ended 30 September 2005 that were not recognised in that year As at 30 September 2005 Of which: Gains and losses expected to be recognised in the year ended 30 September 2006

Deferred losses €m

Total net deferred gains/(losses) €m

16.2

(17.8)

(1.6)

3.9

(4.7)

(0.8)

12.3

(13.1)

(0.8)

23.4 35.7

(24.9) (38.0)

(1.5) (2.3)

10.1

(10.2)

(0.1)

Anticipatory hedges The Group entered into forward foreign exchange contracts to partly hedge against the exchange risk arising on the translation into Euro of future net profits expected to be earned from activities conducted in foreign currencies. There were unrecognised losses of €13.3m (2004: €5.6m gains) based on the fair value of these contracts at the year end.

87

88

Notes to the financial statements continued

43. Derivative transactions continued The following table sets out details of all derivatives used in the Group’s non-trading activities at 30 September 2005.

Non-trading book Interest rate contracts Interest rate swaps-receive fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay and receive floating 1 year or less 1 to 5 years 5 to 10 years Over 10 years Forward rate agreements-loans 1 year or less 1 to 5 years Forward rate agreements-deposits 1 year or less 1 to 5 years Interest rate caps, floors and options written 1 year or less 1 to 5 years 5 to 10 years Over 10 years Foreign exchange contracts Forward foreign exchange 1 year or less 1 to 5 years Equity contracts Equity index-linked contracts 1 year or less 1 to 5 years 5 to 10 years

Underlying principal amount €m

Weighted average maturity in years

Fair value €m

1,846.3 2,726.7 1,286.3 837.9

0.3 2.3 7.7 12.8

33.6 44.0 41.1 18.6

74.2 359.1 246.6 93.1

0.5 2.4 6.8 17.4

(2.5) (8.8) (25.0) (18.6)

4.3 848.1 20.0 600.0

0.1 2.1 8.0 29.0

(11.2) (0.1) (5.8)

-

-

-

-

-

-

164.3 322.2 600.0

2.0 6.2 29.0

(1.8) (23.3)

3,810.8 302.7

0.1 1.6

5.7 (4.2)

19.9 89.4 136.4

1.0 3.6 5.7

5.6 23.0 8.2

ANGLO IRISH BANK Annual Report & Accounts

The following table sets out details of all derivatives used in the Group’s non-trading activities at 30 September 2004.

Non-trading book Interest rate contracts Interest rate swaps-receive fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay fixed 1 year or less 1 to 5 years 5 to 10 years Over 10 years Interest rate swaps-pay and receive floating 1 year or less 1 to 5 years 5 to 10 years Over 10 years Forward rate agreements-loans 1 year or less 1 to 5 years Forward rate agreements-deposits 1 year or less 1 to 5 years Interest rate caps, floors and options written 1 year or less 1 to 5 years 5 to 10 years Over 10 years Foreign exchange contracts Forward foreign exchange 1 year or less 1 to 5 years Equity contracts Equity index-linked contracts 1 year or less 1 to 5 years 5 to 10 years

Underlying principal amount €m

Weighted average maturity in years

Fair value €m

2,990.2 2,628.6 724.7 406.6

0.4 2.1 6.6 21.9

20.5 62.4 42.1 13.8

1,745.6 1,409.0 674.8 105.1

0.2 2.7 6.4 16.8

(19.9) (36.7) (56.3) (14.8)

65.1 119.3 603.6 600.0

0.7 4.2 10.0 30.0

(2.5) 0.7 7.3 8.3

40.8

1.3

0.1

370.5 690.8

0.9 1.1

(0.9)

131.0 673.7 760.0

3.7 6.7 28.9

(1.3) (22.0)

5,753.5 650.0

0.4 1.6

18.0 7.9

27.1 76.6 32.9

0.9 3.6 6.0

12.5 19.1 4.2

89

90

Notes to the financial statements continued

44. Fair value of financial assets and financial liabilities The Group has estimated fair value wherever possible using market prices. In certain cases, however, including advances to customers, there are no ready markets. Accordingly, the fair value has been calculated by discounting expected future cash flows using market rates applicable at the year end. This method is based upon market conditions at that date which may not necessarily be indicative of any subsequent fair value. As a result, readers of these financial statements are advised to use caution when using this data to evaluate the Group’s financial position. The concept of fair value assumes realisation of financial instruments by way of a sale. However, in many cases, particularly in respect of lending to customers, the Group intends to realise assets through collection over time. As such, the fair value calculated does not represent the value of the Group as a going concern at the year end. The following table represents the carrying amount and the fair value of the Group’s financial assets and liabilities at the year end. 2005

Non-trading financial instruments Financial assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Securitised assets Less: non-returnable proceeds

Carrying amount €m

2004 Fair value €m

Carrying amount €m

Fair value €m

Debt securities Equity shares

566.7 6,253.6 34,099.0 322.0 (307.0) 15.0 4,933.1 46.7

566.7 6,235.7 34,222.3 323.1 (308.3) 14.8 4,962.3 46.7

363.2 5,847.4 23,723.8 666.0 (634.8) 31.2 2,534.4 26.1

363.2 5,837.2 23,776.2 673.1 (635.3) 37.8 2,568.2 26.1

Financial liabilities Deposits by banks Customer accounts Debt securities in issue Subordinated liabilities Perpetual capital securities Non-equity minority interests Preference shares

7,150.7 25,159.7 9,405.1 1,181.7 661.1 688.9 431.6

7,148.3 25,219.6 9,400.7 1,190.1 801.0 635.2 445.2

2,605.9 19,546.0 6,944.5 1,133.3 656.2 841.6 -

2,606.3 19,583.4 6,944.1 1,151.3 772.4 864.3 -

13.4 7.8

13.4 7.8

(1.0) 29.9

(1.0) 29.9

Derivative financial instruments held for trading purposes Interest rate contracts Foreign exchange contracts

Derivative financial instruments utilised for non-trading activities Interest rate contracts Foreign exchange contracts Equity contracts

40.2 1.5 36.8

0.8 25.9 35.8

The fair value of loans and advances to customers and securitised assets are calculated by discounting expected future cash flows (excluding margin for credit risk) using market rates applicable at the year end. The fair value applied to the debt securities assets and the subordinated liabilities, perpetual capital securities, non-equity minority interests and preference shares are the quoted market values for these items at the year end. The fair value of the other financial assets and liabilities are calculated by discounting expected future cash flows using market rates applicable at the year end. The fair value of customer accounts with equity trackers includes the fair value of associated index-linked equity contracts. The derivatives are marked to market at the year end.

ANGLO IRISH BANK Annual Report & Accounts

45. Currency information

The Group

The Company

2005 €m

2004 €m

2005 €m

2004 €m

Denominated in Euro Denominated in other currencies Total assets

22,760.2 25,503.4 48,263.6

16,671.0 17,668.8 34,339.8

21,955.0 23,096.5 45,051.5

15,303.8 16,149.7 31,453.5

Denominated in Euro Denominated in other currencies Total liabilities and capital resources

24,659.0 23,604.6 48,263.6

19,432.0 14,907.8 34,339.8

23,617.0 21,434.5 45,051.5

17,464.8 13,988.7 31,453.5

Due to off-balance sheet items the above analysis should not be considered to demonstrate foreign exchange risk exposures. 46. Report on Directors’ remuneration and interests This report on Directors’ remuneration and interests has been prepared by the Remuneration Committee on behalf of the Board of Directors in accordance with the requirements of the Irish Stock Exchange’s Combined Code on Corporate Governance. Remuneration Committee All members of the Remuneration Committee are Non-executive Directors. Its current members are Michael Jacob (Chairman), Sean FitzPatrick and Ned Sullivan. This Committee is responsible for the formulation of the Group’s policy on remuneration in relation to all Executive Directors and other senior executives. The remuneration of the Executive Directors is determined by the Board of Directors on the recommendations of the Remuneration Committee. The recommendations of the Remuneration Committee are considered and approved by the Board of Directors. Remuneration policy The remuneration policy adopted by the Group is to reward its Executive Directors competitively having regard to comparable companies and the need to ensure that they are properly rewarded and motivated to perform in the best interests of shareholders. The policy is based heavily on rewarding performance. The Group Chief Executive is fully consulted about remuneration proposals in relation to other Directors. From time to time the Remuneration Committee takes advice from external pay consultants. Included in the remuneration package for Executive Directors are basic salary, a performance related bonus and an ability to participate in employee share incentive plans. They also participate in either a personal Revenue approved defined contribution pension plan or the Group defined benefit pension scheme. Remuneration for Non-executive Directors is a matter for the Chairman in consultation with the Group Chief Executive and the Group Company Secretary. Neither the Chairman nor any Director is involved in decisions relating to his or her remuneration. Performance bonus The level of performance bonus is determined for each individual Executive Director. The level earned in any one year is paid out of a defined pool and depends on the Remuneration Committee’s assessment of each individual’s performance against predetermined targets for that year and also an assessment of the overall performance of the Group. The performance bonus is split into two components. Part of the performance bonus is paid annually and is determined by reference to the economic profit generated by the Group. The other element of the performance bonus is calculated by reference to total shareholder return and compared to a peer group and the payment of this bonus is deferred to the earlier of three years or the individual’s retirement date. Its cost is accrued immediately in the accounts.

91

92

Notes to the financial statements continued

46. Report on Directors’ remuneration and interests continued Share incentive plans It is Company policy to motivate its Executive Directors by granting them share options. These options have been granted under the terms of the employee share incentive plans approved by shareholders. Further details in relation to these plans are given in Note 31 to the financial statements. Non-executive Directors are not eligible to participate in the employee share incentive plans. Loans to Directors Loans to Directors are made in the ordinary course of business on commercial terms in accordance with established policy. At 30 September 2005 the aggregate amount outstanding in loans to persons who at any time during the year were Directors was €21.7m (2004: €10.2m) in respect of thirteen (2004: twelve) individuals. Contracts Other than in the normal course of business, there have not been any contracts or arrangements with the Company or any subsidiary undertaking during the year in which a Director of the Company was materially interested and which were significant in relation to the Group’s business. There are no service contracts in existence for any Director with the Company or any of its subsidiary undertakings. Pensions Executive Directors participate in either a defined contribution scheme or the Group defined benefit scheme. All pension benefits are determined solely in relation to basic salary. Fees paid to Non-executive Directors are not pensionable.

ANGLO IRISH BANK Annual Report & Accounts

Directors’ remuneration – 2005

Salary €000

Executive Directors David Drumm Sean FitzPatrick (to 28 January 2005) Tom Browne William McAteer Tiarnan O Mahoney (1) John Rowan Non-executive Directors Sean FitzPatrick (from 29 January 2005) Peter Murray (2) Lar Bradshaw (3) Fintan Drury Michael Jacob Patricia Jamal Gary McGann Anton Stanzel (4) Ned Sullivan Patrick Wright Former Directors Total

Annual Deferred performance performance Fees bonus bonus €000 €000 €000

Pension Benefits contribution €000 €000

Former Directors €000

Total €000

663

-

900

600

37

154

-

2,354

320 397 418 115 432

-

533 600 600 1,000

400 400 -

28 49 43 10 37

131 79 83 47 156

-

1,012 1,525 1,544 172 1,625

-

167 72 63 65 94 65 65 33 75 65

-

-

-

-

-

167 72 63 65 94 65 65 33 75 65

2,345

764

3,633

1,400

204

650

48 48

48 9,044

(1) Retired on 2 December 2004. In addition,Tiarnan O Mahoney received €3,650,000 on his retirement and €250,000 was contributed to his personal pension scheme, in recognition of his substantial contribution to the Group. (2) Retired as Chairman on 28 January 2005. (3) Co-opted on 12 October 2004. (4) Retired on 28 January 2005.

93

94

Notes to the financial statements continued

46. Report on Directors’ remuneration and interests continued Directors’ remuneration – 2004

Executive Directors Sean FitzPatrick Tom Browne (1) David Drumm (2) Peter Killen (3) William McAteer Tiarnan O Mahoney John Rowan

Salary €000

Fees €000

Annual performance bonus €000

775 218 6 123 392 458 412

-

1,600 348 7 500 1,000 500

278 4 400 400

52 25 1 14 42 42 47

294 44 1 50 78 186 168

-

2,721 913 19 187 1,412 1,686 1,527

-

217 63 85 63 43 73 74 63

-

-

-

-

-

217 63 85 63 43 73 74 63

2,384

681

3,955

1,082

223

821

15 15

15 9,161

Non-executive Directors Peter Murray Fintan Drury Michael Jacob Patricia Jamal Gary McGann (1) Anton Stanzel Ned Sullivan Patrick Wright Former Directors Total

(1) Co-opted on 20 January 2004 (2) Co-opted on 22 September 2004 (3) Retired on 10 February 2004

Deferred performance bonus €000

Benefits €000

Pension contribution €000

Former Directors €000

Total €000

ANGLO IRISH BANK Annual Report & Accounts

Directors’ pension benefits The Group makes payments to defined contribution pension plans for Tom Browne and William McAteer. All of the other Executive Directors are members of the Group defined benefit pension scheme. Details are as follows: Defined Contribution

Defined Benefit

Sean FitzPatrick David Drumm Tom Browne William McAteer Tiarnan O Mahoney John Rowan

Increase in accrued annual pension benefit during year €000

Total accrued pension benefit at year end €000

Transfer value of increase in accrued benefit €000

Group contribution €000

186 11 197

533 231 308 175 1,247

2,055 129 2,184

79 83 162

The increase in accrued annual pension benefit during the year excludes any increase for inflation. The total accrued pension benefit at the year end is that which would be paid annually on normal retirement date, based on service to the year end.The transfer value of the increase in accrued benefit has been calculated by an independent actuary. Sean FitzPatrick retired as Chief Executive on 28 January 2005 with an entitlement to an annual pension of €0.533m.The transfer value paid to his personal pension fund to extinguish his accrued pension benefit was €2.562m greater than the actuarially calculated minimum transfer value of his accrued pension benefit at 30 September 2004.The transfer value paid was approved by the pension fund trustee as being in the best interests of the pension fund as it represented a considerable cash saving when compared with the potential cost of purchasing an annuity to honour the fund’s obligations. Fees paid to Non-executive Directors are not pensionable.

95

96

Notes to the financial statements continued

46. Report on Directors’ remuneration and interests continued Directors’ and Company Secretary’s interests The beneficial interests of the current Directors and Secretary and of their spouses and minor children in the shares of the Company are included in the following table: Interests in ordinary shares Directors Sean FitzPatrick David Drumm Lar Bradshaw Tom Browne Fintan Drury Michael Jacob Patricia Jamal William McAteer Gary McGann John Rowan Ned Sullivan Patrick Wright Secretary Bernard Daly

30 September 2005 Ordinary Share Shares Options

30 September 2004 Ordinary Share Shares Options

4,446,132 177,989 50,331 892,892 52,816 746,766 30,471 2,388,376 100,630 698,851 422,607 381,570

1,527,596 1,608,330 1,477,696 1,491,058 -

3,775,852 75,214 *891,280 52,250 746,766 30,144 2,386,786 50,242 696,168 418,066 454,438

625,000 527,596 *1,608,330 1,477,696 1,491,058 -

31,830

308,100

62,186

308,100

* or date of appointment if later There have been no changes in the Directors’ and Secretary’s shareholdings between 30 September 2005 and 22 November 2005. The Directors and Secretary and their spouses and minor children have no other interests in the shares of the Company or its Group undertakings as at 30 September 2005. The comparative amounts have been adjusted to reflect the two-for-one share split on 22 April 2005.

ANGLO IRISH BANK Annual Report & Accounts

Share options granted to Directors Options to subscribe for ordinary shares in the Company granted to and exercised by Directors during the year to 30 September 2005 are included in the following table: Options at 1 October 2004 Number

Sean FitzPatrick 625,000 David Drumm

Tom Browne

Options granted since 1 October 2004 Number Price €

Options exercised since 1 October 2004 Number Price €

9.36

Options at 30 September 2005 Weighted Date from average which Expiry Exercise exercise Number exercisable date price € price €

-

625,000

124,900 200,000 200,000 - 500,000 - 500,000 2,696 527,596 1,000,000

-

124,900 #Sept 05 Sept 10 200,000 Sept 06 Sept 13 200,000 #Sept 08 Sept 13 500,000 Nov 07 Nov 14 500,000 #Nov 09 Nov 14 2,696 *Feb 07 Aug 07 1,527,596

1.18 4.68 4.68 7.97 7.97 4.51

7.97 7.97

1.18

Market price at exercise date Price €

-

6.55

300,000 300,000 500,000 500,000 8,330 1,608,330

-

-

300,000 Feb 05 Feb 12 300,000 #Feb 07 Feb 12 500,000 Sept 06 Sept 13 500,000 #Sept 08 Sept 13 8,330 *July 07 Jan 08 1,608,330

2.25 2.25 4.68 4.68 2.54

William McAteer 475,000 500,000 500,000 2,696 1,477,696

-

-

475,000 #Sept 05 Sept 10 500,000 Dec 06 Dec 13 500,000 #Dec 08 Dec 13 2,696 *Feb 07 Aug 07 1,477,696

1.18 6.30 6.30 4.51

John Rowan

-

-

475,000 #Sept 05 Sept 10 500,000 Dec 06 Dec 13 500,000 #Dec 08 Dec 13 16,058 *Sept 06 Mar 07 1,491,058

1.18 6.30 6.30 1.54

475,000 500,000 500,000 16,058 1,491,058

3.76

4.65

4.62

# Second tier options * SAYE scheme options Details of options outstanding at 30 September 2005 are shown in the Register of Directors’ and Secretary’s Interests, which may be inspected at the Company’s registered office. The closing market price of the Company’s ordinary shares at 30 September 2005 was €11.33 (2004: €7.38) and the range during the year to 30 September 2005 was from €7.38 to €11.45. All the figures have been adjusted to reflect the two-for-one share split on 22 April 2005.

97

98

Notes to the financial statements continued

47. Comparative figures The comparative figures have been reclassified where necessary on a basis consistent with the current year. 48. International Financial Reporting Standards All listed groups in the European Union (‘EU’) will be required to prepare their financial statements using International Financial Reporting Standards (‘IFRS’) as endorsed by the EU for accounting periods commencing on or after 1 January 2005. The Group’s first results prepared under IFRS will be published in its interim report for the six months to 31 March 2006. It is intended that audited comparative data for 2005 will be filed with the Irish and London Stock Exchanges in March 2006. In certain respects these new standards are significantly different from existing accounting standards that are generally accepted in Ireland. The major differences identified between accounting policies currently adopted by the Group as set out in Note 1 and those expected under IFRS are set out below. Provisions for bad and doubtful debts Under IFRS impairment provisions can only be made for losses that have already been incurred at the balance sheet date. Impairment is based on objective evidence and the impairment provision is the difference between the present value of future cash flows discounted at the asset’s original effective interest rate and the book value of the asset. The charge in the income statement for impairment losses under IFRS is expected to be more cyclical in the future as provisions will reflect economic conditions at each reporting date. Derivatives and hedging Under IFRS all derivatives are measured at fair value with changes in their value either going through the income statement or being dealt with through reserves. Hedge accounting is permitted but the conditions that must be complied with under IFRS are onerous compared with existing requirements making IFRS compliant hedge accounting more difficult to achieve. The hedging strategies used by the Group have been reviewed with a view to designing and implementing IFRS compliant hedge accounting strategies where practical. However, the primary objective is to continue to provide economic hedges against the Group’s market risk exposures. Effective interest rates and lending arrangement fees IFRS requires most lending arrangement fees to be recognised as interest income over the expected life of the relevant loan using the effective interest rate. The effective interest rate is the rate that discounts all estimated cash flows on the loan over its expected life to its net carrying amount. Debt securities The majority of debt securities held for investment purposes will be designated as ‘available for sale’ under IFRS.‘Available for sale’ assets are measured at fair value under IFRS with changes in fair value (unrealised gains and losses) being recorded as movements in reserves. Life assurance presentation IFRS requires the line by line consolidation of the results and balance sheet of the life assurance subsidiary including those assets and liabilities attributable to policyholders. Securitised assets IFRS does not permit the linked presentation treatment of the Group’s securitised assets. Instead the relevant assets and liabilities will be included on a gross basis in the balance sheet.

ANGLO IRISH BANK Annual Report & Accounts

Equity and liabilities presentation Under IFRS capital instruments must be classified between equity and liabilities in the consolidated accounts in accordance with the substance of the contractual arrangements. Offset Netting of derivative exposures by counterparty is not permitted by IFRS unless active netting is taking place. This means that for certain counterparties assets and liabilities arising on foreign exchange and interest rate contracts will have to be grossed up on both sides of the balance sheet under IFRS. Goodwill Goodwill arising on acquisitions since October 1998 is currently amortised to the profit and loss account over its estimated useful economic life. Under IFRS goodwill will no longer be amortised but will be tested annually for impairment and written down if necessary. Pensions Under IFRS defined benefit pension scheme liabilities are discounted to their present value using the market rate on high quality corporate bonds. Any difference between pension scheme liabilities and the fair value of pension scheme assets is recorded on the balance sheet. IFRS permits actuarial gains and losses to be recognised immediately through the statement of total recognised income and expense. Dividends IFRS requires proposed dividends to be recorded in the accounting period in which they are authorised and approved rather than in the period to which they relate. Computer software Currently external costs incurred on computer software development are capitalised within tangible fixed assets and after the software has been brought into use it is depreciated over its estimated useful life of four years. Under IFRS computer software has to be reclassified as an intangible asset. Both directly attributable internal costs and external costs incurred on computer software development must be capitalised as intangible assets and amortised over its expected useful life. Share options Under IFRS the fair value of share options granted to employees will have to be expensed in the income statement over the vesting period of the options. This new requirement will apply to all share options granted after 7 November 2002 that have not vested before 1 January 2005. The above analysis relates only to the major differences identified in accounting policies between those currently applied by the Group and those expected under IFRS for the year ending 30 September 2006. The IFRS in effect for that year may differ due to decisions that could be taken by the EU on endorsement, interpretative guidance that may be issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee and future changes in company legislation. 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 completed, it is possible that further IFRS transition issues not discussed above will be identified. Interim guidance on the expected impact of IFRS transition was given in June 2005 and is available on the Company’s website at www.angloirishbank.com. 49. Approval of financial statements The Group financial statements were approved by the Board of Directors on 22 November 2005.

99

100

Consolidated profit and loss account FOR THE YEAR ENDED 30 SEPTEMBER 2005 USDm

GBPm

132.7 2,368.2 (1,633.9) 867.0

75.2 1,341.1 (925.3) 491.0

171.5 3,060.2 (2,111.3) 1,120.4

290.8 (26.9) 19.3 26.3 1,176.5

164.7 (15.2) 10.9 14.9 666.3

375.8 (34.7) 24.9 33.9 1,520.3

297.7 18.3 35.4 351.4

168.6 10.4 20.0 199.0

384.7 23.7 45.7 454.1

825.1

467.3

1,066.2

(168.8) 656.3

(95.6) 371.7

(218.1) 848.1

(55.1) (9.9) 591.3

(31.3) (5.6) 334.8

(71.3) (12.8) 764.0

(110.1) 481.2

(62.3) 272.5

(142.2) 621.8

Basic earnings per €0.16 ordinary share

88.16c

49.93p

Chf 1.14

Diluted earnings per €0.16 ordinary share

86.39c

48.92p

Chf 1.12

Dividends per €0.16 ordinary share

16.30c

9.23p

Chf 0.21

Interest receivable and similar income Interest receivable and similar income arising from Debt securities and other fixed income securities Other interest receivable and similar income Interest payable and similar charges Net interest income Other income Fees and commissions receivable Fees and commissions payable Dealing profits Other operating income Total operating income Operating expenses Administrative expenses Depreciation and goodwill amortisation Provisions for bad and doubtful debts

Group profit on ordinary activities before taxation Taxation on profit on ordinary activities Group profit on ordinary activities after taxation Minority interests Dividends on preference shares Group profit attributable to ordinary shareholders Dividends on €0.16 ordinary shares Group profit retained for year

Exchange rates used at 30 September 2005 One Euro = USD 1.2042 / GBP 0.68195 / CHF 1.5561

CHFm

ANGLO IRISH BANK Annual Report & Accounts

Consolidated balance sheet A S AT 3 0 S E P T E M B E R 2 0 0 5

Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Securitised assets Less: non-returnable proceeds Debt securities Equity shares Intangible fixed assets - goodwill Tangible fixed assets Other assets Prepayments and accrued income Life assurance assets attributable to policyholders Total assets Liabilities Deposits by banks Customer accounts Debt securities in issue Proposed ordinary dividends Other liabilities Accruals and deferred income Provisions for liabilities and charges Capital resources Subordinated liabilities Perpetual capital securities Equity and non-equity minority interests Called up share capital Share premium account Other reserves Profit and loss account Total shareholders’ funds including non-equity interests Total capital resources Life assurance liabilities attributable to policyholders Total liabilities and capital resources Exchange rates used at 30 September 2005 One Euro = USD 1.2042 / GBP 0.68195 / CHF 1.5561

USDm

GBPm

CHFm

682 7,531 41,062 388 (370) 18 5,941 56 79 107 935 571 56,982 1,137 58,119

386 4,264 23,254 219 (209) 10 3,364 32 45 61 530 323 32,269 644 32,913

882 9,731 53,062 501 (478) 23 7,676 73 102 138 1,209 738 73,634 1,469 75,103

8,611 30,297 11,326 73 522 551 6 51,386

4,876 17,157 6,414 42 295 312 4 29,100

11,127 39,151 14,635 95 674 712 8 66,402

1,423 796 834 3,053 131 723 3 1,686 2,543 5,596 56,982 1,137 58,119

806 451 472 1,729 74 409 2 955 1,440 3,169 32,269 644 32,913

1,839 1,029 1,077 3,945 169 934 4 2,180 3,287 7,232 73,634 1,469 75,103

101

102

Shareholder information

Substantial shareholdings As at 22 November 2005 the following interests in the ordinary share capital had been notified to the Company.

UBS AG Bank of Ireland Nominees Limited

Number of shares

% of issued ordinary share capital

38,990,286 24,539,364

5.7 3.6

The above shareholders have informed the Company that their holdings are not beneficially owned but are held on behalf of a range of clients none of whom, so far as the Directors are aware, hold more than 3% of the issued ordinary share capital. Size analysis of shareholdings at 30 September 2005 Shareholdings

1 - 5,000 5,001 - 10,000 10,001 - 25,000 25,001 - 50,000 50,001 - 100,000 100,001 - 500,000 Over 500,000

Shares

Number

%

Number

%

11,414 1,627 1,309 471 232 232 146 15,431

74.0 10.5 8.5 3.1 1.5 1.5 0.9 100.0

15,717,825 11,592,807 20,740,561 16,588,338 16,458,224 49,016,797 548,015,996 678,130,548

2.3 1.7 3.1 2.5 2.4 7.2 80.8 100.0

Financial calendar Publication of results

Half year to 31 March 2005

4 May 2005

Dividend (ordinary shares)

Interim dividend paid

18 July 2005

Publication of results

Year to 30 September 2005

23 November 2005

Share transfer books closed

2 December 2005

Accounts posted to shareholders

19 December 2005

Annual General Meeting

27 January 2006

Dividend (ordinary shares)

Proposed final dividend payment

13 February 2006

103

Anglo Irish Bank locations

104

Anglo Irish Bank locations

Dublin

Waterford

Isle of Man

Head Office Stephen Court 18/21 St. Stephen’s Green Dublin 2 Tel: +353 1 616 2000 Fax: +353 1 616 2411 www.angloirishbank.com

Anglo Irish Bank House Maritana Gate Canada Street Waterford Tel: +353 51 849 300 Fax: +353 51 849 398

Jubilee Buildings Victoria Street Douglas Isle of Man IM1 2SH Tel: +44 1624 698 000 Fax: +44 1624 698 001

London

Geneva

10 Old Jewry London EC2R 8DN Tel: +44 207 710 7000 Fax: +44 207 710 7050

7 Rue des Alpes P.O. Box 1380 1211 Geneva 1 Tel: +41 22 716 3636 Fax: +41 22 716 3618

Registrar Correspondence Computershare Investor Services (Ireland) Limited Heron House Corrig Road Sandyford Industrial Estate Dublin 18 Tel: +353 1 216 3100 Freephone: 1800 225 125 (Shareholder enquiries) www.computershare.com

Banbury Town Centre House Southam Road Banbury Oxon OX16 2EN Tel: +44 1295 755 500 Fax: +44 1295 755 510

Private Banking 61 Fitzwilliam Square Dublin 2 Tel: +353 1 631 0000 Fax: +353 1 631 0098

Prague Wenceslas Square 19 11000 Prague 1 Tel: +420 234 656 127 Fax: +420 234 656 138

Vienna Belfast 14/18 Great Victoria Street Belfast BT2 7BA Tel: +44 2890 333 100 Fax: +44 2890 269 090

Rathausstrasse 20 P.O. Box 306 A-1011 Vienna Tel: +43 1 406 6161 Fax: +43 1 405 8142

Anglo Irish Bank House 11 Anglesea Street Cork Tel: +353 21 453 7300 Fax: +353 21 453 7399

Birmingham

Boston

1 Colmore Square Birmingham B4 6AJ Tel: +44 121 232 0800 Fax: +44 121 232 0808

(Representative Office) 265 Franklin Street Boston MA 02110 Tel: +1 617 720 2577 Fax: +1 617 720 6099

Galway

Glasgow

Anglo Irish Bank House Forster Street Galway Tel: +353 91 536 900 Fax: +353 91 536 931

180 St.Vincent Street Glasgow G2 5SG Tel: +44 141 204 7270 Fax: +44 141 204 7299

Cork

Manchester Limerick Anglo Irish Bank House 98 Henry Street Limerick Tel: +353 61 461 800 Fax: +353 61 461 899

1 Marsden Street Manchester M2 1HW Tel: +44 161 214 3020 Fax: +44 161 214 3030

For further information, please email: enquiries@ angloirishbank.ie

New York (Representative Office) 222 East 41st Street New York NY 10017 Tel: +1 212 503 3000 Fax: +1 212 503 3033

Dubai (Representative Office) P.O. Box 119691 Emaar Business Park Building No. 4 Office 611 Sheikh Zayed Road Dubai Tel: +971 4361 9046 Fax: +971 4361 9036

COVER ARTWORK_l

12/9/05

9:44 AM

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EXPERIENCE THE DIFFERENCE

Dublin Cork Galway Limerick Waterford London Banbury

Birmingham Glasgow Manchester Isle of Man Geneva Prague

Annual Repor t & Accounts 2005

Belfast

2005 Twenty years of uninterrupted profit growth

Vienna Boston New York Dubai

Anglo Irish Bank

Annual Repor t & Accounts 2005

Business Lending Treasur y Wealth Management www.angloirishbank.com