e424b5
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell nor do they seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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FILED
PURSUANT TO RULE 424 (b)(5)
Registration No. 333-151361
SUBJECT TO COMPLETION DATED
OCTOBER 5, 2010
PROSPECTUS SUPPLEMENT
(To Prospectus dated
June 2, 2008)
ALLIED IRISH BANKS,
public limited
company
26,700,000 Contingent
Mandatorily Exchangeable Notes due November ,
2010
Mandatorily Exchangeable
for
Shares of Common Stock of
M&T BANK CORPORATION
Allied Irish Banks, p.l.c. (AIB) is offering
26,700,000 Contingent Mandatorily Exchangeable Notes due
November , 2010 (the Notes), each
with a principal amount and issue price of
$ per Note. Subject to the
approval of AIBs shareholders as described below, each
Note will be mandatorily exchangeable for one share of M&T
Bank Corporation (M&T) common stock (subject to
certain antidilution adjustments).
No interest will accrue or be paid with respect to the Notes.
We own 26,700,000 shares of the common stock,
$0.50 par value, of M&T. We intend to hold an
extraordinary general meeting of our shareholders (an
Extraordinary General Meeting) on
October , 2010 (the Expected Meeting
Date), for the purpose of obtaining the approval of
shareholders holding a majority of AIBs ordinary shares,
each 0.32 of AIBs share capital (Ordinary
Shares) present and voting at such Extraordinary General
Meeting, in person or by proxy, for the disposition of our
shares of M&T common stock. Prior shareholder approval for
the disposition of our shares of M&T common stock is
required by the Listing Rules of the Irish Stock Exchange and
the Listing Rules of the United Kingdom Listing Authority. If we
obtain such shareholder approval at an Extraordinary General
Meeting held no later than November , 2010, the
fifth business day after the Expected Meeting Date, then, except
as described below, each Note will be mandatorily exchanged for
one share of M&T common stock, subject to certain
adjustments as described in this prospectus supplement, on the
third business day immediately following the date
(Continued on inside front cover)
You should read the more detailed description of the Notes in
this prospectus supplement. In particular, you should review and
understand the descriptions in The Offering and
Description of Notes.
Investing in the Notes involves risks not associated with an
investment in ordinary debt securities. See Risk
Factors beginning on
page S-15
of this prospectus supplement and the Risk Factors
contained in AIBs Annual Report on
Form 20-F,
as amended, for the year ended December 31, 2009,
incorporated by reference herein, to read about important
factors you should consider before buying the Notes.
The Notes are not a savings account, deposit or other
obligation of any of our bank or non-bank subsidiaries and are
not insured by the United States Federal Deposit Insurance
Corporation or any other governmental agency of the United
States, the United Kingdom, Ireland or any other jurisdiction
and therefore are not subject to the deposit protection scheme
operated by the Central Bank and Financial Services Authority of
Ireland or the Irish Government guarantee schemes in respect of
certain liabilities of specified Irish credit institutions.
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Per Note
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Total
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Issue price
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$
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$
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Underwriting discount and commission
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$
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$
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Advisory fee(1)
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$
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Proceeds, before expenses, to us
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$
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$
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(1) |
We may elect to pay to the underwriters an advisory fee of up to
$ , payable on the fifth business
day immediately following the date of the Extraordinary General
Meeting called to approve the disposition of our shares of
M&T common stock, such fee to be payable at our sole
discretion.
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None of the Securities and Exchange Commission, state securities
regulators, any other regulatory body in the United States, the
United Kingdom, Ireland or any other jurisdiction, or the
Government of Ireland or any agent or agency thereof has
approved or disapproved these securities, or determined if this
prospectus supplement or the accompanying prospectus is truthful
or complete. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the Notes to purchasers, in
registered book-entry form only, through The Depository
Trust Company, on October , 2010.
October , 2010
(Continued from front cover)
we obtain shareholder approval (the Exchange Date).
If (i) we do not obtain such shareholder approval by
November , 2010, the fifth business day
immediately following the Expected Meeting Date or (ii) we
do obtain such shareholder approval by
November , 2010, the fifth business day
immediately following the Expected Meeting Date, but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event (as
defined in this prospectus supplement), each Note will be
mandatorily redeemed on the maturity date of the Notes at its
principal amount plus a $0.26 premium per Note (the
Redemption Premium and together with the
principal amount per Note, the
Redemption Price); provided that, the
Redemption Price will be reduced by the amount of any Cash
M&T Distribution Adjustment (as defined below) per Note in
excess of $ per Note. As a result,
the Redemption Price per Note, together with any Cash
M&T Distribution Adjustment per Note, will not exceed 101%
of the Notes principal amount. For the avoidance of doubt,
the Redemption Price will never be reduced to an amount
less than zero. The Redemption Premium times the number of
Notes offered hereby will be slightly less than 1% of our market
capitalization on the close of the trading day in Dublin,
Ireland immediately prior to the commencement of the offering of
the Notes. There can be no assurance that shareholder approval
of the disposition will be obtained or that a Regulatory Event
will not occur.
If M&T has declared a dividend or other distribution on
M&T common stock having an ex-dividend date after
October , 2010, which is the date of pricing of
the Notes (the Pricing Date), and a record date
prior to the Exchange Date or the Maturity Date, as applicable
(a Qualifying Distribution), and (i) if such
Qualifying Distribution includes cash, the record holders of the
Notes as of the close of business on the record date for such
Qualifying Distribution will be entitled to a return of a
portion of the original issue price of each Note equal to the
related portion of any cash to be paid by M&T in such
Qualifying Distribution, without deduction for withholding or
other taxes, if any (each a Cash M&T Distribution
Adjustment), on the later of (a) the Exchange Date or
the Maturity Date, as applicable, and (b) the business day
immediately following our receipt of such Qualifying
Distribution from M&T
and/or
(ii) if such Qualifying Distribution includes non-cash
property, including shares of capital stock, securities or other
property, and if the Notes are exchanged for M&T common
stock, the record holders of the Notes as of the open of
business on the Exchange Date will be entitled to a return of a
portion of the original issue price of each Note in the form of
the related portion of any non-cash property to be delivered by
M&T in such Qualifying Distribution, without deduction for
withholding or other taxes, if any (each a Non-cash
M&T Distribution Adjustment), on the later of the
Exchange Date and the business day immediately following our
receipt of such Qualifying Distribution from M&T. We have
no control over whether or when M&T will set a record date
for any dividend or other distribution.
An amount of cash equal to $ ,
which represents 101% of the aggregate principal amount of the
Notes, will be pledged for the benefit of the holders of the
Notes and the Record Date Holders (as defined herein) to secure
any cash payment required to be made to such holders, whether in
connection with a redemption of the Notes or a Cash M&T
Distribution Adjustment.
The Notes do not guarantee any return of principal. Investing in
the Notes is not equivalent to investing in M&T common
stock. Under no circumstances will you have the right to
exchange your Notes for M&T common stock prior to the
Exchange Date. If (i) we do not obtain shareholder approval
for disposition of our shares of M&T common stock or
(ii) we do obtain shareholder approval for disposition of
our shares of M&T common stock but we fail to deliver the
aggregate number of shares of M&T common stock required to
exchange all of the outstanding Notes on the Exchange Date due
to the occurrence of a Regulatory Event, you will not receive
M&T common stock in exchange for your Notes, but will
instead receive the applicable Redemption Price upon
redemption of the Notes and any Cash M&T Distribution
Adjustment.
M&T will have no obligation of any kind with respect to the
Notes.
There is currently no public market for the Notes. The Notes
have been approved for listing on the New York Stock Exchange,
under the symbol MTC and are expected to trade on
the New York Stock Exchange on the trading day following the
Pricing Date. Our American depositary shares are listed on the
New York Stock Exchange under the symbol AIB. The
last reported sale price of our American depositary shares on
October 4, 2010 was $1.35 per share. M&T common
stock is listed on the New York Stock Exchange under the symbol
MTB. The last reported sale price of M&T common
stock on October 4, 2010 was $82.15 per share.
TABLE OF
CONTENTS
PROSPECTUS
SUPPLEMENT
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S-ii
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S-iii
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S-iii
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S-iv
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S-1
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S-4
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S-15
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S-44
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S-57
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S-65
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S-66
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S-67
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S-68
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S-84
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S-88
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S-90
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S-92
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S-95
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S-95
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S-95
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PROSPECTUS
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1
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1
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2
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23
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35
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51
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54
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54
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54
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55
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not authorized anyone to
provide any information or to represent anything not contained
or incorporated by reference in this prospectus supplement or
the accompanying prospectus. We are offering to sell, and
seeking offers to buy, only the securities described in this
prospectus. We are not making an offer of these securities in
any jurisdiction where the offer is not permitted. The
information contained in this prospectus supplement or the
accompanying prospectus is current only as of the date of the
applicable document.
S-i
Unless otherwise specified in this prospectus supplement,
references in this prospectus supplement to AIB,
Allied Irish Banks, the Company,
we, us or our are to Allied
Irish Banks, p.l.c. and its consolidated subsidiaries.
References herein to $ and dollars are
to United States dollars.
References herein to and euros
are to the single currency of participating Member States of the
European Union.
References herein to £ and GBP are
to British Pounds Sterling.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document consists of two parts. The first part is the
prospectus supplement, which describes the specific terms of
this offering. The second part is the prospectus, which contains
more general information, some of which may not apply to this
offering. You should read both this prospectus supplement and
the accompanying prospectus, together with the documents
identified under the headings Where You Can Find More
Information and Incorporation of Certain Documents
by Reference in this prospectus supplement and in the
accompanying prospectus. If the information set forth in this
prospectus supplement differs in any way from the information
set forth in the accompanying prospectus, you should rely on the
information set forth in this prospectus supplement.
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. This prospectus supplement and the
accompanying prospectus may be used only for the purpose for
which they have been prepared. We have not authorized any other
person to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it.
We are not, and the underwriters are not, making an offer to
sell these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the
information appearing in this prospectus supplement, the
accompanying prospectus or any document incorporated by
reference is accurate as of any date other than the date of the
applicable document. Our business, financial condition, results
of operations and prospects may have changed since that date.
Neither this prospectus supplement nor the accompanying
prospectus constitutes an offer, or an invitation on our behalf
or on behalf of the underwriters, to subscribe for and purchase
any of the securities and may not be used for or in connection
with an offer or solicitation by anyone, in any jurisdiction in
which such an offer or solicitation is not authorized or to any
person to whom it is unlawful to make such an offer or
solicitation.
S-ii
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and in compliance with such laws, we file annual
reports and other information with the Securities and Exchange
Commission (the SEC). You can read and copy any
reports or other information that we file at the SEC public
reference room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. You can also request copies of our
documents, upon payment of a duplicating fee, by writing to the
SECs public reference room. You can obtain information
regarding the public reference room by calling the SEC at
1-800-SEC-0330.
Our filings are available to the public from commercial document
retrieval services and over the internet at
http://www.sec.gov.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with the SEC into this prospectus
supplement, which means that the incorporated documents are
considered part of this prospectus supplement and we can
disclose important information to you by referring you to those
documents. Information we file with the SEC will automatically
update and supersede earlier information, including information
in this prospectus supplement.
We incorporate by reference the documents listed below that we
filed with the SEC under the Exchange Act:
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AIBs Annual Report on
Form 20-F
for the fiscal year ended December 31, 2009 filed on
March 8, 2010;
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AIBs amendment to its Annual Report on
Form 20-F/A
filed on September 27, 2010; and
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AIBs reports on
Form 6-K
filed on September 27, 2010 (two filings) and October 4,
2010.
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Furthermore, we incorporate by reference each of the following
documents that we will file with the SEC after the date of this
prospectus supplement but before the end of this offering:
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any reports on
Form 6-K
filed by us pursuant to the Exchange Act that indicate on their
cover page that we will incorporate them by reference; and
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reports filed under Sections 13(a) and (c) of the
Exchange Act.
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Statements contained in this prospectus supplement or the
accompanying prospectus as to the contents of any contract or
other document referred to in this prospectus supplement or the
accompanying prospectus do not purport to be complete, and where
reference is made to the particular provisions of such contract
or other document, such provisions are qualified in all respects
by reference to all of the provisions of such contract or other
document. We will provide without charge to each person to whom
a copy of this prospectus supplement and the accompanying
prospectus has been delivered, on the written or oral request of
such person, copies of any or all of the documents that have
been or may be incorporated in this prospectus supplement or the
accompanying prospectus by reference (other than exhibits to
such documents, unless such exhibits are specifically
incorporated by reference in any such documents) and copies of
any or all other contracts or documents that are referred to in
this prospectus supplement or the accompanying prospectus. You
should direct your requests to Allied Irish Banks, p.l.c.,
Bankcentre, Ballsbridge, Dublin 4, Ireland, Attn: Company
Secretary, Tel No. +353-1-660 0311.
In reviewing any agreements incorporated by reference, please
remember that they are included to provide you with information
regarding the terms of such agreements and are not intended to
provide any other factual or disclosure information about AIB.
The agreements may contain representations, warranties,
covenants or agreements by AIB or other parties, which should
not be treated as categorical statements of fact or
representations or commitments of or to anyone other than the
parties to such agreements, but rather as a way of allocating
the risk to one of the parties if those statements prove to be
inaccurate. The representations and warranties were made only as
of the date of the relevant agreement or such other date or
dates as may be specified in such agreement and are subject to
more recent developments. Accordingly, these representations and
warranties alone may not describe the actual state of affairs as
of the date they were made or at any other time.
S-iii
A prospectus that describes M&T and the M&T common
stock is attached to this prospectus supplement. We did not
prepare, and are not responsible for, the information contained
in or omitted from the M&T prospectus. The M&T
prospectus is not a part of this prospectus supplement and is
not incorporated by reference into this prospectus supplement or
the accompanying prospectus.
FORWARD-LOOKING
STATEMENTS
This document contains or incorporates by reference
forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act, regarding the belief or
current expectations of AIB, AIBs directors and other
members of its senior management about its business and the
transactions described in this document, including statements
relating to possible future write-downs or impairments.
Generally, words such as may, could,
will, expect, intend,
estimate, anticipate,
believe, plan, seek,
continue or similar expressions identify
forward-looking statements. All statements other than statements
of historical fact are, or may be deemed to be, forward-looking
statements.
These forward-looking statements are not guarantees of future
performance. Rather, they are based on current views and
assumptions and involve known and unknown risks, uncertainties
and other factors, many of which are outside the control of AIB
and are difficult to predict, that may cause actual results to
differ materially from any future results or developments
expressed or implied from the forward-looking statements.
Factors that could cause AIBs actual results to differ
materially from those contemplated by the forward-looking
statements include, among other factors:
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AIBs inability to dispose of its shares of M&T common
stock, which would require AIB to rely to a greater extent on
the support of the government of the Republic of Ireland (the
Irish Government). Any such reliance is highly
likely to result in increased Irish Government ownership and
control or full nationalization;
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recent and future economic conditions in Ireland and
international economic and sector-specific conditions;
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default of a major market participant or negative developments
affecting one or more Irish financial institutions leading to a
disruption in the markets in which AIB operates;
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AIBs exposure to the Irish property sector;
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the risk that AIB may have insufficient capital resources to
meet the revised Prudential Capital Assessment Review
(PCAR) requirements and will need to rely to a
greater extent on the support of the Irish Government;
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the risk that AIB may be required to hold a higher level of
capital than that currently anticipated by the market or
pursuant to the revised PCAR requirement;
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constraints on liquidity, the uncertainty over the terms of a
further extension of the ELG Scheme (as defined herein) and the
market reaction to the removal of government guarantees and
further liquidity risks;
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risks relating to the availability of customer deposits and
AIBs ability to access these deposits;
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further downgrades to Irish sovereign ratings or AIBs
credit ratings;
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risks relating to other sovereign issuers;
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increased volatility in financial markets or prolonged
volatility, resulting in reduced asset valuations and lower fees
and commissions for AIB;
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the financial stability of AIBs counterparties including
other financial institutions;
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commitments and restrictions imposed on AIBs activities
under programs of the Irish Government, including the NAMA
Program, the CIFS Scheme, the ELG Scheme (each as defined and
further described herein) and the 3.5 billion
subscription by the Irish Government, acting through the
National
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S-iv
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Pensions Reserve Fund Commission (the NPRFC),
of 3.5 billion non-cumulative preference shares (the
2009 Preference Shares) of 0.01 each in the
share capital of AIB (the NPRFC Investment);
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the risk that AIB may be unable to retain its listings on the
Irish Stock Exchange (the ISE) and the London Stock
Exchange (the LSE);
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the ability of the Minister for Finance of Ireland (the
Minister for Finance)
and/or the
Central Bank of Ireland to give directions to AIB in relation to
its future conduct;
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the risks relating to AIBs participation in the National
Asset Management Agency of Irelands (NAMA)
program (the NAMA Program) to acquire certain assets
(NAMA Assets) of Irish financial institutions
pursuant to the National Asset Management Agency Act 2009 of
Ireland (the NAMA Act) given AIBs lack of
control over the nature, number or valuation of its NAMA Assets
and the timing of their transfer, and the risks that AIB may
have to pay a special tax or surcharge in the event that NAMA
makes a loss or that AIB may have to repay payments received for
its NAMA Assets;
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AIBs ability to implement its strategic plan;
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the risks relating to the requirements of the restructuring
plan, prepared by AIB and submitted by the Irish Department of
Finance to the European Commission in November 2009, and the
revised restructuring plan submitted to the European Commission
on May 4, 2010;
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the dilution risks arising from the impact of the dividend
stopper provisions being triggered in the
£350,000,000 Fixed Rate/Floating Rate Guaranteed Non-voting
Non-cumulative Perpetual Preferred Securities issued by AIB UK 3
LP in 2006 (the LP3 Securities);
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the risk that AIBs risk management processes may not be
fully effective and its risk management framework may leave it
exposed to risks that have not been identified by such policies
and procedures;
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risks relating to AIBs reputation;
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the risk that financial models determining the value of certain
financial instruments may change over time or not turn out to be
accurate and the value realized by AIB for its assets may be
materially different from the current or estimated fair value;
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risks related to change in control of AIB;
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the policies of various governmental and regulatory authorities
and changes in laws and regulations;
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risks relating to AIBs deferred tax assets;
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a restructuring of the Irish banking system;
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the risks relating to AIB being unable to recruit, retain and
develop senior management and skilled personnel;
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the risks relating to AIB being subject to litigation and
regulatory investigations;
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the risks relating to AIB operating in competitive markets that
are subject to significant change and uncertainty;
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the risks relating to AIBs liability for contributing to
compensation programs in respect of banks and other authorized
financial services firms;
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the risks associated with the Notes; and
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the risks associated with AIBs disposal of its M&T
common stock.
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AIB does not undertake any obligation, and expressly disclaims
any obligation or undertaking, to update or revise publicly any
forward-looking statement contained in this document or
incorporated by reference herein, whether as a result of new
information, further events or otherwise, to reflect any change
in AIBs expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement
is based.
S-v
SUMMARY
This summary highlights information contained elsewhere in
this prospectus supplement and the accompanying prospectus. It
is not complete and may not contain all of the information that
you should consider before investing in the Notes. You should
read carefully this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference in their
entirety before making an investment decision, including the
information set forth under the heading Risk
Factors.
Allied
Irish Banks, p.l.c.
AIB provides a diverse range of banking, financial and related
services, principally in Ireland, the United Kingdom (the
U.K.), Poland and the United States. As of
June 30, 2010, AIB had 270 branches and outlets and 15
business centers in the Republic of Ireland, providing retail
and business banking operations as well as asset finance, wealth
management and credit card services. In Northern Ireland, AIB
operates through its wholly owned subsidiary AIB Group (UK)
p.l.c. which operates as First Trust Bank and focuses on
general retail and commercial banking, as well as asset finance
and leasing, with 48 branches and outlets as of June 30,
2010. In Britain, AIB Group (UK) p.l.c. operates as Allied Irish
Bank (GB) and provides a range of banking services, focused
primarily on the mid-corporate business sector, with 31 branches
and one business development office as of June 30, 2010. As
of June 30, 2010, AIB had consolidated total assets of
169 billion and during the year ended
December 31, 2009, employed an average of approximately
24,700 people (excluding employees on career breaks,
long-term absences or any unpaid leaves).
AIBs principal retail and commercial banking interests in
the United States are its 22.4% nonconsolidated ownership
interest in M&T Bank Corporation (M&T),
which resulted from M&Ts 2003 acquisition of Allfirst
Financial Inc. (Allfirst) from AIB. M&T is a
New York Stock Exchange-listed commercial banking business based
in Buffalo, New York, with significant businesses in Maryland,
Pennsylvania and other Eastern states. Pursuant to the Agreement
and Plan of Reorganization, dated as of September 26, 2002,
by and among M&T, AIB and Allfirst (the
Reorganization Agreement), while AIB remains a
substantial shareholder of M&T, AIB has the right to
designate up to four members to serve on M&Ts board
of directors and the board of directors of its bank subsidiary,
M&T Bank, and M&T has the right to designate one
member to serve on AIBs board of directors so long as AIB
holds at least 15% of the outstanding shares of M&T. In
addition, pursuant to the Reorganization Agreement, AIB also has
certain rights that entitle it to maintain its proportionate
ownership position in M&T. In the event that AIBs
shareholders approve the disposition of its shares of M&T
common stock and the exchange of the Notes is completed as
further described in this prospectus supplement, these rights
will generally expire pursuant to the terms of the
Reorganization Agreement, and, in any event, will not be
available to any holder of Notes or any person that acquires
shares of M&T common stock upon the exchange of the Notes.
AIBs direct presence in the United States consists of
corporate banking, treasury and financial services for
not-for-profit
businesses based in New York, with offices in a number of other
principal U.S. cities.
Recent
Developments
On September 30, 2010, the Irish Financial Services
Regulatory Authority, as part of the Central Bank and Financial
Services Authority of Ireland, whose functions are now performed
by the Central Bank of Ireland from October 1, 2010 (the
Financial Regulator) updated its assessment of our
capital requirement and increased the amount of equivalent
equity capital required under the PCAR from
7.4 billion to 10.4 billion. This
increased PCAR requirement has been set following an assessment
by the Financial Regulator of our potential losses on our
eligible NAMA Assets (as further described herein) and must be
in place by December 31, 2010.
On March 30, 2010, following publication of the original
PCAR, we announced a series of capital raising initiatives to
meet the increased capital requirement set by the Financial
Regulator. These initiatives included plans to sell our shares
of M&T common stock, as well as our shareholding in BZWBK
(a Polish bank) and our U.K. business, which comprises AIB (GB)
and First Trust Bank in Northern Ireland. On
September 10, 2010, we announced that (through AIB European
Investments Limited and AIB Capital Markets, p.l.c.) we
S-1
had conditionally agreed to sell our shareholdings in BZWBK and
BZWBK AIB Asset Management S.A. to Banco Santander S.A.
(collectively, the BZWBK Disposal), for a total
expected cash consideration of 3.1 billion, subject
to the terms and conditions of the BZWBK share purchase
agreement. Furthermore, on September 20, 2010, we announced
that we had conditionally agreed to sell our entire shareholding
in Goodbody Holdings Limited and associated companies, including
Goodbody Stockbrokers, to Fexco Holdings Limited for a cash
consideration of approximately 24 million. As
announced on September 30, 2010, we have also undertaken to
launch a 5.4 billion equity capital raising during
November 2010 which is expected to be completed before
December 31, 2010, subject to, among other matters,
European Commission, shareholder and other regulatory approvals.
In addition to the capital generated from the BZWBK Disposal, we
expect to raise 2.5 billion from the planned
disposals of our shares of M&T common stock and our U.K.
business and additional capital generating initiatives (such as
other minor asset disposals, risk weighted asset reduction
initiatives and liability management actions). In the event that
our residual capital requirement is not met through the planned
disposals and capital generating initiatives by March 31,
2011, any shortfall will be met by the conversion of 2009
Preference Shares at that date on commercial terms to be agreed
between us and the NPRFC prior to the date of conversion.
On September 30, 2010, the Minister for Finance stated that
NAMA has reviewed the quality of our NAMA Assets still to be
transferred to NAMA and that it has estimated the discount to be
applied to the remaining 13.5 billion of NAMA Assets
at 60%. The actual discount on remaining assets to be
transferred to NAMA will not be known until the completion of
the final objection valuation review procedure in accordance
with the terms of the NAMA Act. The Financial Regulator
announced that any differences between the estimate of the
discount provided by NAMA, which was used for the revised PCAR
capital requirement announced on September 30, 2010, and
the final discounts on transfer will be included in the next
PCAR which the Central Bank of Ireland will conduct in 2011.
On September 30, 2010, we announced that our board of
directors has agreed with Mr. Dan OConnor that he
will step down as Executive Chairman within the coming weeks and
that our board of directors has also agreed with Group Managing
Director Mr. Colm Doherty the termination of his contract
on existing terms. Mr Doherty will depart AIB before the
end of 2010. On October 4, 2010, we received notification from
Mr. Robert G. Wilmers of his resignation from our board of
directors, to take effect immediately in light of our
disposition of our shares of M&T common stock. In addition,
on October 4, 2010, Mr. Kieran Crowley notified us of
his intention to resign from our board of directors at its next
meeting on October 13, 2010. There may be additional
changes to the composition of our board of directors and senior
executives in due course.
S-2
M&T
Bank Corporation
M&T is a New York business corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as
amended, and under
Article III-A
of the New York Banking Law. At December 31, 2009, M&T
had two wholly owned bank subsidiaries: M&T Bank and
M&T Bank, National Association. The banks collectively
offer a wide range of commercial banking, trust and investment
services to their customers.
A prospectus, which incorporates certain documents by reference,
that describes M&T and the M&T common stock is
attached to this prospectus supplement as delivered. M&T
will not receive any of the proceeds from the sale of the Notes
and will not have any obligation under the Notes. We did not
prepare, and are not responsible for, the information contained
in or omitted from the M&T prospectus. The M&T
prospectus is not a part of this prospectus supplement and is
not incorporated by reference into this prospectus supplement or
the accompanying prospectus.
As a prospective purchaser of the Notes, you should undertake
such independent investigation of M&T as in your judgment
is appropriate to make an informed decision with respect to an
investment in M&T stock.
M&T is listed on the New York Stock Exchange under the
symbol MTB. The following table sets forth the high
and low prices as reported by the New York Stock Exchange (the
NYSE), and the cash dividends declared per share. On
October 4, 2010, the last reported sale price of M&T
common stock on the NYSE was $82.15 per share.
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Dividends
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Quarter Ended
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High
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Low
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Declared
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2010
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December 31 (though October 1, 2010)
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$
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83.99
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$
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81.00
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$
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0.00
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September 30
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95.00
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81.08
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0.70
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June 30
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96.15
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74.11
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0.70
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March 31
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85.00
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66.32
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0.70
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2009
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December 31
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$
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69.89
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$
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59.09
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$
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0.70
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September 30
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67.46
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50.33
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0.70
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June 30
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61.87
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43.50
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0.70
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March 31
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59.08
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29.11
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0.70
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2008
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December 31
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$
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99.50
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$
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52.20
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$
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0.70
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September 30
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108.53
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53.61
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0.70
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June 30
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98.38
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69.90
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0.70
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March 31
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94.03
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70.49
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0.70
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2007
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December 31
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$
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108.32
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$
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77.39
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$
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0.70
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September 30
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115.81
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97.26
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0.70
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June 30
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114.33
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104.00
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0.60
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March 31
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125.13
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112.05
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0.60
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S-3
THE
OFFERING
The following summary describes the securities that we are
offering to you in general terms only. The securities are a
series of our debt securities described in our accompanying
prospectus and referred to therein as Senior Debt Securities,
and referred to herein as the Notes. You should read
the summary together with the more detailed information that is
contained in the rest of this prospectus supplement and in our
accompanying prospectus. You should carefully consider, among
other things, the matters set forth in Risk Factors
in this prospectus supplement.
The Notes offered are debt securities of Allied Irish Banks,
p.l.c. Each Note will be mandatorily exchanged for one share of
M&T common stock (subject to certain adjustments) upon and
subject to the satisfaction of the Exchange Condition as
described herein. We have included in this prospectus supplement
certain limited information about M&T, and we have attached
to this prospectus supplement a prospectus that more fully
describes M&T and the shares of M&T common stock that
you may receive, which we refer to as the M&T
prospectus. Information relating to M&T set forth
herein was derived solely from information contained in the
M&T prospectus, which was prepared by and is the sole
responsibility of M&T. We assume no responsibility for the
information contained in or omitted from the M&T
prospectus. The M&T prospectus does not constitute a part
of this prospectus supplement or the accompanying prospectus and
is not incorporated by reference herein or therein.
In this section, AIB, we,
our or us refers only to Allied Irish
Banks, p.l.c. and not to any of its subsidiaries or to M&T
and the terms each Note and per Note
refer to each $ principal amount
of Notes. M&T will not have any obligation of any kind with
respect to the Notes.
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Issuer |
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Allied Irish Banks, p.l.c. (AIB). |
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Securities Offered |
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26,700,000 Contingent Mandatorily Exchangeable Notes due
November , 2010. |
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Underlying Shares |
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Our holding of 26,700,000 shares of common stock, par value
$0.50 per share, of M&T. |
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Principal Amount |
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$ per Note. |
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Maturity Date |
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November , 2010, the ninth business day
immediately following the Expected Meeting Date (as defined
below), unless earlier exchanged for M&T common stock. |
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Ranking |
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Except to the extent described in Security; Cash
Collateral Amount below, the Notes will be our senior
unsecured debt obligations and will rank equal in right of
payment with all of our existing and future senior unsecured
indebtedness. |
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No Interest |
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No interest will accrue or be paid with respect to the Notes. |
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Exchange Condition; Extraordinary General Meeting |
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On October , 2010 (the Expected Meeting
Date), we intend to hold an extraordinary general meeting
of our shareholders (an Extraordinary General
Meeting) to seek the approval of shareholders holding a
majority of AIBs ordinary shares, each 0.32 of
AIBs share capital (Ordinary Shares), present
and voting at such Extraordinary General Meeting, in person or
by proxy, for the disposition of our shares of M&T common
stock. The mandatory exchange of the Notes is contingent upon
our obtaining such shareholder approval at an Extraordinary
General Meeting no later than November , 2010,
the fifth business day after the Expected Meeting Date (such
requirement, the Exchange Condition). The approval
of our shareholders is required for the disposition of our |
S-4
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shares of M&T common stock under the Listing Rules of the
Irish Stock Exchange and the Listing Rules of the United Kingdom
Listing Authority because of, among other things, the potential
value of the disposition relative to our market capitalization. |
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A Circular, containing a Notice of Extraordinary General Meeting
(the Shareholder Circular), will be submitted to the
Irish Stock Exchange and the United Kingdom Listing Authority
for approval on October , 2010, one business
day after pricing of the Notes. We anticipate receiving approval
from the Irish Stock Exchange and the United Kingdom Listing
Authority on October , 2010. Upon receipt of
such approval, we will promptly distribute the Shareholder
Circular to our shareholders. Under Irish company law, the
earliest day we may hold the Extraordinary General Meeting is
16 days after we mail the Shareholder Circular to our
shareholders. Accordingly, we intend to hold the Extraordinary
General Meeting on the Expected Meeting Date of
October , 2010, which is 16 days after we
intend to mail the Shareholder Circular to our shareholders. |
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At the Extraordinary General Meeting, an ordinary resolution
will be proposed which, if passed, would approve the disposal of
our shares of M&T common stock by way of mandatory exchange
of the Notes and would authorize our board of directors to take
any steps necessary to complete such exchange. The vote on the
resolution will be decided on a poll at the Extraordinary
General Meeting. We expect the results of the vote to be
available on the same business day that the Extraordinary
General Meeting is held. |
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The disposal of our shares of M&T common stock is one of
the key steps being undertaken by us to meet the increased
capital requirement determined by the Irish Financial Services
Regulatory Authority as part of its Prudential Capital
Assessment Review, which was announced on March 30, 2010
and revised on September 30, 2010. The increased capital
requirement must be satisfied by December 31, 2010. In
addition to the disposal of our shares of M&T common stock
through the issue of the Notes, we intend to sell other assets
and complete an equity capital raising prior to the end of 2010
to ensure we satisfy our increased capital requirement. |
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The Shareholder Circular will contain a statement from all of
the members of our board of directors recommending that our
shareholders approve the disposal of our shares of M&T
common stock and incorporating their opinion that such disposal
is in our best interests and the best interests of our
shareholders. The Shareholder Circular will also advise our
shareholders that their failure to approve the disposition of
M&T common stock will obligate us to redeem the Notes at
the applicable Redemption Price, and that if we fail to
complete such disposition at this time and the other announced
disposals then it is highly likely that such events would result
in increased Irish Government ownership or control or full
nationalization and that if this were to occur, shareholders
could lose the value of their Ordinary Shares and suffer further
significant dilution. |
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Exchange Date |
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The third business day immediately following the date the
Exchange Condition is satisfied. |
S-5
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Exchange Ratio |
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The ratio at which each Note will be exchanged for M&T
common stock is initially one share of M&T common stock per
Note, subject to certain antidilution adjustments for stock
splits and stock combinations as described in Description
of Notes Antidilution Adjustments in this
prospectus supplement. |
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Mandatory Exchange |
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If we satisfy the Exchange Condition, we will so notify The Bank
of New York Mellon, as trustee (the Trustee) and
M&Ts stock transfer agent by 5:00 p.m. (New York
City time) on the date we satisfy the Exchange Condition, and
the Notes will be mandatorily exchanged for M&T common
stock on the Exchange Date based on the Exchange Ratio, unless a
Regulatory Event (as defined below) occurs. |
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We will deliver cash in lieu of any fractional share of M&T
common stock that a holder of the Notes is entitled to receive
in connection with the mandatory exchange of the Notes for
M&T common stock. |
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Mandatory Redemption; Redemption Premium |
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If (i) we do not satisfy the Exchange Condition or
(ii) we do satisfy the Exchange Condition but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event, each
Note will be mandatorily redeemed on the Maturity Date at its
principal amount plus a $0.26 premium per Note (the
Redemption Premium and, together with the
principal amount per Note, the
Redemption Price); provided that, the
Redemption Price will be reduced by the amount of any Cash
M&T Distribution Adjustment (as defined below) per Note in
excess of $ per Note. As a result,
the Redemption Price per Note, together with any Cash
M&T Distribution Adjustment per Note, will not exceed 101%
of the Notes principal amount. For the avoidance of doubt,
the Redemption Price will never be reduced to an amount
less than zero. The Redemption Premium times the number of
Notes offered hereby will be slightly less than 1% of our market
capitalization on the close of the trading day in Dublin,
Ireland immediately prior to the commencement of the offering of
the Notes. |
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Security; Cash Collateral Amount |
|
Upon the closing of this offering, we will deposit an amount of
cash equal to $ , which represents
101% of the aggregate principal amount of the Notes (such amount
together with any earnings thereon, the Cash Collateral
Amount) into an account (the Control Account)
held with The Bank of New York Mellon, as account bank (the
Bank). We will pledge to the Trustee, for the
benefit of the holders of the Notes and the Record Date Holders
(as defined below), as applicable, the Control Account and the
Cash Collateral Amount to secure any cash payments that we are
required to make to holders of the Notes or Record Date Holders,
whether in connection with a redemption of the Notes or a Cash
M&T Distribution Adjustment (as defined below), and we will
be prohibited from encumbering, divesting, pledging, disposing
of and/or permitting any lien to be attached to the Cash
Collateral Amount and the Control Account other than under the
Security Agreement. |
S-6
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If we exchange the Notes for M&T common stock, the funds in
the Control Account will be released by the Bank (pursuant to
instructions from the Trustee) to us on the Exchange Date,
except that a portion of the Cash Collateral Amount equal to the
aggregate cash amount to be returned to Record Date Holders with
respect to a Cash M&T Distribution Adjustment, if any, plus
any cash amounts then payable to the Trustee or the Bank
pursuant to the Indenture or the Security Agreement (each such
term as defined herein) (but in no event greater in the
aggregate than the Cash Collateral Amount), will be retained in
the Control Account. If (i) M&T has declared a
dividend or other distribution on M&T common stock, whether
in cash, shares of capital stock, securities or other property,
having an ex-dividend date after October ,
2010, which is the date of pricing of the Notes (the
Pricing Date), and a record date prior to the
Exchange Date or the Maturity Date, as applicable (a
Qualifying Distribution) and such Qualifying
Distribution includes cash and (ii) M&T does not pay
the cash portion of such Qualifying Distribution to us within
30 days of the payment date specified in M&Ts
declaration of such Qualifying Distribution (each such thirtieth
day, a Delayed Payment Date), an amount of cash
equal to the unpaid cash portion of such Qualifying Distribution
will be released from the Control Account to us by the Bank
(pursuant to instructions from the Trustee) on the business day
immediately following such Delayed Payment Date (each such date,
a Collateral Release Date), provided that any
amounts then owed by us to the Trustee or the Bank pursuant to
the Indenture or the Security Agreement will be retained in the
Control Account. |
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If the Notes are exchanged for M&T common stock on the
Exchange Date or redeemed on the Maturity Date, as applicable,
then upon the earlier of (i) the final Collateral Release
Date with respect to all Qualifying Distributions and
(ii) the satisfaction by us of all cash payment obligations
with respect to any Cash M&T Distribution Adjustment, any
remaining funds held in the Control Account will be released by
the Bank (pursuant to instructions from the Trustee) from the
Control Account to us, provided that any amounts then owed by us
to the Trustee or the Bank pursuant to the Indenture or the
Security Agreement will be retained in the Control Account. |
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|
For the avoidance of doubt, the release and return of cash in
connection with a Collateral Release Date will not affect our
obligations with respect to payment of the applicable Cash
M&T Distribution Adjustment as described below. |
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If (i) we do not satisfy the Exchange Condition or
(ii) we do satisfy the Exchange Condition but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event,
holders of Notes will not be entitled to receive any M&T
common stock and the aggregate applicable Redemption Price
of the Notes will be released by the Bank (pursuant to
instructions from the Trustee) from the Control Account to the
Trustee or the Paying Agent for the benefit of, and payment to,
the holders of the Notes on the Maturity Date. An amount of cash
equal to any Cash |
S-7
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M&T Distribution Adjustment to which Record Date Holders
are entitled will be retained in the Control Account for the
benefit of the Record Date Holders and will be released to us on
the applicable Collateral Release Date for such Cash M&T
Distribution Adjustment (however, any amounts then owed by us to
the Trustee or the Bank pursuant to the Indenture or the
Security Agreement will be retained in the Control Account),
unless earlier released to the Trustee or the Paying Agent for
payment to the Record Date Holders as provided herein. The funds
in the Control Account in excess of the applicable
Redemption Price and the aggregate cash amount to be
retained in the Control Account with respect to any Cash
M&T Distribution Adjustment and any cash amounts then
payable to the Trustee or the Bank pursuant to the Indenture or
the Security Agreement will be released from the Control Account
to us on the Maturity Date. |
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Pursuant to the Security Agreement, the Trustee and the Bank
(each in their capacity as such) will have a lien on funds in
the Control Account as security for any obligations we may owe
to the Trustee and the Bank, as applicable, pursuant to the
Indenture or the Security Agreement. Such obligations are
payable out of the funds in the Control Account only after the
later of (a) the Exchange Date or the Maturity Date, as
applicable, and (b) if we receive a Qualifying Distribution
from M&T relating to a Cash M&T Distribution
Adjustment on or prior to the applicable Delayed Payment Date,
the date such Cash M&T Distribution Adjustment becomes due
and only to the extent such funds exceed all amounts we may owe
to the holders of the Notes or the Record Date Holders, as
applicable, in connection with a redemption of the Notes and any
Cash M&T Distribution Adjustment. |
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No Guaranteed Return of Principal |
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Unlike ordinary debt securities, the Notes do not guarantee any
return of principal. Instead, a holder of the Notes will receive
either (i) if we have satisfied the Exchange Condition and
no Regulatory Event occurs, one share of M&T common stock
for each Note held by such holder, subject to antidilution
adjustments as described herein, or (ii) (x) if we have not
satisfied the Exchange Condition or (y) if we have
satisfied the Exchange Condition but we fail to deliver the
aggregate number of shares of M&T common stock required to
exchange all of the outstanding Notes on the Exchange Date due
to the occurrence of a Regulatory Event, in each case, the
applicable Redemption Price per Note. |
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If the market price of M&T common stock on the Exchange
Date is less than $ , and the Notes
are exchanged for M&T common stock, you may receive a
number of shares of M&T common stock with a value, on that
date, less than the initial Redemption Price of the Notes.
If the market price of M&T common stock on the Maturity
Date is greater than $ , you will
not be entitled to receive the excess of such price above the
initial Redemption Price of each Note. |
S-8
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M&T Distribution Adjustment |
|
If M&T has declared a Qualifying Distribution and
(i) if such Qualifying Distribution includes cash, the
record holders of the Notes as of the close of business on the
record date for such Qualifying Distribution (the Record
Date Holders) will be entitled to a return of a portion of
the original issue price of each Note equal to the related
portion of any cash to be paid by M&T in such Qualifying
Distribution, without deduction for withholding or other taxes,
if any (each a Cash M&T Distribution
Adjustment), on the later of (a) the Exchange Date or
the Maturity Date, as applicable, and (b) the business day
immediately following our receipt of such Qualifying
Distribution from M&T and/or (ii) if such Qualifying
Distribution includes non-cash property, including shares of
capital stock, securities or other property, and if the Notes
are exchanged for M&T common stock, the record holders of
the Notes as of the open of business on the Exchange Date (the
Exchange Date Holders) will be entitled to a return
of a portion of the original issue price of each Note in the
form of the related portion of any non-cash property to be
delivered by M&T in such Qualifying Distribution, without
deduction for withholding or other taxes, if any (each a
Non-cash M&T Distribution Adjustment), on the
later of the Exchange Date and the business day immediately
following our receipt of such Qualifying Distribution from
M&T. |
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A Cash M&T Distribution Adjustment will consist of an
amount of cash per Note determined by us equal to the Exchange
Ratio (as of the record date of such Qualifying Distribution)
multiplied by the amount of cash to be paid by M&T
per share of M&T common stock (without any deductions for
withholding or other taxes) in such Qualifying Distribution that
includes cash. Such Cash M&T Distribution Adjustment will
be made to the Record Date Holders by 9:30 a.m. (New York
City time) (or as soon thereafter as is reasonably practicable)
on the later of (i) the Exchange Date or the Maturity Date,
as applicable, and (ii) the business day immediately
following our receipt of such Qualifying Distribution. |
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A Non-cash M&T Distribution Adjustment will consist of an
amount of such non-cash property per Note determined by us equal
to the Exchange Ratio (as of the record date of such Qualifying
Distribution) multiplied by the amount of non-cash
property to be delivered by M&T per share of M&T
common stock (without any deductions for withholding or other
taxes) in such Qualifying Distribution that includes non-cash
property. If the Notes are exchanged for M&T common stock,
such Non-cash M&T Distribution Adjustment will be made to
the Exchange Date Holders by 9:30 a.m. (New York City time)
(or as soon thereafter as is reasonably practicable) on the
later of (i) the Exchange Date and (ii) the business
day immediately following our receipt of such Qualifying
Distribution. |
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We will deliver cash in lieu of any fractional non-cash property
that an Exchange Date Holder is entitled to receive in
connection with a Non-cash M&T Distribution Adjustment,
including shares of capital stock, securities or other non-cash
property. |
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We are obligated to make (i) any Cash M&T Distribution
Adjustment when due notwithstanding the prior exchange of the
Notes for M&T |
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common stock or the prior redemption of the Notes for their
applicable Redemption Price, as applicable, and
(ii) any Non-cash M&T Distribution Adjustment if and
only if the Notes are exchanged for M&T common stock. If we
have received the cash payment that relates to a Qualifying
Distribution that includes cash from M&T on or prior to the
applicable Delayed Payment Date, cash in an amount equal to our
cash payment obligation in connection with the Cash M&T
Distribution Adjustment related to such Qualifying Distribution
(but in no event greater in the aggregate than the Cash
Collateral Amount) will be released by the Bank (pursuant to
instructions from the Trustee) from the Control Account to the
Trustee or the Paying Agent for the benefit of, and payment to,
Record Date Holders. If we have not received the cash payment
that relates to a Qualifying Distribution that includes cash
from M&T on or prior to the applicable Delayed Payment
Date, an amount of cash equal to the aggregate amount of such
unpaid cash payment related to such Qualifying Distribution will
be released by the Bank (pursuant to instructions from the
Trustee) from the Control Account to us on the applicable
Collateral Release Date, provided that any amounts then owed by
us to the Trustee or the Bank pursuant to the Indenture or the
Security Agreement will be retained in the Control Account, and
we will continue to be obligated to make such payment to the
Record Date Holders if and when such cash payment is finally
received by us. |
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No accrued interest will be paid to the Record Date Holders or
Exchange Date Holders with respect to any Cash M&T
Distribution Adjustment or Non-cash M&T Distribution
Adjustment, respectively. |
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Because the date on which the Notes begin trading without the
entitlement to a Cash M&T Distribution Adjustment and the
record date for a Cash M&T Distribution Adjustment with
respect to the Notes will match the ex-dividend date and record
date for the corresponding Qualifying Distribution with respect
to the M&T common stock, we expect the Notes to trade
without the entitlement to a Cash M&T Distribution
Adjustment when the M&T common stock trades ex-dividend.
However, because holders of the Notes will only receive a
Non-cash M&T Distribution Adjustment if the Notes are
exchanged for M&T common stock, the record date with
respect to the Notes for a Non-cash M&T Distribution
Adjustment will not match the record date for the corresponding
Qualifying Distribution with respect to the M&T common
stock, and we do not expect the Notes to trade without the
entitlement to a Non-cash M&T Distribution Adjustment prior
to the Exchange Date. |
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We have engaged The Bank of New York Mellon to act as Paying
Agent with respect to the redemption of the Notes and any Cash
M&T Distribution Adjustment or Non-cash M&T
Distribution Adjustment. |
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No Early Exchange or Redemption |
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If we satisfy the Exchange Condition and no Regulatory Event
occurs, we will not have the option to exchange the Notes for
M&T common stock prior to the Exchange Date, nor will we
have the option to redeem the Notes. If we do not satisfy the
Exchange Condition, we will not have the option to redeem the
Notes prior to the Maturity |
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Date, nor will we have the option to exchange the Notes for
M&T common stock. |
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If we satisfy the Exchange Condition and no Regulatory Event
occurs, you will not have the option to cause us to exchange the
Notes for M&T common stock prior to the Exchange Date, nor
will you have the option to cause us to redeem or otherwise
repurchase the Notes. If we do not satisfy the Exchange
Condition, you will not have the option to cause us to redeem or
otherwise repurchase the Notes prior to the Maturity Date, nor
will you have the option to cause us to exchange the Notes for
M&T common stock. |
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Regulatory Event |
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The existence at 9:00 a.m. (New York City time) on the
Exchange Date of an order, direction or decree (which order,
direction or decree need not be final or non-appealable) by an
official of the Irish Government, any Irish governmental or
regulatory body, an Irish court or any officer appointed by an
Irish court, the Irish Government or an Irish statutory entity
preventing us from delivering M&T common stock to Exchange
Date Holders (a Regulatory Event). If a Regulatory
Event occurs, we will by 9:30 a.m. (New York City time) on
the Exchange Date (i) issue a press release stating that a
Regulatory Event has occurred and (ii) provide written
notice to the Trustee and M&Ts stock transfer agent
that a Regulatory Event has occurred and that we will not
deliver M&T common stock to M&Ts stock transfer
agent for delivery to Exchange Date Holders. |
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Tax Consequences |
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Please read carefully the section of this prospectus supplement
entitled Certain United States Federal Income Tax
Considerations. The Notes are novel financial instruments,
and there is currently no statutory, judicial or administrative
authority that directly addresses the characterization of the
Notes or instruments similar to the Notes for U.S. federal
income tax purposes. As a result, significant aspects of the
U.S. federal income tax consequences of an investment in the
Notes are not certain. Pursuant to the terms of the Notes, you
agree with us to characterize the Notes for all tax purposes as
a forward purchase contract to purchase M&T common stock on
the Exchange Date, coupled with an interest in a deposit of a
fixed amount of cash, equal to the issue price, to secure your
obligation under the forward purchase contract, as described
under Certain United States Federal Income Tax
Considerations. We are not requesting a ruling from the
Internal Revenue Service (the IRS) with respect to
the Notes and we cannot assure you that the IRS will agree with
the discussion set forth under Certain United States
Federal Income Tax Considerations. |
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You are urged to consult your own tax advisor regarding all
aspects of the U.S. federal income tax consequences of investing
in the Notes, as well as any tax consequences arising under the
laws of any state, local or foreign taxing jurisdiction. |
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DTC Eligibility |
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The Notes will be issued in book-entry form and will be
represented by global certificates deposited with a custodian
for and registered in the name of a nominee of The Depository
Trust Company (DTC) in New York, New York.
Beneficial interests in any of the Notes will be shown on, and
transfers will be effected only through, records |
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maintained by DTC and its direct and indirect participants, and
any such interest may not be exchanged for certificated Notes,
except in limited circumstances. |
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M&T common stock delivered in exchange for the Notes will
be issued in book-entry form. Beneficial interests in any of the
shares of M&T common stock will be shown on, and transfers
will be effected only through, records maintained by DTC and its
direct and indirect participants. |
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M&T Bank Corporation |
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The obligations represented by the Notes are obligations of AIB
and not of M&T. M&T will not receive any of the
proceeds from the sale of the Notes. |
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Covenants |
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Pursuant to the Indenture governing the Notes, we have agreed
that, other than with respect to the Notes, we will not, during
the term of the Notes, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly
or indirectly, any M&T common stock or any security
convertible into or exercisable or exchangeable for M&T
common stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of M&T common
stock, whether any such transaction described in (i) or
(ii) above is to be settled by delivery of M&T common
stock or such other securities, in cash or otherwise. |
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In addition, we have agreed to provide written notice to the New
York Stock Exchange of the date of the Extraordinary General
Meeting as soon as it is known to us and of any future record
date for any Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment with respect to the Notes not
later than one business day after M&T publicly announces
the record date for any Qualifying Distribution. Such record
date for the Notes will be the same as the record date for the
Qualifying Distribution. |
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Listing |
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There is currently no public market for the Notes. The Notes
have been approved for listing on the New York Stock Exchange,
under the symbol MTC and are expected to trade on
the New York Stock Exchange on the trading day following the
Pricing Date. Our American depositary shares are listed on the
New York Stock Exchange under the symbol AIB. The
last reported sale price of our American depositary shares on
October 4, 2010 was $1.35 per share. M&T common stock
is listed on the New York Stock Exchange under the symbol
MTB. The last reported sale price of M&T common
stock on October 4, 2010 was $82.15 per share. |
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Use of Proceeds |
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An amount equal to 101% of the aggregate principal amount of the
Notes will be deposited into the Control Account and pledged to
the Trustee for the benefit of the holders of the Notes and the
Record Date Holders. If the Notes are mandatorily exchanged on
the Exchange Date for our shares of M&T common stock, the
funds in the Control Account in excess of the aggregate cash
amounts to be returned to Record Date Holders with respect to a
Cash M&T Distribution Adjustment, if any, plus any cash
amounts then payable to the Trustee or the Bank pursuant to the
Indenture or the Security |
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Agreement, will be released from the Control Account to us. Any
portion of the Cash Collateral Amount retained in the Control
Account in connection with any Cash M&T Distribution
Adjustment will be released to us on the applicable Collateral
Release Date, if any, for such Cash M&T Distribution
Adjustment (however, any amounts then owed by us to the Trustee
or the Bank pursuant to the Indenture or the Security Agreement
will be retained in the Control Account), unless earlier
released to the Trustee or the Paying Agent for payment to the
Record Date Holders as provided herein. |
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However, if (i) the Exchange Condition is not satisfied or
(ii) the Exchange Condition is satisfied but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event, the
applicable Redemption Price will be released to holders
upon redemption of the Notes. An amount of cash equal to any
Cash M&T Distribution Adjustment to which Record Date
Holders are entitled will be retained in the Control Account for
the benefit of the Record Date Holders and will be released to
us on the applicable Collateral Release Date, if any, for such
Cash M&T Distribution Adjustment (however, any amounts then
owed by us to the Trustee or the Bank pursuant to the Indenture
or the Security Agreement will be retained in the Control
Account), unless earlier released to the Trustee or the Paying
Agent for payment to the Record Date Holders as provided herein.
The funds in the Control Account in excess of the applicable
Redemption Price, the aggregate cash amount to be retained
in the Control Account with respect to any Cash M&T
Distribution Adjustment and any cash amounts then payable to the
Trustee or the Bank pursuant to the Indenture or the Security
Agreement will be released from the Control Account to us on the
Maturity Date. |
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We will use any amounts released to us from the Control Account
to meet in part the PCAR capital requirement required to be met
by us by the Irish financial regulatory body and as an
additional source of liquidity to support our business
activities. |
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Limited Rights with Respect to M&T Common Stock |
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If (i) the Exchange Condition is not satisfied or
(ii) the Exchange Condition is satisfied but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event,
holders of the Notes will have no rights with respect to our
shares of M&T common stock or any dividend or other
distribution declared in connection with M&T common stock,
other than the right to receive any Cash M&T Distribution
Adjustment. If the Notes are exchanged for M&T common
stock, holders of the Notes will have no rights with respect to
our shares of M&T common stock until the consummation of
the mandatory exchange on the Exchange Date. |
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Where You Can Find More Information on the Notes |
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For a detailed description of the terms of the Notes, including
the specific mechanics and timing of the Exchange Ratio
adjustment and Cash M&T Distribution Adjustments and
Non-cash M&T Distribution Adjustments, you should read the
Description of Notes section in this prospectus
supplement. You should also read about the risks involved in
investing in the Notes in the section called Risk
Factors in this prospectus supplement. The tax and
accounting treatment of investments in securities such as the
Notes may differ from that of investments in ordinary debt
securities or common stock. We urge you to consult with your
investment, legal, tax, accounting and other advisors with
regard to any proposed or actual investment in the Notes. |
S-14
RISK
FACTORS
Your investment in the Notes involves risks. This prospectus
supplement does not describe all of those risks. You should also
carefully consider whether the Notes are suited to your
particular circumstances before you decide to purchase them. You
should not purchase the Notes unless you understand and know
that you can bear all of the risks associated with owning
M&T common stock.
This section describes certain risks relating to the Notes.
You should carefully consider, in addition to the other
information set forth or incorporated by reference in this
prospectus supplement, the following information and the
information under the captions Risk management
1. Risk Factors and 3. Individual risk
types in our Annual Report on
Form 20-F
for the year ended December 31, 2009, and any risks
discussed in our subsequent filings that are incorporated by
reference into this prospectus supplement, as well as other
information included or incorporated by reference into this
prospectus supplement or the attached prospectus. You should
also consider the information set forth or incorporated by
reference in the M&T prospectus, including, without
limitation, information under Risk Factors.
Prospective holders are further advised that the contents of the
M&T prospectus, and any documents incorporated by reference
therein, are not incorporated by reference herein or in any way
made a part of this prospectus supplement or the accompanying
prospectus.
Risks
Relating to the Notes
By
purchasing the Notes, you are making an investment decision
about M&T common stock as well as the Notes.
As described in this prospectus supplement, if we satisfy the
Exchange Condition and no Regulatory Event occurs, the Notes
will be mandatorily exchanged for M&T common stock on the
Exchange Date, and you will not have the option to retain the
Notes. You should review carefully the information in this
prospectus supplement regarding the Exchange Condition and the
information in the M&T prospectus regarding M&T common
stock.
If our
shareholders do not approve the disposition of our shares of
M&T common stock by November , 2010, the fifth
business day immediately following the Expected Meeting Date,
you will not receive M&T common stock in exchange for the
Notes.
In order for us to sell our shares of M&T common stock,
shareholders holding a majority of AIBs Ordinary Shares
present and voting, in person or by proxy, at an Extraordinary
General Meeting, must approve the disposition of our shares of
M&T common stock. Though we will seek to obtain such
shareholder approval, we cannot offer any assurances that the
shareholder approval will be obtained on or prior to
November , 2010. If we do not obtain such
shareholder approval on or prior to that date, we will continue
to hold our shares of M&T common stock and we will redeem
the Notes for cash at their applicable Redemption Price.
The
Notes are not ordinary senior debt securities; depending on the
outcome of our shareholder vote, you may bear the full risk of
any decline in the value of M&T common stock after the
pricing of the Notes and may not receive the benefit of any
appreciation in the value of M&T common stock during that
period.
The Notes combine features of equity and debt. The terms of the
Notes differ from those of ordinary debt securities in that we
may not pay you a fixed amount in respect of the principal
amount of the Notes. If we exchange the Notes for M&T
common stock on the Exchange Date, we will not pay the principal
amount of the Notes in cash and our payout to you will be
M&T common stock and any Cash M&T Distribution
Adjustment and Non-cash M&T Distribution Adjustment. If we
exchange the Notes for M&T common stock and the market
price of M&T common stock on the Exchange Date is less than
the issue price of the Notes, you will receive M&T common
stock with a market value as of that date that is less than the
principal amount of the corresponding Notes, and may be zero.
S-15
Conversely, if our shareholders do not approve the disposal of
our shares of M&T common stock, or if a Regulatory Event
occurs, and the market price of M&T common stock when we
redeem the Notes is higher than the principal amount of the
Notes, you will not receive any M&T common stock, but a
cash amount equal to the applicable Redemption Price of the
Notes, plus any Cash M&T Distribution Adjustments when they
become due, which may be less than the market value of the
M&T common stock that you would have received had your
Notes been exchanged for M&T common stock.
The
market price of the Notes will be influenced by many
unpredictable factors.
Several factors, many of which are beyond our control, will
influence the value of the Notes in the secondary market. We
expect that generally the market price of M&T common stock
on any day will significantly affect the value of the Notes.
However, because the exchange of the Notes depends on the
affirmative vote of our shareholders at an Extraordinary General
Meeting expected to be held on October , 2010
and the absence of a Regulatory Event on the Exchange Date, the
trading prices of the Notes may differ from those of M&T
common stock while the Notes are outstanding. Other factors that
may influence the value of the Notes include:
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the volatility (frequency and magnitude of changes in price) of
M&T common stock;
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geopolitical conditions and economic, financial, political,
regulatory, legal or judicial events, including events that
affect stock markets generally and that may affect M&T and
the market price of M&T common stock;
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interest and yield rates in the capital markets;
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the dividend rate on M&T common stock;
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the perceived likelihood of an event that may affect our ability
to perform our obligations relating to the Notes, including of a
Regulatory Event;
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the time remaining to the maturity of the Notes;
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speculation regarding the probable outcome of our shareholder
vote; and
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the occurrence of certain events affecting M&T that may or
may not require an adjustment to the Exchange Ratio.
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Some or all of these factors will influence the price you will
receive if you sell your Notes prior to the Exchange Date or
Maturity Date, as applicable. For example, depending upon the
market expectations of the likely outcome of our shareholder
vote, proceeds from your sale of Notes may be at a substantial
discount from the principal amount if on the date of such sale
the market price of M&T common stock is below the principal
amount of the Notes.
You cannot predict the future performance of M&T common
stock based on its historical performance. The market price of
M&T common stock may decrease so that you will receive, if
the Notes are exchanged for M&T common stock on the
Exchange Date, M&T common stock having a market value at
such time that is less than the principal amount of the Notes.
See the M&T prospectus for more information regarding
M&T common stock.
The
M&T common stock underlying the Notes represents a
significant portion of M&Ts total outstanding common
stock, and the Notes may adversely affect the market price for
shares of M&T common stock.
The market price of M&T common stock may be influenced by
the Notes. For example, the market price of the M&T common
stock could become more volatile and could be depressed by
(i) investors anticipation of the potential resale in
the market of a substantial number of the shares of M&T
common stock received upon exchange of the Notes (the shares of
M&T common stock underlying the Notes represent, in the
aggregate, 22.4% of M&Ts outstanding shares of common
stock, based on 119,119,328 shares of outstanding common
stock of M&T as of July 23, 2010, as reported on
M&Ts Quarterly Report on
Form 10-Q
for the
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quarter ended June 30, 2010) and/or (ii) hedging
or arbitrage trading activity that may develop involving the
Notes and shares of M&T common stock. Similarly,
expectations regarding the issuance by M&T of additional
equity and other securities while the Notes are outstanding for
purposes unrelated to the Notes could affect the trading prices
of M&T common stock and, consequently, the trading prices
of the Notes.
You
will not receive interest, and may not receive any Cash M&T
Distribution Adjustment or Non-cash M&T Distribution
Adjustment, on the Notes.
The Notes will not bear interest. The Record Date Holders are
entitled to any Cash M&T Distribution Adjustments and, if
the Notes are exchanged for M&T common stock, Exchange Date
Holders are entitled to any Non-cash M&T Distribution
Adjustments. See Description of Notes M&T
Distribution Adjustment. Only Record Date Holders or
Exchange Date Holders will be entitled to receive such Cash
M&T Distribution Adjustments or Non-cash M&T
Distribution Adjustments, respectively. In addition, neither
Record Date Holders nor Exchange Date Holders will be entitled
to receive a Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment, as applicable, unless and
until we receive the related Qualifying Distribution from
M&T.
If there is no Qualifying Distribution, you will not receive any
Cash M&T Distribution Adjustment or Non-cash M&T
Distribution Adjustment with respect to the Notes even if the
Notes are exchanged for M&T common stock. We have no
control over whether or when M&T will set a record date for
any dividend or other distribution and cannot offer any
assurances as to whether or when any such declared dividend or
other distribution will be paid or delivered. Additionally, even
if a Qualifying Distribution has an ex-dividend date after the
Pricing Date, and a record date prior to the Exchange Date or
the Maturity Date, as applicable, (i) Exchange Date Holders
will not be entitled to any Non-cash M&T Distribution
Adjustments if (a) we do not satisfy the Exchange Condition
or (b) we satisfy the Exchange Condition but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event and
(ii) neither Record Date Holders nor Exchange Date Holders
will be entitled to any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment, respectively, if we
do not receive the Qualifying Distribution from M&T.
If
M&T fails to pay a cash dividend or other cash distribution
on the scheduled payment date, your claim for such amount may no
longer be secured by the Cash Collateral Amount.
Record Date Holders with respect to a Qualifying Distribution
that includes cash will be entitled to receive the related Cash
M&T Distribution Adjustment from us once we receive such
Qualifying Distribution from M&T. If, however, M&T
fails to make such payment to us on or prior to the applicable
Delayed Payment Date, a portion of the Cash Collateral Amount
equal to the amount of such unpaid cash dividend or other cash
distribution will be released to us by the Bank (pursuant to
instructions from the Trustee) from the Control Account on the
applicable Collateral Release Date, provided that any amounts
then owed by us to the Trustee or the Bank pursuant to the
Indenture or the Security Agreement will be retained in the
Control Account. After such date, any claim against us for an
amount equal to any such Qualifying Distribution that includes
cash that we subsequently receive from M&T will not be
secured by the Cash Collateral Amount or otherwise.
The
adjustments to the Exchange Ratio that the Trustee is required
to make do not cover every corporate event that can affect the
value of M&T common stock.
The Trustee will only adjust the number of shares of M&T
common stock deliverable upon exchange of the Notes on the
Exchange Date for stock splits and stock combinations involving
M&T common stock. The Trustee will not make an adjustment
to the Exchange Ratio for other corporate events that can affect
the value of shares of M&T common stock, although dividends
or other distributions on the M&T common stock having an
ex-dividend date after the Pricing Date, and a record date prior
to the Exchange Date or the Maturity Date, as applicable, may
give rise to a Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment. For example, the Trustee is
not required to make any adjustment for offerings by M&T of
M&T common stock for cash or in connection with
acquisitions. If an event occurs that does not require the
Trustee
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to adjust the Exchange Ratio or that does not give rise to a
Cash M&T Distribution Adjustment or Non-cash M&T
Distribution Adjustment, the price of the Notes may be
materially and adversely affected.
With
very limited exceptions, we have no ability to control the
actions of M&T, and M&T has no obligations with
respect to the Notes.
Though we are currently affiliated with M&T due to our
ownership of M&T common stock and have certain contractual
and governance rights with respect to M&T, including
minority representation on M&Ts board of directors,
and are deemed to control M&T for purposes of certain
U.S. banking regulations, we do not control the actions of
M&T, and our ability to influence the actions of M&T
is limited and we can provide no assurances as to such actions,
including any corporate actions of the type that would require
the Trustee to adjust the Exchange Ratio if the Notes are
exchanged for M&T common stock. We will cease to be
affiliated with M&T, and most of these rights (including
any right to representation on the M&T board of directors)
will expire, when we are no longer a significant shareholder of
M&T. M&T has no obligation to consider your interest
as an investor in the Notes in taking any corporate actions that
might affect the value of the Notes. In addition, M&T has
no obligations with respect to the Notes or amounts to be paid
to holders of the Notes. None of the money you pay for the Notes
will be paid to M&T.
Until
the completion of the mandatory exchange, you have no rights as
a shareholder of M&T, but you may be negatively affected by
some changes made with respect to M&T common
stock.
Investing in the Notes is not equivalent to investing in
M&T common stock. As an investor in the Notes, you will not
have voting rights or rights to receive dividends or other
distributions or any other rights with respect to M&T
common stock, except as provided under Description of
Notes M&T Distribution Adjustment. For
example, in the event that an amendment is proposed to the
articles of incorporation of M&T requiring shareholder
approval and the record date for determining the shareholders of
record entitled to vote on the amendment occurs prior to the
Exchange Date, you will not be entitled to vote on the
amendment, although you will nevertheless be subject to any
changes in the powers, preferences or special rights of M&T
common stock, even if adverse to you. In addition, you will not
have the right to exchange the Notes for M&T common stock
unless and until the Exchange Condition has been satisfied and
provided that no Regulatory Event occurs.
You
may be required to obtain regulatory approval in connection with
your acquisition of the Notes.
Because M&T is a bank holding company and the Notes are
mandatorily exchangeable for M&T common stock upon
satisfaction of the Exchange Condition, purchasers of the Notes
may in certain circumstances be required to obtain approvals
under the Change in Bank Control Act of 1978, as amended, or the
Bank Holding Company Act of 1956, as amended. Under regulations
adopted by the Federal Reserve Board, (a) any bank or bank
holding company is generally required to obtain the approval of
the Federal Reserve Board to acquire or retain 5% or more of
M&T common stock and (b) any person other than a bank
or bank holding company is generally required to obtain the
approval of the Federal Reserve Board to acquire or retain 10%
or more of M&T common stock (and, in certain cases, such
approval may be required at a lesser percentage of ownership).
Therefore, a purchaser or other owner of an amount of Notes
that, on the Exchange Date, would entitle such purchaser or
other owner to an amount of M&T common stock that, together
with any M&T common stock then held by such purchaser or
other owner, would equal or exceed the applicable threshold
stated above, may be required to obtain the prior approval of
the Federal Reserve Board.
If a
Regulatory Event occurs, you will not receive M&T common
stock in exchange for the Notes, and if we are the subject of an
insolvency proceeding, the Irish insolvency officer may seek to
challenge the release to you of cash from the Control Account.
We will not pledge or otherwise hold in escrow our shares of
M&T common stock while the Notes are outstanding. If we
fail to deliver the aggregate number of shares of M&T
common stock required to exchange all of the outstanding Notes
on the Exchange Date due to the occurrence of a Regulatory
Event, you will not
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be entitled to receive any M&T common stock, and we would
be required to redeem your Notes for cash at their applicable
Redemption Price.
However, if we are the subject of an insolvency proceeding while
the Notes are outstanding, the Irish insolvency officer assigned
to our insolvency may seek to challenge any release of cash from
the Control Account as a fraudulent preference or on other
grounds. While we do not believe that such a challenge would be
likely to succeed, we cannot definitively predict the outcome of
any such challenge, and accordingly cannot offer any assurances
that the cash from the Control Account would be released to you
in a timely matter, or at all, in the event of our insolvency,
including in the event of a mandatory redemption on the Maturity
Date.
The
United States federal income tax consequences of an investment
in the Notes are uncertain.
The Notes are novel financial instruments, and there is
currently no statutory, judicial or administrative authority
that directly addresses the characterization of the Notes or
instruments similar to the Notes for U.S. federal income
tax purposes. As a result, significant aspects of the
U.S. federal income tax consequences of an investment in
the Notes are not certain. We are not requesting a ruling from
the IRS with respect to the Notes and we cannot assure you that
the IRS will agree with the discussion set forth under
Certain United States Federal Income Tax
Considerations.
You are urged to consult your own tax advisor regarding
all aspects of the U.S. federal income tax consequences of
investing in the Notes, as well as any tax consequences arising
under the laws of any state, local or foreign taxing
jurisdiction.
Risks
Relating to AIB
If we
are unable to complete the disposal of our shares of M&T
common stock, we will need to rely to a greater extent on the
Irish Government for support, which is highly likely to result
in increased Irish Government ownership and control or full
nationalization.
Although the capital generated from the proceeds of the
disposition of our shares of M&T common stock alone will
not enable us to meet the entire revised PCAR capital
requirement announced by the Financial Regulator on
September 30, 2010, such disposition is one of the
significant steps being taken by us towards generating the
additional capital required in order to meet that capital
requirement.
If shareholder approval for the disposition of our shares of
M&T common stock is not obtained, or if the exchange of the
Notes for our shares of M&T common stock is otherwise
unable to be completed as described in this prospectus
supplement, there can be no assurance that we will be able to
dispose of our shares of M&T common stock at a later date,
in favorable or equivalent market circumstances, or at all. In
those circumstances, we would need to rely to a greater extent
on the support of the Irish Government including through the
conversion of the 2009 Preference Shares into Ordinary Shares.
Our board of directors therefore believes that if we are unable
to proceed with the disposition of our shares of M&T common
stock and our other announced disposals, then it is highly
likely that such events would result in increased Irish
Government ownership and control or full nationalization. If
this were to occur, our shareholders could lose the value of
their Ordinary Shares and suffer further dilution.
Our
businesses, earnings and financial condition have been, and our
businesses, earnings and financial condition will continue to
be, affected by the recent and future economic conditions in
Ireland and international economic and sector-specific
conditions.
As of June 30, 2010, 68% of our total assets were located
in Ireland and approximately 63% of our net interest income was
generated in Ireland. Ireland is facing an extremely challenging
economic period. Unemployment has increased in Ireland from
13.2% in the second quarter of 2010 to 13.7% in September 2010,
and the property market has suffered a very significant decline,
with average national house prices in Ireland falling by 6.4% in
the first half of 2010, 18.5% in 2009 and 9.1% in 2008, and
commercial property prices falling by 55.6% between September
2007 and December 2009. Following heavy reliance on construction
and property-related activity for economic growth, the Irish
economy experienced a severe
S-19
contraction with Irish gross domestic product (GDP)
contracting by 7.1% for the 2009 calendar year. Following an
increase of 2.2% in GDP in the first quarter of 2010 compared to
the fourth quarter of 2009, initial estimates for the second
quarter of 2010 showing a decrease, on a seasonally adjusted
basis, of 1.2% in GDP compared with the previous quarter. The
Irish public finances have deteriorated sharply since 2007,
moving from an estimated surplus of 0.3% of GDP in terms of
general Irish Government balance to a deficit of 11.7% in 2009.
The rise in the deficit is primarily due to the sharp fall in
tax revenues largely associated with the downturn in the Irish
housing market. Furthermore, as announced by the Minister for
Finance in his Statement on Banking on September 30, 2010,
as a result of the capital support being provided by the Irish
Government to the Irish banking system, a substantial spike in
Irelands general government deficit is expected in 2010
totalling almost 20% of GDP, resulting in an expected general
Irish Government deficit for 2010 of around 32% of GDP. See
We are exposed to the Irish property sector,
which has been and remains subject to unfavorable economic and
market conditions for risks relating to our exposure to
the Irish property market. Higher unemployment, reduced
corporate profitability and personal bankruptcy rates have and
will continue to reduce borrowers ability to repay loans,
including mortgages. The existing conditions have already
materially adversely affected us, have exerted downward pressure
on share prices, liquidity and availability of credit for
financial institutions, including ourselves and other
corporations, have constrained pricing policies for Irish credit
institutions and have left the Irish banking system facing
serious structural and funding issues.
Prior to the planned disposals, while we conduct our principal
activities in Ireland, we also have international businesses,
principally in the U.K., the United States and in Poland. The
deterioration of the economies of the other key geographic
markets we serve, particularly the U.K., adversely affected our
financial condition and performance in 2008 and 2009 and
continues to present challenges for us. Demand for housing and
commercial and other property has also fallen considerably in
the U.K. and the United States. A continued deterioration in
property prices in our key geographic markets could further
adversely affect our financial condition and results of
operations.
If unfavorable economic conditions persist or worsen, or in
particular if the Irish economy recovers at a slower rate than
anticipated, we will experience further reductions in business
activity, lower demand for our products and services, reduced
availability of credit, increased funding costs, decreased asset
values, additional write-downs and impairment charges with
consequent adverse effects on profitability and financial
condition. Our financial performance may also be affected by
future recovery rates on assets and the historical assumptions
underlying asset recovery rates may no longer be accurate given
the general economic instability.
Our businesses are also subject to inherent risks arising from
sector-specific economic conditions in the markets in which they
operate. The very severe dislocation of the global financial
markets that began in 2007 substantially worsened in 2008 and
triggered widespread problems at many large international and
Irish banks and other financial institutions. This dislocation
severely impacted general levels of liquidity, the availability
of credit and the terms on which credit is available. This led
the Irish Government and other governments to inject liquidity
into the financial system and required recapitalization of the
banking sector to reduce the risk of failure of certain large
institutions and provide confidence to the market. Measures
taken by the Irish Government to enhance the availability of
liquidity and improve access to funding for systemically
important financial institutions in Ireland include, among
others, the CIFS Scheme, the ELG Scheme, the NPRFC Investment
and the NAMA Program.
Despite these interventions, the volatility and market
disruption in the banking sector has continued. While certain
recent economic forecasts for the global economy have been
revised upwards, there can be no assurance of a return to
economic growth in the economies in which we operate. Although
the Minister for Finances Statement on Banking on
September 30, 2010 provides some certainty on the total
cost of restructuring the banking system in Ireland and the
fiscal impact of those bank restructuring costs, there can be no
certainty regarding the success of those plans and a further
deterioration in the Irish economy would adversely affect our
businesses, earnings and financial condition.
S-20
The
default of a major market participant or negative developments
affecting one or more Irish financial institutions, in
particular, could disrupt the markets and impact our financial
condition and results of operations.
Within the financial services industry, the default of any one
institution could lead to defaults by other institutions. The
failure of a sufficiently large and influential institution
could disrupt clearance and settlement systems in the markets in
which we operate and cause market declines or volatility. Such a
failure could lead to a chain of defaults that could adversely
affect us and our contract counterparties. Concerns about, or a
default by, one institution could lead to significant liquidity
problems, losses or defaults by other institutions, as occurred
after the bankruptcy of Lehman Brothers. Such systemic risk
could have a material adverse effect on our ability to raise new
funding and on our business, financial condition, results of
operations, liquidity
and/or
prospects. In addition, the failure of a sufficiently large and
influential institution could impact future product sales as a
potential result of reduced confidence in the financial services
industry.
Negative developments affecting Irish financial institutions
(e.g., depleted capital levels of Irish financial institutions)
have had a general negative effect on market investor sentiment
towards Irish financial institutions and on our financial
condition primarily through access to, and cost of, wholesale
funding.
Systemic risk to the markets in which we operate continues to
exist, and dislocations caused by the interdependency of
financial market participants and the perception of the Irish
banking sector in general continues to be a potential source of
a material adverse change to our financial condition and results
of operations.
We are
exposed to the Irish property sector, which has been and remains
subject to unfavorable economic and market
conditions.
We are heavily exposed to the Irish property sector, which has
been adversely affected by unfavorable economic and market
conditions. As of June 30, 2010, excluding those loans held
for sale to NAMA, approximately 65% of our loan portfolio was
concentrated in Ireland (68% as of December 31,
2009) and 40% was concentrated in the construction and
property and residential mortgage sectors (41% as of
December 31, 2009). From the late 1990s to 2006, the
mortgage market in Ireland expanded rapidly as housing prices
soared, driven in part by economic and wage growth. The rapid
increase began to contract in 2006 and 2007 as the European
Central Bank raised interest rates. In 2008, as the Irish
economy started to decline and as interest rates continued to
increase, housing oversupply persisted and mortgage
delinquencies increased. Declining residential and commercial
property prices also led to a significant slowdown in the
construction sector in Ireland. As a result, loan impairments in
the Irish construction, property and residential mortgage
sectors increased substantially. As of December 31, 2007,
2008 and 2009, our impaired loans in these sectors were
178 million, 1.3 billion and
2.75 billion, respectively, and as of June 30,
2010, our impaired loans in this sector, excluding loans and
receivables held for sale to NAMA, amounted to
3.5 billion (or 13.6 billion including
loans and receivables held for sale to NAMA). With regard to the
4.4 billion of our total eligible NAMA Assets with
individual values of less than 20 million and greater
than 5 million that were classified as held for sale
to NAMA at June 30, 2010 but that we expect will no longer
be transferred to NAMA, 2.9 billion of these assets
relate to the construction and property and residential mortgage
sectors in Ireland, of which 1.9 billion were
impaired.
We believe that NAMA has had, and is expected to continue to
have, an impact on the liquidity of property assets in Ireland.
Uncertainty as to what effects NAMA will have on the property
market has, we believe, resulted in fewer property transactions.
In addition, the discount applied on the transfer of our NAMA
Assets related to property may have a material adverse impact on
the values and liquidity of property. If this occurs, the value
of property collateral securing our loans would be reduced which
may increase the rate of write-downs
and/or
impairments.
If unfavorable economic and market conditions persist, with
further falls in property prices and increases in unemployment,
the risk of further impairments and the consequent adverse
impact on our profitability and financial condition is
exacerbated.
S-21
We may
have insufficient capital resources to meet the revised minimum
PCAR requirement. If we are not able to raise a proportion of
the additional capital to meet the revised PCAR capital
requirement from the announced capital raising initiatives, we
will need to rely to a greater extent on the support of the
Irish Government. Such reliance could lead to increased Irish
Government ownership and control or full
nationalization.
As part of the Financial Regulators assessment of the
Irish banking sectors capital requirements, it announced
on March 30, 2010, that in common with certain other Irish
credit institutions, our target Equity Tier 1 Capital Ratio
should be 7%, and the target Core Tier 1 Capital Ratio
should be 8%. The Basel Committee on Banking Supervision has
also recently announced increased capital requirements for
banking institutions. Our capital ratios as of June 30,
2010 were Equity Tier 1 Capital of 3.8%, Core Tier 1
Capital of 6.9%, Tier 1 Capital of 6.0% and Total Capital
of 9.0%. In order to meet the PCAR capital requirement, we were
initially required to generate the equivalent of
7.4 billion of equity capital by December 31,
2010. On September 30, 2010, the Financial Regulator
updated its assessment of our capital requirement and increased
the amount of equivalent equity capital required under the PCAR
from 7.4 billion to 10.4 billion. The
increased PCAR requirement has been set following an assessment
by the Financial Regulator of our potential losses on our
eligible NAMA Assets and must also be met by December 31,
2010.
As a result of the crystallization of loan losses on the NAMA
Assets that have transferred, our participation in NAMA has had
and will continue to have a negative impact on our capital
position. These losses will reduce our Equity Tier 1
Capital, Core Tier 1 Capital, Tier 1 Capital and Total
Capital, and our corresponding capital ratios. Our participation
in NAMA will, however, result in a reduction in our
risk-weighted assets which will in turn positively affect our
capital ratios. The positive benefit of reducing our
risk-weighted assets will, however, be insufficient to offset
the negative impact from the crystallization of loan losses on
the transfer of NAMA Assets to NAMA. In addition, in the period
over which losses on our NAMA Assets negatively impact our
capital position and the planned capital raising actions have
not been completed, there is a risk that we may temporarily see
a fall in our regulatory capital ratios below current minimum
regulatory capital requirements set by the Central Bank of
Ireland. In those circumstances, we would be required to engage
in discussions with the Central Bank of Ireland prior to such an
event occurring, with a view to mitigating the effects of such
an event. The Central Bank of Ireland is formally empowered to
agree a period of time and a course of action which would return
the credit institution to solvency or, inter alia, to suspend a
credit institutions deposit taking ability, and in extreme
circumstances may exercise these powers. Were this power to be
exercised, it would restrict us from temporarily accepting
customer deposits, which could adversely affect our
profitability and results of operations and lead to a
deterioration in our funding and liquidity position.
We expect to satisfy that part of the Financial Regulators
revised PCAR capital requirement from the proceeds of the
disposal of our shares of M&T common stock as described in
this prospectus supplement, the completion of the BZWBK Disposal
(which was announced on September 10, 2010) and the
potential sale of our business in the U.K. (which comprises
Allied Irish Bank (GB) in Great Britain and
First Trust Bank in Northern Ireland), each to
be undertaken by December 31, 2010. However, the price
achieved for the sale of our U.K. business will be dependent on
prevailing economic and market conditions, which may be
challenging, and therefore there is no assurance that we will be
able to find buyers for the U.K. business at an acceptable price
within the required time period. We may be forced to sell the
U.K. business at a price below than that which we would
otherwise have agreed or may not be able to dispose of our
interest in our U.K. business at all. Moreover, the BZWBK
Disposal is, and any sale of the U.K. business may be, subject
to various approvals, including from shareholders, regulators
and competition authorities, and we
and/or
potential buyer or buyers may be unable to obtain these
approvals within a sufficient time or at all.
We have also undertaken to launch a 5.4 billion
equity capital raising during November 2010, which is expected
to be completed before December 31, 2010. As announced on
September 30, 2010, this equity capital raising will be
fully underwritten by the NPRFC and will be subject, among other
matters, to European Commission, shareholder and other
regulatory approvals.
If necessary, the NPRFCs underwriting commitment will be
met through a new cash contribution of up to
3.7 billion for new Ordinary Shares from existing
cash resources of the NPRFC and by the conversion of
S-22
up to 1.7 billion of the 2009 Preferences Shares held
by the NPRFC. Assuming conversion of 1.7 billion of the
2009 Preference Shares, the NPRFC would continue to hold
1.8 billion of the 2009 Preference Shares. On
completion of the equity capital raising, it is likely that the
NPRFC will own a significant majority stake in us.
In addition to the capital generated from the BZWBK Disposal, we
expect to raise 2.5 billion of equity capital from
the planned disposals of our shares of M&T common stock and
our U.K. business and additional capital generating
initiatives (such as other minor asset disposals, risk weighted
asset reduction initiatives and liability management actions).
In the event that our residual capital requirement is not met
through the planned disposals and capital generating initiatives
by March 31, 2011, any shortfall will be met by a
conversion of 2009 Preference Shares at that date, on commercial
terms to be agreed between us and the NPRFC prior to the date of
conversion. If that were to occur, or if further capital
injections by the Irish Government were to be required, the
interests of other shareholders would be further diluted, the
Irish Governments influence over our operations would be
significantly increased and shareholders may lose the value of
their shares. See If we are unable to complete
the disposal of our shares of M&T common stock, we will
need to rely to a greater extent on the Irish Government for
support, which is highly likely to result in increased Irish
Government ownership and control or full nationalization.
If we
are required to hold a higher level of capital than that
currently anticipated by the market and as prescribed by the
revised PCAR requirement then this could have an adverse impact
on our operational flexibility, reduce earnings growth and
require the issue of additional equity capital to the Irish
Government.
Our level of future capital continues to be driven by
(i) changes to the level of risk weighted assets (as a
result of NAMA transfers, grade migration and balance sheet
deleveraging), (ii) capital changes (as a result of NAMA
losses, increased provisions and decreased profitability) and
(iii) regulatory restrictions, such as the requirement that
Tier 2 Capital should not exceed Tier 1 Capital and
restrictions on the amount of dated subordinated debt that may
rank as own funds during the five years prior to the repayment
date. Furthermore, our level of risk weighted assets may differ
depending on the assumptions used in modeling our risks in terms
of the internal-ratings based approach under the Capital
Requirements Directives (comprising Directive 2006/48/EC and
Directive 2006/49/EC). Under this approach, capital requirements
are inherently more sensitive to market movements than under
previous regimes, and capital requirements will increase if
economic conditions impact negatively on the credit quality of
our loan portfolio, which may have an adverse effect on our
results of operations.
Market expectations and regulatory requirements for banks to
hold higher levels of capital continue to evolve. Due to the
ongoing uncertainty in financial markets, market expectations
may require international banks to hold capital at levels higher
than currently expected, any future capital requirement for AIB
determined by the Central Bank of Ireland may be more than the
revised PCAR requirement, or the definitions of capital may be
subject to change. As a consequence, this could require us to
hold higher levels of capital than the target 7% Equity
Tier 1 Capital and target 8% Core Tier 1 Capital
ratios set by the Financial Regulator in the original PCAR.
Furthermore, the detailed impact of the new Basel III
proposals for us is not clear because certain elements of the
package have not been finalized, including the transitional
arrangements. Once the finalized proposals are assessed against
our particular balance sheet and business strategy, changes may
be required to our capital structure
and/or our
asset base which may adversely impact our profitability and
results of operations. See Our businesses and
financial condition could be affected by the fiscal, taxation,
regulatory or other policies, laws and regulations and other
actions of various governmental and regulatory authorities in
Ireland, the United Kingdom, the European Union and
elsewhere.
If, among other factors, the total consideration we receive for
the transfer of the NAMA Assets is less than that assumed by the
Financial Regulator in the revised PCAR, we may not have
sufficient capital resources to meet future regulatory capital
requirements. Such higher expectations
and/or
regulatory requirements may also adversely impact our
operational flexibility, reduce earnings growth and require the
issuance of additional equity capital to the Irish Government.
S-23
Constraints
on liquidity, uncertainty over the terms of a further extension
of the ELG Scheme and the market reaction to the removal of
Irish Government guarantees may expose us to further liquidity
risks.
Liquidity risk is the risk that a bank will be unable to meet
its obligations when they fall due and to replace funds when
they are withdrawn, with a consequent failure to repay
depositors and fulfill commitments to lend, a risk that is
inherent in banking operations. At June 30, 2010, 53% of
our funding was sourced from customer accounts, 20% from
deposits by banks and the remainder through a combination of
short-term paper, asset covered securities, senior debt,
subordinated debt and capital.
The quantum of our wholesale funding has reduced from
approximately 64 billion as of December 31, 2009
to 61 billion as of June 30, 2010 and the loan
to deposit ratio (including assets held for sale to NAMA) has
similarly reduced from 146% as of December 31, 2009 to 143%
as of June 30, 2010. We continue, however, to be subject to
liquidity risks that reflect the broader global liquidity
difficulties to which all financial institutions have been
subject, as well as factors that are specific to the Irish
banking industry. Furthermore, any reduction in our access to
assets which can provide liquidity within four working days
(which include central government securities or securities
issued by financial institutions) (Qualifying Liquid
Assets) and pre-approved facilities where cash can be
accessed subject to certain conditions being met
(Contingent Funding), will have an impact on our
liquidity risk profile.
The Irish Governments guarantee of specified liabilities
through the Credit Institutions (Financial Support) Scheme 2008
(the CIFS Scheme) (which expired on
September 29, 2010) and the Credit Institutions (Eligible
Liabilities Guarantee) Scheme 2009 (the ELG Scheme)
represents a critical element of liquidity support for us and,
more generally, the Irish banking sector. Although these
guarantee programs have helped to significantly ease the
liquidity challenges to which we and other Irish banks have been
subject, there can be no assurance that ongoing challenges will
not continue to impact our funding initiatives, whether as a
result of factors specific to us or factors that apply to
borrowers in Europe or elsewhere more generally.
In addition, despite the introduction of the CIFS Scheme and the
ELG Scheme, the terms on which funding is available are more
onerous and expensive than was the case prior to mid-2007.
Should the global economy and global financial system
deteriorate further, our cost of funding may rise and access to
liquidity may be further constrained, particularly if the cost
of customer deposits increases, affecting our margins, profit
and liquidity risk profile. See We rely on
customer deposits to fund a considerable portion of our loan
portfolio, the ongoing availability of which is sensitive to
factors outside our control. Loss of consumer confidence in our
business or in banking businesses generally, among other things,
could result in unexpectedly high levels of customer deposit
withdrawals, which could have a material adverse effect on our
ability to fund our operations and liquidity position for
further risks relating to the availability of customer deposits
and our ability to access these deposits. Furthermore, legal
challenges to the NAMA system may undermine the confidence of
the international markets and consequently result in increased
Irish Government borrowing costs which may in turn adversely
affect bank funding capacity and our borrowing costs.
On June 28, 2010, following a request by the Minister for
Finance, the European Commission approved a modification of the
ELG Scheme to provide for an extension of the issuance period
from September 29, 2010 to December 31, 2010 (subject
to the introduction of new pricing rates) for participating
institutions for (a) liabilities of between three months
and five years duration (other than inter-bank deposits);
(b) retail deposits of any duration up to five years and
(c) corporate deposits with a maturity of between three
months and five years.
On September 21, 2010, following a further request from the
Minister for Finance, the European Commission approved an
amendment to the ELG Scheme to extend the issuance
window in respect of inter-bank deposits and short-term
liabilities (zero to three months) (including corporate
deposits) of a participating institution, from
September 29, 2010 to December 31, 2010. On September
29, 2010, the Minister for Finance, following the approval of
the Oireachtas (the Irish Parliament) signed into law a
statutory instrument that gave effect to the changes to the ELG
Scheme approved by the European Commission on June 28, 2010 and
September 21, 2010. Accordingly, the issuance window
in respect of every eligible liability of a participating
institution under the ELG Scheme (including retail deposits over
100,000 for any duration up to five years and corporate
and inter-bank deposits for any duration up to five years) will
be extended from
S-24
September 29, 2010 to December 31, 2010 so that a
State guarantee is now available for both short- and long-term
liabilities issued or accepted up to the end of 2010. Retail
deposits of an amount up to 100,000 remain outside the ELG
Scheme but continue to be guaranteed indefinitely under the
Deposit Guarantee Scheme.
The Minister for Finance has amended the rules of the ELG Scheme
so that the pricing of the ELG Scheme guarantee has increased in
line with the recommendations of the Governing Council of the
European Central Bank on government guarantees for bank debt
dated October 20, 2008, the European Commission DG
Competition staff working document titled The Application
of State Aid Rules to Government Guarantee Schemes Covering Bank
Debt to be Issued after 30 June 2010 dated
April 30, 2010 and any Eurosystem guidelines in order to
bring the funding costs of beneficiary banks closer to market
conditions and thereby reduce distortions of competition. The
rules of the ELG Scheme have also been amended to reflect the
changes to the ELG Scheme approved by the European Commission on
June 28, 2010 and September 21, 2010. The Minister for
Finance has also said that progress in relation to the phasing
out of the ELG Scheme will be achieved over time, consistent
with any requirement for continued support of the funding
conditions of participating institutions and the maintenance of
financial stability overall. The ELG Scheme remains subject to
six-monthly review and approval by the European Commission in
accordance with European Union state aid rules. The next review
of the ELG Scheme is due to take place before December 31,
2010, although the results of any such review will not affect
the status of guaranteed liabilities that are, by then, already
in place. There can be no assurance that the ELG Scheme will be
extended beyond December 31, 2010.
Furthermore, on November 9, 2009, the European Central Bank
highlighted that guarantees of short-term bank debt (maturity
profile of less than three months) and inter-bank deposits
should be avoided to the extent possible. However, the changes
to the ELG Scheme that the European Commission approved on
September 21, 2010 and implemented by the Minister for
Finance on September 29, 2010 mean that all inter-bank
deposits for any duration up to five years and short-term
liabilities (including inter-bank deposits, corporate deposits
and debt liabilities of less than three months maturity) will be
brought within the ELG Scheme if they are issued up to
December 31, 2010 if the approved changes are implemented
by the Minister for Finance. If the ELG Scheme is withdrawn, it
is likely to put increased pressure on our ability to fund
ourselves in the short-term and increase our use of secured
funding in the market or in standard central bank facilities, if
so required. The curtailment or non-extension of other standard
central bank facilities currently accessed by may result in us
facing increased funding pressures, which in turn may result in
an increase in cost of funding. As of June 30, 2010, our
total short-term wholesale bank debt, excluding customer
deposits and secured funding (as extracted from our unaudited
books and records) was approximately 13 billion.
Given our reliance on the ELG Scheme and short-term wholesale
bank debt, if the ELG Scheme is revoked or further changed in a
manner which diminishes our effectiveness, notwithstanding a
pool of liquid assets available in the form of high quality
bonds including notes, bills, bonds or other financial
instruments issued and to be issued by NAMA or a related entity
(and guaranteed by the Minister for Finance) or by the Minister
for Finance to a participating institution in consideration for
the acquisition of NAMA Assets by NAMA or a related entity in
accordance with the NAMA Act (collectively, NAMA
Bonds), we may face significant liquidity risks. In
respect of the period from January 21, 2010 to
June 30, 2010, we paid 118.9 million in fees in
respect of the ELG Scheme. Increased fees payable by us to the
Irish Government for the ELG Scheme (including the increased
pricing rates imposed on participating institutions as part of
the prolongation of the ELG Scheme issuance period to
December 31, 2010) may also impact on our
profitability and financial condition.
The cancellation or material amendment of the ELG Scheme could
introduce systemic weakness to the Irish banking sector and
restrict liquidity support across the sector as a whole. The
cancellation or material amendment of the ELG Scheme or our
removal from the ELG Scheme prior to its planned expiration
could adversely affect the terms on which we would be able to
access funding.
S-25
We
rely on customer deposits to fund a considerable portion of our
loan portfolio, the ongoing availability of which is sensitive
to factors outside our control. Loss of consumer confidence in
our business or in banking businesses generally, among other
things, could result in unexpectedly high levels of customer
deposit withdrawals, which could have a material adverse effect
on our ability to fund our operations and liquidity
position.
As of June 30, 2010, 53% of our funding was sourced from
customer accounts (51% for the year ended December 31,
2009). Growth in our lending activities will depend, in part, on
the availability of customer deposits on appropriate terms, for
which there is increasing competition. We have sought to
increase our reliance on customer deposits in the recent past,
given the challenges in accessing wholesale funding, and a lack
of availability of such deposit funding could affect our future
growth. See We operate in competitive markets
(subject to some price regulation) that are subject to
significant change and uncertainty which could have a material
adverse effect on our results, financial condition and
prospects for further risks associated with us operating
in competitive markets.
The ongoing availability of customer deposits to fund our loan
portfolio is subject to potential changes in certain factors
outside our control, such as a loss of confidence of depositors
in either the Irish economy in general, the financial services
industry or AIB specifically, ratings downgrades, significant
further deterioration in economic conditions and the
availability and extent of deposit guarantees (including as a
result of regulatory changes to deposit guarantee schemes
and/or
changes to the ELG Scheme). These factors could lead to a
reduction in our ability to access customer deposit funding on
appropriate terms in the future and to sustained deposit
outflows, both of which would impact on our ability to fund our
operations and meet our minimum liquidity requirements.
Any loss in consumer confidence in our banking businesses, or in
banking businesses generally, could significantly increase the
amount of retail deposit withdrawals in a short space of time.
Should we experience an unusually high level of withdrawals,
that may have an adverse effect on our results, financial
condition and prospects and could, in extreme circumstances,
prevent us from funding our operations and meeting our minimum
liquidity requirements. In such extreme circumstances, we may
not be in a position to continue to operate without additional
funding support, which it may be unable to access.
Further
downgrades to the Irish sovereign credit ratings or our credit
ratings or outlook could limit our access to funding, trigger
additional collateral requirements and weaken our competitive
position.
The sovereign rating of Ireland has a number of effects on the
Irish banking sector as a whole. As of October 1, 2010, the
long-term (outlook)/short-term sovereign credit ratings for
Ireland were AA-/A1+ from Standard & Poors,
Aa2/P1 from Moodys Investor Service and AA-/F1+ from Fitch
Ratings. Further downgrades would also be likely to increase the
cost of financing the Irish public debt, which could result in
increased taxation, lower Irish Government spending and an
adverse effect on Irish economic conditions, all of which could
have an adverse effect on us. On October 1, 2010, Fitch
Ratings downgraded our Lower Tier 2 subordinated debt. This
followed the announcement by the Minister for Finance on
September 30, 2010, in which it was proposed to introduce
new legislation specific to Anglo Irish Bank Corporation Limited
and Irish Nationwide Building Society which would address
burdensharing by subordinated bondholders and outlined that the
NPRFC would fully underwrite our equity capital raising to the
value of 5.4 billion and that, as a result, the Irish
Government could acquire a majority stake in us.
As the guarantor of certain of our liabilities under the ELG
Scheme, recent downgrades in Irelands sovereign rating
have had an adverse impact on our credit rating and on our cost
of funding for certain securities guaranteed under the ELG
Scheme. Any future downgrades in Ireland sovereign ratings may
similarly adversely affect our credit ratings and could result
in a further increase in cost of funding for certain securities
guaranteed under the ELG Scheme and the withdrawal of deposits
from us.
In addition, as a result of our participation in NAMA, we have
received and will receive bonds guaranteed by the Irish
Government and non-guaranteed subordinated bonds issued by NAMA
as consideration for the transfer of assets to NAMA. In the
normal course of business, we also have holdings in Irish
Government bonds separate from those issued under NAMA. A
further downgrade or series of downgrades in the rating of the
Irish
S-26
Government debt or the Irish Government guaranteed bonds could
adversely impact the extent to which we can use these bonds as
collateral for the purposes of accessing secured borrowing from
wholesale markets. A further downgrade or series of downgrades
in the sovereign rating of Ireland may affect the marketability
of the Irish Government debt or Irish Government guaranteed
bonds we hold or make it more difficult
and/or more
expensive for us to access private sources of capital and
funding.
We have suffered rating downgrades that have impacted our
operations. Any further downgrades, or a delay in upgrades, in
our credit ratings could have a materially negative impact on
the volume and pricing of our funding and our financial
position, limit our access to the capital and funding markets,
trigger material collateral requirements in derivative contracts
or other secured funding arrangements and weaken our competitive
position in certain markets. In addition, the availability of
deposits is often dependent on credit ratings and a series of
further downgrades would be likely to lead to significant
withdrawals of corporate or retail deposits that would result in
a material deterioration in our funding and liquidity position
and may have systemic implications for the Irish banking system.
We are
exposed to risks relating to other sovereign
issuers.
The financial problems experienced by other sovereign issuers,
including certain European Union member states, concern over
sovereign credits and risks associated with lending to other
sovereign issuers and financial institutions in the European
Union, have recently led to doubts regarding the strength of
economic recovery and caused significant falls in equity markets
and volatility. We have exposures to sovereign debt issued by
the Greek, Italian, Portuguese and Spanish local and central
governments and are therefore subject to the risk of sovereign
debt credit deterioration of these governments. See Note 26
on page 84 of our 2010 Half-Yearly Financial Report,
incorporated by reference herein, for further details of these
exposures. The issuance of significant amounts of debt in
European Union member states may result in reduction in demand
for debt issued by European financial institutions and corporate
borrowings. In addition, European Union member states in which
we operate may be required to provide further financial
assistance to other European Union member states, which may in
turn have a negative impact on the financial condition of the
European Union member states in we which operate. Should such
conditions continue or escalate it could adversely affect our
access to capital markets and increase our funding costs, which
could have a material effect on our financial condition and
profitability.
Increased
volatility in financial markets has resulted in, and prolonged
volatility may continue to result in, reduced asset valuations
and lower fees and commissions and other effects which could
further adversely affect our results, financial condition and
prospects.
The recent volatile market conditions arising from the Eurozone
debt crisis have resulted in significant falls in perceived or
actual asset values. If such conditions continue and result in
further downturns in the capital markets and asset values, as
well as significant movements in interest rates or credit
spreads, our results of operations could be subject to
significant volatility and there can be no assurance as to the
effects of this volatility, particularly if it is prolonged, on
our financial condition or results of operations. Effects may
include (i) a general reduction in business activity and
market volumes which affects fees, commissions and margins from
customer-driven transactions and revenues; (ii) increased
impairments and defaults on credit exposures; (iii) losses
resulting from falling collateral values; (iv) increased
collateral requirements under derivative and other financial
instruments; and (v) increased costs of hedging against
market risks, such as equity or interest rate exposure. Such
volatility could in particular have an impact on the
mark-to-market
valuations of assets in our financial assets and financial
liabilities held for sale to NAMA, disposal groups
and non-current assets held for sale, trading
portfolio-financial assets and financial investments
available for sale portfolios. In addition, any further
deterioration in the performance of the assets in the above
portfolios could lead to additional impairment losses. The
available financial investments for sale portfolio accounted for
13% of our total assets as of June 30, 2010 (18% excluding
the disposal groups and non-current assets held for
sale) (as extracted from our 2010 Half-Yearly Financial
Report).
S-27
We are
subject to inherent risks concerning customer and counterparty
credit quality and the actual or perceived failure or worsening
credit of customers, other financial institutions and
counterparties, which could adversely affect our results of
operations, financial condition and future
prospects.
Credit risk is defined as the risk that a customer or
counterparty will be unable or unwilling to meet a commitment
that it has entered into and that pledged collateral does not
fully cover the lenders claims. Risks arising from changes
in credit quality and the recoverability of loans and amounts
due from counterparties are inherent in a wide range of our
businesses. Our most significant credit risks arise from lending
activities to customers and financial institutions, our trading
portfolio,
available-for-sale
and
held-to-maturity
financial investments, derivatives and off-balance
sheet guarantees and commitments.
The Irish and U.K. economies, together with other economies in
which we operate, are in a challenging phase with uncertainty in
relation to the direction of interest and currency exchange
rates Furthermore, unemployment has increased in Ireland from
13.2% in the second quarter of 2010 to 13.7% in September 2010,
and the property market has suffered a very significant decline,
with average national house prices in Ireland falling by 6.4% in
the first half of 2010, 18.5% in 2009 and 9.1% in 2008 and
commercial property prices falling by 55.6% between September
2007 and December 2009. Following an increase of 2.2% in GDP in
the first quarter of 2010 compared to the fourth quarter of
2009, initial estimates for the second quarter of 2010 show a
decrease in Irish GDP, on a seasonally adjusted basis, of 1.2%
compared with the previous quarter. Any recovery is expected to
be slow. In particular, as a result of Irelands
significant reliance on the construction industry, economists
expect any recovery in its economy to lag behind that of the
wider European Union. Ultimately, should these trends persist,
they may lead to higher impairment charges, higher costs,
additional write-downs and lower profitability for us, which
would negatively impact on our capital position and may result
in full nationalization, with potential for other shareholders
to lose the value of their Ordinary Shares. See
If we are unable to complete the disposal of
our shares of M&T common stock, we will need to rely to a
greater extent on the Irish Government for support, which is
highly likely to result in increased Irish Government ownership
and control or full nationalization.
In addition, our exposure to credit risk is exacerbated when the
collateral we hold cannot be realized or is liquidated at prices
that are not sufficient to recover the full amount of the loan
or derivative exposure that is due to AIB, which is most likely
to occur during periods, of illiquidity and depressed asset
valuations, such as those currently being experienced. Any such
losses could have a material adverse effect on our future
performance and results of operations. In addition, exposure to
particularly vulnerable sectors of the Irish
and/or U.K.
economies, such as property and construction, could result in
reduced valuations of the assets over which we have security
interests and reduced recoverability. Furthermore, an increase
in interest rates in the our main markets may lead to, among
other things, further declines in collateral and investment,
higher repayment costs and reduced recoverability which together
with the aforementioned risks may adversely impact our earnings
or require an increase in our expected cumulative provisions
charge, excluding losses incurred relating to our NAMA assets.
We have been exposed to increased counterparty risk as a result
of financial institution failures during the global economic
crisis. Defaults by, or even the perceived creditworthiness of
or concerns about one or more corporate borrowers or financial
institutions or the financial services industry generally have
led to market-wide liquidity problems, losses and defaults and
could lead to further losses or defaults by such borrowers
and/or
institutions, which would adversely affect our results of
operations, financial condition and future prospects.
We are
subject to certain commitments and restrictions in relation to
the operation of our business under the CIFS Scheme, the NPRFC
Investment, the NAMA Program and the ELG Scheme that may serve
to limit our operations and impact the interests of our
shareholders.
In May 2009, the Irish Government (acting through the NPRFC)
subscribed for 3.5 billion of noncumulative
preference shares and warrants to subscribe for Ordinary Shares
through the NPRFC Investment. Other initiatives taken by the
Irish Government to provide support to us and to certain other
Irish credit institutions include the ELG Scheme (which, at that
time, supplemented the CIFS Scheme (which
S-28
expired on September 29, 2010)), which guarantees specified
liabilities, and the NAMA Program, pursuant to which NAMA will
purchase eligible assets of participating Irish credit
institutions in accordance with the NAMA Act.
Under the terms of, originally, the CIFS Scheme, and now the ELG
Scheme and the NPRFC Investment, we are subject to certain
commitments and restrictions that have had and will continue to
have a significant impact on the manner in which we conduct our
business. These include: (i) significant additional
reporting and consultation requirements with the Minister for
Finance and the Central Bank of Ireland; (ii) the
appointment of a number of Government-nominated directors to our
board of directors; (iii) restrictions on the payment of
dividends, restrictions on expansion of capital and lending
activity, restrictions on the implementation of buy-back and
share redemptions and restrictions on our balance sheet growth;
(iv) restrictions on the acquisition of shares in other
credit or financial institutions, restrictions on the
establishment of subsidiaries and the entering into of new
business; (v) restrictions on changes to our share capital
without the approval of the NPRFC, subject to certain
exceptions; and (vi) commitments to increase lending to
small and medium sized enterprises and first-time buyers of
residential property. Compliance with such restrictions may
serve to limit our operations and place significant demands on
our reporting systems and resources.
Under the terms of our Articles of Association, if we do not pay
the annual dividend on the 2009 Preference Shares in any
particular year where our board of directors has passed a
resolution to pay such a dividend, the holders of 2009
Preference Shares shall be allotted and issued new Ordinary
Shares by way of a bonus issue (the Bonus Shares)
during a specified period, unless we are prohibited by law from
doing so. If we issue the Bonus Shares on May 13 (or on the next
business day where such date falls on a Saturday, Sunday or
public holiday in Ireland) in a particular year (the
Annual Dividend Payment Date), the Bonus Shares will
comprise such number of new Ordinary Shares as is equal to the
aggregate cash amount of the 2009 Preference Share dividend that
was not paid in that particular year, based on the average price
of an Ordinary Share in the
30-day
trading period immediately preceding the Annual Dividend Payment
Date. If the issue of Bonus Shares is deferred by us beyond the
Annual Dividend Payment Date, the number of Bonus Shares to be
issued will be increased and will be equal to the unpaid
dividend amount on the 2009 Preference Shares divided by 95% of
the average price of an Ordinary Share in the
30-day
trading period immediately preceding the Annual Dividend Payment
Date.
In accordance with the European Commissions policy
relating to European Union state aid rules on restructuring aid
to banks, we have agreed not to pay discretionary coupons on
certain of our Tier 1 Capital and Tier 2 Capital
instruments. As a result, the coupon due on the LP3 Securities,
which otherwise would have been payable on December 14,
2009, was not paid by us. The effect of this non-payment was to
trigger the dividend stopper provisions in the LP3
Securities, which precludes us from declaring and paying any
distribution or dividend on our junior share
capital, which includes the Ordinary Shares and the 2009
Preference Shares and any parity securities which
includes (i) the 1,000,000,000 Fixed Rate/Floating
Rate Guaranteed Non-Voting Non-Cumulative Perpetual Preferred
Securities issued by AIB UK 1 LP in 2004 (the LP1
Securities), (ii) the 500,000,000 Fixed
Rate/Floating Rate Guaranteed Non-Voting Non-Cumulative
Perpetual Preferred Securities issued by AIB UK 2 LP in 2006
(the LP2 Securities) and (iii) the
500,000,000
Step-up
Callable Perpetual Reserve Capital Instruments issued by AIB in
2001 (the RCI Securities), for a period of one
calendar year. We were accordingly precluded from paying, and
resolved not to pay, the 280 million annual cash
dividend to the NPRFC on May 13, 2010 in respect of its
holding of the 2009 Preference Shares. As a result, pursuant to
the terms of our Articles of Association, we issued 198,089,847
new Ordinary Shares to the NPRFC by way of a bonus issue on
May 13, 2010, which resulted in a dilution of the interests
of our existing shareholders by 18.33% and the Irish Government
(through the NPRFC) becoming the largest holder of Ordinary
Shares (holding 18.61% of the issued Ordinary Shares (excluding
treasury shares)). If we are further precluded from paying any
future annual dividend on the 2009 Preference Shares, it could
result in the issuance of further Ordinary Shares by way of a
bonus issue to the NPRFC. The new Ordinary Shares issued by way
of a bonus issue to the NPRFC carry voting rights. The NPRFC
will be entitled to exercise the full voting rights attending to
these new Ordinary Shares in its capacity as an ordinary
shareholder.
S-29
Furthermore, if the capital raising initiatives we announced on
March 30, 2010 and updated on September 30, 2010 are
unsuccessful, or if we are unable to generate the additional
capital required from such initiatives, we will have to rely, to
a greater extent, on the support of the Irish Government through
the conversion of the 2009 Preference Shares held by the NPRFC
into Ordinary Shares, which may result in increased Irish
Government and control or full nationalization, with the
potential for other shareholders to be significantly diluted and
lose the value of their Ordinary Shares. Through the
NPRFCs equity interest in us (or any other equity interest
held by the Irish Government in us), the Irish Government is in
a position to exert significant influence over us and our
businesses, and there is a risk that it may exercise its voting
rights in a manner which may not always be aligned with the
interests of our other shareholders. Further details of the CIFS
Scheme, the NPRFC Investment, the ELG Scheme and the NAMA
Program, and powers granted to the Minister for Finance and the
Central Bank of Ireland in respect of AIB under those two
schemes, that program and that investment are contained in the
section entitled Our Relationship with the Irish
Government. See If we are unable to
complete the disposal of our shares of M&T common stock, we
will need to rely to a greater extent on the Irish Government
for support, which is highly likely to result in increased Irish
Government ownership and control or full nationalization.
The
equity capital raising announced by us is to be fully
underwritten by the NPRFC. If the structure of the transaction
does not enable us to retain our ISE and LSE listings as a
result of the Irish Government acquiring more than 75% of our
issued ordinary share capital, then we could be delisted from
the ISE and the LSE and our shareholders could lose the value of
their shareholding.
As announced on September 30, 2010, we have undertaken to
launch a 5.4 billion equity capital raising during
November 2010. This equity capital raising is expected to be
fully underwritten by the NPRFC and will be subject to, among
other matters, European Commission, shareholder and other
regulatory approvals, at a fixed price of 0.50 per new
Ordinary Share, which represents a discount of approximately
9.4% to the official closing price of an Ordinary Share on the
ISE on September 29, 2010. This equity capital raising is
expected to be structured as a placing and open offer and
existing shareholders will be invited to subscribe for all or
part of their pro rata entitlements. New institutional
shareholders may also be permitted to subscribe for new Ordinary
Shares under the offer. As a result of this transaction, the
Irish Government could acquire more than 75% of our issued
ordinary share capital, which would put us in breach of the ISE
and United Kingdom Listing Authority (the UKLA)
listing rule requirements that at least 25% of the issued
ordinary share capital must be in public hands. Although we
intend to structure the transaction in a manner which optimizes
our ability to retain our existing stock exchange listings,
including on the ISE and the LSE, by appropriate structuring of
voting rights (subject to agreement with the relevant exchanges
and the UKLA), there is no guarantee that such a transaction
will be successfully structured. If such events occur, then we
could be delisted from the ISE and the LSE and our shareholders
could lose the value of their shareholding.
Our
participation in the CIFS Scheme, the ELG Scheme and the NAMA
Program entitles the Minister for Finance or the Central Bank of
Ireland or NAMA to give direction to us in relation to our
future conduct, which may serve to limit or expand our
operations and adversely affect our results of
operations.
Under the terms of the ELG Scheme, the Minister for Finance, in
consultation with the Governor of the Central Bank of Ireland,
may issue directions to a participating institution that are
necessary to ensure that the objectives of the ELG Scheme are
met. Such directions may include directions to comply with some
or all of the provisions on conduct, transparency and reporting
requirements applicable to covered institutions pursuant to the
CIFS Scheme. Each participating institution will be required to
comply with such directions, even though the CIFS Scheme has
expired. In addition, the Minister for Finance may, after
consultation with the Governor of the Central Bank of Ireland,
direct us to prepare a restructuring plan to ensure compliance
with the objectives of the ELG Scheme (which is separate and
independent of the European Commission restructuring plan). The
Minister for Finance, in consultation with the Governor of the
Central Bank of Ireland, may direct us to make changes to such
restructuring plan(s) and to implement such plan(s). Depending
on its content, the implementation of such a restructuring plan
could serve to limit our operations and could have a material
adverse effect on our results of operations, financial condition
and future prospects.
S-30
The NAMA Act empowers the Central Bank of Ireland (with the
approval of the Minister for Finance) to give directions to us,
which may require us to undertake certain actions for the
purposes of achieving the goals of the NAMA Act. Such directions
may restrict our balance sheet growth
and/or
require balance sheet reduction, restrict our ability to take
over other credit institutions and require or restrict
consolidations and mergers. The NAMA Act also provides that the
Minister for Finance may, after consultation with the Governor
of the Central Bank of Ireland, direct us to prepare a
restructuring plan, and to submit a draft of the restructuring
plan and/or
business plan for the Minister for Finances approval and
depending on its content, such restructuring plan
and/or
business plan could also serve to limit our operations. The NAMA
Act also empowers NAMA to direct us as to how the NAMA Assets
are to be managed and to provide certain services to NAMA.
Our
participation in the NAMA Program gives rise to important risks
given our lack of control over the nature, number and valuation
of our NAMA Assets and the timing of their transfer and we may
have to pay a special tax or surcharge in the event that NAMA
makes a loss or repay payments received for our NAMA
Assets.
Our participation in the NAMA Program was approved by
shareholders on December 23, 2009 and is expected to remove
from our balance sheet certain loans, primarily relating to land
and development. We initially expected that NAMA may acquire up
to approximately 23.1 billion of land, development
and associated loans from us, including the first and second
tranches of NAMA Assets with a total value of
6.0 billion (the value of the relevant NAMA Assets on
a gross loan basis) that we transferred to NAMA in April 2010
and July 2010. As of June 30, 2010, our total eligible NAMA
Assets amounted to 20.4 billion (following the
transfer of the first tranche of NAMA assets of
3.3 billion and currency movements since
December 31, 2009 of 0.3 billion). However,
3.2 billion of eligible NAMA assets of AIB Group (UK)
p.l.c. were not classified as held for sale to NAMA in the
unaudited 2010 Half-Yearly Financial Report, as they may be,
subject to certain conditions specified by NAMA, included in the
sale of AIB Group (UK) p.l.c. Accordingly, the gross loans
classified as held for sale to NAMA as of June 30, 2010
amounted to 17.2 billion.
On September 30, 2010, the Minister for Finance announced
changes to the NAMA Program including, in relation to AIB, where
the total exposure of a debtor is below a 20 million
threshold, that debtors loans will not now be transferred
to NAMA whereas the threshold had previously been set at
5 million. As a result of the September 30, 2010
announcement, we expect this to result in approximately
4.4 billion of our loans previously designated as NAMA
Assets no longer being transferred. We expect that we have
13.5 billion of NAMA Assets still to be transferred
to NAMA (being eligible NAMA Assets as of June 30, 2010 of
20.4 billion including the 3.2 billion of
eligible NAMA Assets of AIB Group (UK) p.l.c. which were not
classified as held for sale to NAMA in our unaudited 2010
Half-Yearly Report, as they may be, subject to certain
conditions specified by NAMA, included in the sale of AIB Group
(UK) p.l.c., less the second tranche of 2.7 billion
that was transferred in July 2010, less eligible NAMA Assets
below 20 million that will no longer be transferred
of 4.4 billion plus other movements of
0.2 billion). Such reduction in the quantum of our
NAMA Assets will impact our liquidity, as a result of receiving
a lower amount of NAMA Bonds.
In April 2010, we transferred 3.3 billion of assets
to NAMA, representing the first tranche of our NAMA Assets. We
received 1.9 billion in consideration for these
assets from NAMA, which represented a discount of approximately
42% to the gross value of the assets transferred. The transfer
of the second tranche of 2.7 billion of our NAMA
Assets to NAMA occurred in July 2010. We received
1.4 billion in consideration for those assets from
NAMA, which represented a discount of approximately 48.5% to the
gross value of the assets transferred. This represents an
average discount of approximately 45% being applied to the gross
value of NAMA Assets transferred to NAMA in the first and second
tranches.
On September 30, 2010, the Minister for Finance also stated
that NAMA has reviewed the quality of our NAMA Assets still to
be transferred to NAMA, and that it has estimated the discount
to be applied to the remaining 13.5 billion of NAMA
Assets at 60%. A major factor in this increased discount was
stated to be the predominance of land bank loans, many of
which were speculative investments that now have little
value.
S-31
We expect a further transfer of assets as part of the final
tranche may be completed in October 2010 and, in any event, NAMA
has stated that its objective is that all assets transferring to
NAMA will be transferred by December 31, 2010 and, in any
event, by the end of February 2011.
As per the acquisition procedure set out in the NAMA Act, NAMA
must inform us of the NAMA Assets it proposes to acquire. This
identification is made by means of an acquisition schedule
served on us by NAMA which specifies, among other things, the
NAMA Assets, the purchase price (and the method of its
calculation) and the date of acquisition. Accordingly, we have
no control over the timing of the transfer of our NAMA Assets.
Delays in the service of the acquisition schedule may result in
a delay of full implementation of the NAMA Program.
The NAMA Act provides for a limited review procedure for the
valuation that NAMA proposes in respect of the NAMA Assets that
it is to acquire. We have the right to object to the valuation
that NAMA applies to one of our NAMA Assets and in the event
that NAMA declines to remove the relevant asset from the
relevant acquisition schedule or to revoke the relevant
acquisition schedule, we may, within 14 days of the service
of the final completion notice on us (the event which marks the
end of the full NAMA acquisition process), seek a review of our
total portfolio acquisition value (i.e., in respect of all of
our NAMA Assets acquired). That review may be sought (among
other reasons) if we are of the opinion that the aggregate
market value of our NAMA Assets acquired exceeds our total
portfolio acquisition value. We have notified NAMA of individual
formal loan valuation objections under this procedure, in
respect of approximately 80% of the loans by value transferred
in the first and second tranches to NAMA. There can be no
certainty as to the outcome of the review procedure and any
amounts realized as a result of any successful objection.
The actual discount on our remaining NAMA Assets to be
transferred to NAMA will not be known until the completion of
the final objection valuation review procedure in accordance
with the terms of the NAMA Act. The Financial Regulator
announced that any differences between the estimate of the
discount provided by NAMA, which was used for the revised PCAR
capital requirement announced on September 30, 2010, and
the final discounts on transfer will be included in the next
PCAR which the Central Bank of Ireland will conduct in 2011.
Given our lack of control over the nature, number and valuation
of NAMA Assets to be transferred to NAMA, there are a number of
other risks related to us associated with our participation in
the NAMA Program. These include the risk of the discount to the
aggregate value of our eligible NAMA Assets on a gross loan
basis being greater than the 60% assumed by the Financial
Regulator in the revised PCAR requirement which could result in
additional regulatory capital requirements being determined by
the Central Bank of Ireland in the future. There are also risks
associated with the transfer to NAMA of performing assets at a
lower value than that which we believe is appropriate, our
limited ability to challenge the valuations attached to
specified assets being transferred, limitations around our
ability to manage our NAMA Assets, the obligation imposed on us
to comply with directions from the Minister for Finance
and/or the
Central Bank of Ireland, and the potential credit exposure to
NAMA arising from its payment for up to 5% of the acquired NAMA
Assets with subordinated debt. As a result, our portfolio of
performing loans may be depleted and our asset base reduced. In
addition, the transfer of certain loans to NAMA may result in a
negative reaction from the relevant borrowers, could result in a
negative impact on future levels of business, potential deposit
withdrawals by such borrowers and the threat of litigation from
such borrowers. Any of these events may serve to limit our
operations and could have a material adverse effect on our
results of operation, financial condition and future prospects.
In addition, due to our participation in the NAMA Program, we
will only be able to use Irish tax losses carried forward
against 50% of any Irish taxable profit in future years. Also,
on a
winding-up
of NAMA or after ten years since its establishment or on the
dissolution, restructuring or material alteration of NAMA, if
NAMA has made a loss and the Minister for Finance is of the
opinion that such underlying loss is unlikely to be otherwise
made good, the Irish Government may impose, as a special tax, a
surcharge on our profits in order to recover from us a
proportionate amount of that loss. Although the aggregate of all
such surcharges may not exceed the actual loss incurred by NAMA
and any such loss would be apportioned between institutions
participating in the NAMA Program on the basis of the book value
of the bank assets acquired
S-32
from each institution as a proportion of the total book value of
the bank assets acquired from all such participating
institutions, and any surcharge imposed on us may not exceed
100% of the corporation tax (if any) due and payable by us in
the relevant surcharge period, and no surcharge may be imposed
until at least ten years after the passing of the NAMA Act, the
winding-up
of NAMA and the possibility of a surcharge on our profits to
recover a proportionate amount of NAMAs losses could have
a material adverse effect on our results of operations,
financial condition and future prospects.
The European Commission indicated in its announcement on
February 26, 2010 of its approval of the NAMA Program that
under EU state aid rules, it will assess the compatibility (and
in particular, the actual transfer price) of the NAMA Assets
with state aid rules when it is notified of such transfers by
the Irish Government. The European Commissions state aid
decision on the NAMA Program states that NAMA will be required
to claw back any excess payment from the relevant participating
institutions if the actual transfer price paid for NAMA Assets
is determined to be too high following the European
Commissions assessment of a notified transfer.
Section 93 of the NAMA Act allows NAMA to require
participating institutions to repay overpayments on NAMA assets.
Any such claw backs and repayments could have an adverse effect
on us.
See We are subject to certain commitments and
restrictions in relation to the operation of our business under
the CIFS Scheme, the NPRFC Investment, the NAMA Program and the
ELG Scheme that may serve to limit our operations and impact the
interests of our shareholders for further risks associated
with our participation in the NAMA program.
The
implementation of our strategic plan and the disposals announced
in connection with that plan will significantly alter our
structure and size and involves risks which could materially
impact us.
Our ability to implement our capital raising initiatives, such
as asset and business disposals, by the end of 2010, depends in
large part on factors outside of our control. See
We may have insufficient capital resources to
meet the revised minimum PCAR requirement. If we are not able to
raise a proportion of the additional capital to meet the revised
PCAR capital requirement from the announced capital raising
initiatives, we will need to rely to a great extent on the
support of the Irish Government. Such reliance could lead to
increased Irish Government ownership and control or full
nationalization. Under the terms of the BZWBK share
purchase agreement, we are, and we may, under the terms of any
future sale agreements in connection with other disposals, be
liable for any deterioration in the businesses being sold
between the announcement of the disposal and its completion. As
is the case in respect of the BZWBK Disposal, the period between
the announcement of other transactions and their completion may
be lengthy and may span many months. The lengthy period in
respect of completion of the BZWBK Disposal arises, and the same
may arise in respect of completion of other disposals, due to
long waiting periods for obtaining relevant regulatory and
shareholder clearances. Other risks that arise out of the BZWBK
Disposal and that may arise out of the disposal of our assets
include liabilities incurred prior to completion of the relevant
transaction in respect of the assets and businesses disposed of,
commercial and other risks associated with meeting covenants to
the buyer during the period up to completion, the risk of
employee and customer attrition in the period up to completion,
substantive indemnity obligations in favor of the buyer, the
risk of liability for breach of warranty, the need to continue
to provide transitional service arrangements for lengthy periods
following completion of the relevant transaction to the
businesses being transferred and redundancy and other
transaction costs. Further, we may be required to enter into
covenants with the buyer of the relevant businesses (which does
not include BZWBK) agreeing not to compete in certain markets
for specific periods of time. In particular, in the context of
the BZWBK share purchase agreement, a break fee of
7.5 million is payable by us in the event that our
shareholders do not approve the BZWBK Disposal, pursuant to the
terms of the BZWBK share purchase agreement, Banco Santander
S.A. may terminate the share purchase agreement in certain
circumstances, including in relation to certain conditions being
imposed on it by the Polish regulator. In addition to the risks
mentioned in the risk factor titled We may
have insufficient capital resources to meet the revised minimum
PCAR requirement. If we are not able to raise a proportion of
the additional capital to meet the revised PCAR capital
requirement from the announced capital raising initiatives, we
will need to rely to a greater extent on the support of the
Irish Government. Such reliance could lead to increased Irish
Government ownership and control or full nationalization,
termination of the BZWBK share purchase agreement and
S-33
payment of the break fee may directly affect our profitability
and results of operations. Furthermore, in the event that our
shareholders do not approve the BZWBK Disposal, we will be
unable to enter into an agreement in relation to the disposal of
BZWBK with a third party for a period of seven months from the
date of the shareholder meeting at which shareholder approval
was not obtained for the BZWBK Disposal. As is the case with the
BZWBK Disposal, the other planned disposals may also be subject
to approvals from regulators and competition authorities and
these approvals may not be obtained within a sufficient time or
at all.
Following the completion of our planned disposals, we will be a
significantly smaller and less diversified institution, focusing
our core activities on the Irish market. The implementation of
the strategic plan may strain relations with employees and
specific proposals in connection with the implementation may be
opposed by labor unions or works councils. This may result in us
becoming subject to industrial action or other labor conflicts,
including strikes, which could result in a disruption to our
business, operations or financial condition. In addition, the
implementation of our cost reduction and business
rationalization program we are developing to realign our cost
base to reflect a more focused and streamlined organization
following the disposals, may result in us incurring significant
additional costs (including redundancy costs), take time to
implement and negatively impact our margins in the shorter term.
Following the disposals, we will also no longer be able to
benefit from services provided by the entities that are being
disposed of. Such activities will need to be performed by other
of our entities or outsourced which may result in increased
operational costs to us.
Any of the above factors, in the context of asset and business
disposals and the execution of our strategy, could affect our
ability to implement our strategic plan and could have a
material adverse effect on our business, results of operations,
financial condition, capital ratios and share price.
We are
subject to risks relating to the European Commission
restructuring plan.
In connection with the European Commissions May 2009
approval of the 3.5 billion capital injection under
the NPRFC Investment, we were required to prepare a
restructuring plan that was submitted by the Irish Department of
Finance to the European Commission in November 2009.
As part of its review, the European Commission is required to
consider whether the plan demonstrates that our long-term
viability will be assured, that we (and our capital holders)
make an appropriate contribution to the restructuring costs from
our own resources and that measures are taken to limit
distortions of competition arising from the financial support
provided to us by the Irish Government.
Based on a review of the outcomes of similar reviews of the
restructuring plans of other European banks under the state aid
rules, it appears that the European Commission may impose
conditions on us in connection with the clearance of the
restructuring plan that could include:
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compelling us to reduce our balance sheet substantially,
including through divestment of certain businesses, brands or
our branches, in addition to those already announced; and/or
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imposing certain restrictions that could include:
(i) prohibiting us from doing business on more favorable
terms than other market participants; (ii) prohibiting us
from providing certain products to certain markets or segments
of markets; (iii) restricting our ability to pay dividends
on shares or interest payments on debt securities, including
hybrid capital instruments; (iv) constraining our market
share in certain market segments; or (v) prohibiting
proposed mergers or acquisitions by us in Ireland, the U.K. or
in other European Union markets.
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On May 4, 2010, the Irish Department of Finance submitted
our updated restructuring plan to the European Commission. Our
restructuring plan, originally submitted in November 2009, was
updated to reflect our announced capital raising initiatives,
which include the intention to raise additional equity capital
and undertake a number of asset and business disposals. Our
announcement on September 30, 2010 relating to increased
capital requirements, an equity capital raising and board
changes, represents additional and alternative measures to
achieve viability which is likely to result in a requirement to
submit an amended restructuring plan to the European Commission
for approval.
S-34
The ELG Scheme remains subject to six-monthly review and
approval by the European Commission in accordance with European
Union state aid rules. The next review of the ELG Scheme is due
to take place before December 31, 2010, although the
results of any such review will not affect the status of
guaranteed liabilities that are, by then, already in place. In
its June 28, 2010 approval of the Minister for
Finances proposed amendments of the ELG Scheme, the
European Commission stated that the proposed extension of the
ELG Scheme was to be subject to the conditions outlined in its
staff working paper dated April 30, 2010, including the
additional charges for debt issued after June 30, 2010
outlined in that working paper that vary according to a
beneficiary banks credit worthiness. Further fee increases
apply to the guaranteed liabilities under the extension of the
ELG Scheme approved by the European Commission on
September 21, 2010. The European Commission, in the DG
Competition staff working paper dated April 30, 2010 on the
phasing out of EU Member State bank guarantee schemes after
June 30, 2010, has indicated that it considers it
appropriate that guarantee schemes that are to be extended
beyond June 30, 2010 for banks not currently under
restructuring obligations should include a threshold concerning
the ratio of total guaranteed liabilities outstanding over total
liabilities of a bank and the absolute amount of guaranteed
liabilities which, if exceeded, would trigger the requirement
for the EU Member State concerned to submit a viability review
to the European Commission demonstrating the banks
long-term viability within three months of the granting of
guarantees. The mechanism does not apply to banks that are
already in restructuring, or that are obliged to present a
restructuring plan, or that are already subject to a pending
viability review, such as AIB, at the time that the relevant
scheme is extended. In those scenarios, the working paper
indicates that the award of additional state aid will have to be
taken into account within the framework of the ongoing
restructuring/viability review process.
We agreed with the European Commission that, in line with its
guidelines on restructuring aid to banks, we will not pay a
discretionary coupon on our Tier 1 and Tier 2 capital
instruments. See We are subject to
certain commitments and restrictions in relation to the
operation of our business under the CIFS Scheme, the NPRFC
Investment, the NAMA Program and the ELG Scheme that may serve
to limit our operations and impact the interests of our
shareholders.
We expect that the final outcome of the European
Commissions assessment of our updated restructuring plan
will only become clear in late 2010/early 2011. Furthermore, the
ultimate decision taken by the European Commission may be
subject to appeal in the European courts. The European
Commission has indicated that government-aided banks should act
in accordance with the principles of viability, restoration,
burden-sharing and limitation of competition distortions in
advance of formal conditions being imposed. Given the
possibility of the imposition of conditions by the European
Commission in connection with the approval of the restructuring
plan, there can be no assurance that we will be able to continue
to operate all our businesses or divisions in the way they are
currently operated and to maintain or improve our revenues and
margins, which could adversely affect our results of operations,
financial condition and future prospects.
In addition, even if the European Commission does approve the
restructuring plan in substantially the same form as submitted
by us, a third party may challenge that decision in the EU
courts. If such a challenge were to emerge and succeed, the
European Commission would need to reconsider its decision, which
may result in any of the adverse outcomes described above.
The successful implementation of any measures or commitments
required in connection with the European Commissions
restructuring plans depends on a number of factors outside our
control. We or potential buyers of assets being divested may
need to obtain various approvals, including from shareholders,
regulators and competition authorities, and we
and/or
potential buyers may be unable to obtain these approvals within
a sufficient time or at all. The implementation of any
restructuring plan will be subject to similar risks as outlined
above. See The implementation of our strategic
plan and the disposals announced in connection with that plan
will significantly alter our structure and size and involves
risks which could materially impact us.
The restructuring plan to be agreed with the European Commission
will also give rise to additional costs related to the legal and
financial assessment of potential transactions. Its
implementation may also result in increased operating and
administrative costs.
S-35
Any of the above factors in the context of the European
Commission restructuring plan could have a material adverse
effect on our business, results of operations, financial
condition, capital ratios, liquidity and share price.
We are
currently precluded from paying dividends or distributions on
certain instruments affected by the terms of the dividend
stopper provision in the LP3 Securities. In the event that
we remain, or subsequently become, precluded from paying, or
elect not to pay, such dividends, the proportionate ownership
and voting interests of the existing shareholders would be
diluted, as we would, in certain circumstances, be obliged to
issue Ordinary Shares if a dividend or coupon is not paid in
cash.
In accordance with the European Commissions policy on
state aid rules and restructuring aid to banks, we agreed not to
pay discretionary dividends on its Tier 1 Capital
instruments (including the 2009 Preference Shares and the RCI
Securities) and Tier 2 Capital instruments for a period of
one calendar year from and including December 14, 2009.
Under the terms of the RCI Securities, if the payments of
coupons (payable annually in February at our discretion) are
deferred, such deferred coupon payments must be satisfied by the
issue of Ordinary Shares to a trustee to raise cash to pay the
deferred coupons. As announced by us on December 1, 2009,
in line with European Commission policy, we did not pay the
coupon otherwise payable on the RCI Securities on
February 28, 2010 and the coupon is therefore deferred. A
deferral of coupon under the RCI Securities triggers the
dividend stopper provisions under those securities
which prevent any dividend or coupon payments being made on the
Ordinary Shares or our preference shares, including the 2009
Preference Shares, until the deferred coupon on the RCI
Securities is satisfied through the issue of Ordinary Shares.
The amount of deferred coupon itself bears interest at the
applicable rate under the RCI Securities, plus an additional 2%
per annum. Once we determine that a deferred coupon can be paid,
the obligation to satisfy the deferred coupon plus interest
accrued can only be settled through the issue of Ordinary Shares
to a trustee on behalf of the holders of the RCI Securities.
Those Ordinary Shares will be sold by the trustee for the
benefit of the holders of the RCI Securities. When those units
of Ordinary Shares are issued, the proportionate ownership and
voting interests of the existing shareholders will be diluted.
As of October 1, 2010, the outstanding amount of RCI
Securities was 240,435,000. Based on the current net
amount outstanding and assuming coupons are stopped until
February 28, 2011, Ordinary Shares having a value of
19.7 million (including allowance for interest on
deferred coupons) will be required for the unpaid coupons on the
RCI Securities that are missed.
The dividend on the 2009 Preference Shares is a non-cumulative
cash dividend at a fixed rate of 8% per annum of the
subscription price, payable annually in arrears on May 13,
at the sole and absolute discretion of our board of directors,
with the next payment date being May 13, 2011. See
We are subject to certain commitments and
restrictions in relation to the operation of our business under
the CIFS Scheme, the NPRFC Investment, the NAMA Program and the
ELG Scheme that may serve to limit our operations and impact the
interests of our shareholders for further risks associated
with the non-payment of the dividend on the 2009 Preference
Shares in full. See also The equity capital
raising announced by us is to be fully underwritten by the
NPRFC. If the structure of the transaction does not enable us to
retain our ISE and LSE listings as a result of the Irish
Government acquiring more than 75% of our issued ordinary share
capital, then we could be delisted from the ISE and the LSE and
our shareholders could lose the value of their
shareholding for further risks associated with the issue
of additional Ordinary Shares.
In the event that we remain precluded from paying, or elect not
to pay coupons or dividends on the RCI Securities and the 2009
Preference Shares, the voting interests of the existing
shareholders would be further diluted as we would, in certain
circumstances, be obliged to issue Ordinary Shares if a coupon
or dividend is not paid in cash.
Our
risk management processes may not be fully effective and the
risk management framework may leave us exposed to risks that
have not been identified by such policies or
procedures.
While we have an established risk management framework, the
financial crisis and in particular how it has manifested in
substantial credit losses has highlighted the deficiencies in
the risk management policies of Irish banks and has led us to
review our overall approach to identifying, assessing and
managing risks.
S-36
We have already taken a number of steps to enhance our risk
management framework, including the restructuring of credit
functions and the deployment of significant levels of
experienced resources to credit management areas. However, there
is a risk that the new risk management processes implemented by
us may not be fully effective and the framework may also not be
effective in mitigating our risk exposure in all market
environments against all types of risk. Any failure in our risk
management framework may have a material adverse effect on our
results of operations and financial condition.
Market risk including non-trading interest rate
risk. Market risk refers to the uncertainty of
returns attributable to fluctuations in market factors, such as
adverse movements in the level or volatility of market prices of
debt instruments, equities and currencies. Some of the most
significant market risks we face are interest rate and foreign
exchange price risks. Changes in interest rate levels, yield
curves and spreads may affect the interest rate margin realized
between lending and borrowing costs, the effect of which may be
heightened during periods of liquidity stress, such as those
experienced in recent times. A period of prolonged low interest
rates could adversely impact the margins that we may realize
between our lending and borrowing costs and therefore impact our
earnings. Changes in currency rates, particularly in the
Euro-pound sterling, Euro-US dollar and the Euro-zloty exchange
rates, affect the value of assets and liabilities denominated in
foreign currencies and the reported earnings of our non-Irish
subsidiaries and associates and may affect income from foreign
exchange dealing, which could have a material adverse effect on
our financial condition and operations.
Non-trading interest rate risk is defined as our sensitivity to
earnings volatility in our non-trading activity arising from
movements in interest rates. Interest rates are highly sensitive
to many factors beyond our control, including the interest rate
and other monetary policies of governments and central banks in
the jurisdictions in which we operate. Non-trading interest rate
risk in retail, commercial and corporate banking activities can
arise from a variety of sources, including when the relevant
assets and liabilities and off-balance sheet instruments have
different repricing dates and unfavorable movements in interest
rates could have a material adverse effect on our financial
condition and operations.
Operational risks. Operational risks are
present in our businesses and can arise through inadequate or
failed internal processes (including financial reporting
systems, risk monitoring processes and internal processes to
ensure that collateral in respect of relevant loans is correctly
valued and fully enforceable) or from people-related or external
events, including the risk of fraud and other criminal acts
carried out against us. Our businesses are dependent on their
ability to hire and retain experienced credit and risk
management personnel, to process and report accurately and
efficiently on a high volume of complex transactions across
numerous and diverse products and services, in different
currencies and subject to a number of different legal and
regulatory regimes. Any weakness in our risk controls or loss
mitigation action could have a material adverse effect on our
financial condition and operations.
Pension risk. Pension risk is the risk that
the funding position of our defined benefit plans would
deteriorate to such an extent that we would be required to make
additional contributions to cover our pension obligations
towards current and former employees; and such contributions
could be significant and have a negative impact on our
regulatory capital position and results of operations.
We may
face reputational risks.
Reputational risk is inherent in our business. Negative public
or industry opinion can result from the actual or perceived
manner in which we conduct our business activities or from
actual or perceived practices in the banking industry, such as
money laundering or mis-selling of financial products. Negative
public or industry opinion may adversely affect our ability to
keep and attract customers and, in particular, corporate and
retail depositors, the loss of whom would in each case adversely
affect our business, financial condition and prospects.
S-37
The
value of certain financial instruments recorded at fair value is
determined using financial models incorporating assumptions,
judgments and estimates that may change over time or may
ultimately not turn out to be accurate, and the value we realize
for our assets may be materially different from the current or
estimated fair value.
Under International Financial Reporting Standards
(IFRS), we recognize at fair value:
(i) derivative financial instruments; (ii) financial
instruments at fair value through profit or loss;
(iii) certain hedged financial assets and financial
liabilities; and (iv) financial assets classified as
available-for-sale.
The best evidence of fair value is quoted prices in an active
market. Generally, to establish the fair value of these
instruments, we rely on quoted market prices or, where the
market for a financial instrument is not sufficiently active,
internal valuation models that utilize observable market data.
Where quoted prices on active markets are not available, we use
valuation techniques which require us to make assumptions,
judgments and estimates to establish fair value. In common with
other financial institutions, these internal valuation models
are complex and the assumptions, judgments and estimates we are
required to make often relate to matters that are inherently
uncertain, such as expected cash flows, the ability of borrowers
to service debt, appropriate credit spreads, residential and
commercial property price appreciation and depreciation, and
relative levels of defaults. Such assumptions, judgments and
estimates may need to be updated to reflect changing facts,
trends and market conditions. The resulting change in the fair
values of the financial instruments has had, and could continue
to have, an adverse effect on our results of operations and
financial condition.
In the past three years, financial markets have experienced
stressed conditions, where steep falls in perceived or actual
asset values have been accompanied by a severe reduction in
market liquidity. As a result of those stress conditions, we
recorded significant fair value write-downs on our credit market
exposures in 2008 and further fair value write-downs in 2009 and
the half-year to June 30, 2010. Valuations in future
periods, reflecting then-prevailing market conditions, may
result in significant changes in the fair values of our
exposures, even in respect of exposures (such as credit market
exposures) for which we have previously recorded fair value
write-downs. In addition, the value we ultimately realize may be
materially different from the current or estimated fair value.
Any of these factors could require us to recognize further fair
value write-downs or recognize impairment charges, any of which
may adversely affect our results of operations, financial
condition and prospects.
Change
of control may lead to adverse consequences for
us.
The Irish Government (through the NPRFC) is currently the
largest holder of Ordinary Shares, holding 18.61% of the issued
Ordinary Shares (excluding treasury shares). See
We may have insufficient capital resources to
meet the revised minimum PCAR requirement. If we are not able to
raise a proportion of the additional capital to meet the revised
PCAR capital requirement from the announced capital raising
initiatives, we will need to rely to a greater extent on the
support of the Irish Government. Such reliance could lead to
increased Irish Government ownership and control or full
nationalization for the circumstances in which we may need
to issue further equity capital to the Irish Government. We and
our subsidiaries are parties to joint ventures, contracts and
other agreements containing change of control provisions that
may be triggered in the event of a change of control of the
relevant entity, for example as a result of a major shareholder,
such as the NPRFC, obtaining a majority stake in AIB. These
include the agreements with respect to our joint venture, Aviva
Life Holdings Ireland Limited, in which we own an interest of
24.99% and have an exclusive agreement to distribute the life
and pensions products of the joint venture. Agreements with
change of control provisions typically provide for, or permit,
the termination of the agreement upon the occurrence of a change
of control of one of the parties or if the new controlling party
does not satisfy certain criteria. The triggering of change of
control provisions could also result in the loss of contractual
rights and benefits, as well as the termination of joint venture
agreements. On a change of control of the relevant AIB entity,
the exercise of such rights or the decision by a counterparty
not to waive or vary its rights on a change of control could
have a material effect on our results of operations, financial
condition and prospects.
S-38
Our
businesses and financial condition could be affected by the
fiscal, taxation, regulatory or other policies, laws and
regulations and other actions of various governmental and
regulatory authorities in Ireland, the United Kingdom, the
European Union and elsewhere.
We are subject to financial services laws, regulations,
regulatory oversight, administrative actions and policies in
each jurisdiction in which we operate, and failure to comply
with any or all of these constitutes a risk in the financial
services industry. Laws, regulations, regulatory oversight,
administrative actions and policies are subject to change,
particularly in the current market environment where there have
been unprecedented levels of government intervention and changes
to the regulations governing financial institutions. These and
future regulatory and supervisory developments, which we expect
to face in Ireland, the United States, the United Kingdom,
Poland and other countries in which we operate, could have an
adverse effect on how we conduct our business and on our results
of operations. Areas where laws and regulations and governmental
policies could have an adverse impact include, but are not
limited to:
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the monetary, interest rate, capital and liquidity adequacy and
other policies of central banks and regulatory authorities;
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general changes in regulatory policy or changes in regulatory
regimes that may significantly influence investor decisions in
particular markets in which we operate or may increase the costs
of doing business in those markets;
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changes in the Irish Governments polices with regard to
the NPRFC Investment, the NAMA Program or the ELG Scheme, or any
one of them;
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changes to corporate governance regimes for listed companies
(financial institutions in particular) and further developments
in corporate governance standards;
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changes to international financial reporting standards and
further developments in the financial reporting environment;
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changes in competition and pricing environments;
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differentiation among financial institutions by governments with
respect to the extension of guarantees to bank customer deposits
and the terms attaching to such guarantees, including
requirements for us to accept exposure to the risk of any
particular subsidiary or affiliate, or even third-party
participants in guarantee programs failing;
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implementation of, or costs related to, local customer or
depositor compensation or reimbursement programs;
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expropriation, nationalization, confiscation of assets and
changes in legislation relating to foreign ownership; and
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other unfavorable political, military or diplomatic developments
producing social instability or legal uncertainty that, in turn,
may affect demand for our products and services.
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The Financial Services Authority of the United Kingdom (the
FSA) has directed that our U.K. division must target
a reduction in its loan to deposit ratio over the course of 2010
and 2011. Although a progressive reduction in the loan to
deposit ratio is already being targeted by us, accelerated
implementation of the targets within a short time period may
negatively impact our U.K. divisions margins and
profitability and have an adverse effect on our financial
condition and results of operations. Furthermore, as market
expectations and regulatory requirements continue to evolve, the
FSA may also require our U.K. division to hold higher Total
Capital levels than those currently held by the U.K. division.
We have engaged, and will continue to engage, in discussions
with relevant regulators in Ireland, the United Kingdom, the
European Union and elsewhere on an ongoing and regular basis,
informing them of operational, systems and control evaluations
and issues as deemed appropriate or required. Accordingly, it is
possible that any matters discussed or identified may result in
investigatory actions by regulators, increased costs being
incurred by us, remediation of systems and controls and public
or private censure or fines. Any of
S-39
those events or circumstances could, either individually or in
the aggregate, have a significant impact on our results of
operations, financial condition and future prospects.
In addition to the regulatory capital policy changes announced
by the Financial Regulator on March 30, 2010 and
September 30, 2010, there is continuing political and
regulatory scrutiny of the operation of the retail banking and
consumer credit industries in Ireland and elsewhere. In June
2010, the Financial Regulator announced a new
approach to regulating Irish banks which includes:
(i) in-depth reviews of governance and risk management
arrangements at banks, (ii) development of a new risk
framework for regulating entities on the basis of impact and
risk, (iii) review of mortgage credit standards and funding
risks, (iv) review of bank strategies, with emphasis on
broadening lending capabilities, (v) review of remuneration
practices and (vi) review of liquidity standards. The
nature and impact of future changes in policies and regulatory
action are not predictable and beyond our control but could have
an adverse impact on our business, earnings and prospects.
As a result of the current banking environment and market events
at an international level, the minimum regulatory capital
requirements currently imposed on us, the manner in which the
existing regulatory capital is currently calculated, the
instruments that currently qualify as regulatory capital and the
capital tier to which those instruments are currently allocated,
could be subject to change in the future. A number of regulatory
changes in this regard have recently been proposed or made,
which would significantly alter our regulatory capital,
regulatory liquidity position and liability management which
include (but are not limited to):
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the EU Directive 2009/111/EC (CRD II) which must be
implemented during 2010 and will in particular make changes to
the criteria for assessing hybrid capital eligible to be
included in Tier 1 Capital and may require us to replace,
over a staged grandfathering period, existing hybrid capital
instruments that do not fall within these revised eligibility
criteria;
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the EU Capital Requirements Directive III (CRD
III) which will introduce a number of changes in response
to the recent and current market conditions, which (among other
things) will increase the capital requirements for the trading
books of credit institutions to ensure that a firms
assessment of the risks connected with its trading book better
reflect the potential losses from adverse market movements in
stressed conditions and limit investments in re-securitizations
and impose higher capital requirements for re-securitizations to
ensure that firms take proper account of the risks of investing
in such complex financial products. It is anticipated that the
CRD III rules will be implemented in various stages during 2011,
commencing January 1, 2011 and
concluding December 31, 2011;
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the Basel III proposals which have been revised since first
introduced in December 2009 set out a fundamental rewriting of
certain aspects of the regulatory capital framework. Overall
they introduce tougher and increased requirements to improve
both the quality and quantity of capital and liquidity buffers
which must be held by a firm; propose new capital buffer
requirements to address procyclicality issues (so that banks
would be encouraged to build up capital buffers in good times);
require a strengthening of capital requirements for accounting
for certain activities such as derivatives and impose a non risk
based limit on a firms balance sheet by reference to
capital held. Though the Basel III proposals are not
finalized and certain elements will be subject to observation
and modification during trial periods at a later date, they are
expected to be approved by the G20 at its November 2010 summit.
The Basel III proposals will be subject to staggered
implementation with different elements coming into force at
various times over the period from January 1, 2013 to
January 1, 2019; and
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the EU Capital Requirements Directive IV proposes further
changes to the CRD proposed by the European Commission in
February 2010. These changes are largely based on the
Basel III proposals as originally outlined on
December 17, 2009 (referred to above). A more developed CRD
IV proposal is expected by the end of 2010 and it is currently
expected to reflect some of the additional changes proposed by
the Basel Committee since December 2009 though, of course, is
subject to negotiation as part of the European legislative
process.
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S-40
The detailed impact of the new Basel III proposals for us
is not clear because certain elements of the package have not
yet been finalized, including the transitional arrangements.
Once finalized proposals are assessed against our particular
balance sheet and business strategy, changes may be required to
our capital structure and/or our asset base which may adversely
impact our profitability and results of operations.
In addition, the European Commission recently proposed
regulation aimed at increasing transparency and reducing
counterparty and operational risk in the
over-the-counter
derivatives market. If this new regulation is adopted by the
European Parliament and EU Member States, we will be subject to
increased disclosure and other requirements that could increase
reporting burdens for us.
Our activities are subject to taxes at various rates in
jurisdictions in which we have operations, and such taxes are
computed in accordance with local legislation and practice.
Action by governments to increase tax rates or to impose
additional taxes would reduce our profitability. Revisions to
tax legislation or to our interpretation of such legislation
might also affect our results in the future.
Our
deferred tax assets are substantially dependent on the
generation of future profits over a number of years at, at
least, the level currently anticipated by us and there being no
adverse changes to tax legislation, regulatory requirements or
accounting standards.
Our business performance may not reach the level assumed in the
projections that support the carrying value of the deferred tax
assets. Lower than anticipated profitability within Ireland and
the United Kingdom would lengthen the anticipated period
over which our Irish and U.K. tax losses would be utilized. The
value of the deferred tax related to the unutilized tax losses
constitutes a substantial portion of the total deferred tax
assets recognized on our balance sheet. A significant reduction
in anticipated profit or changes in tax legislation, regulatory
requirements or accounting standards could adversely affect the
basis for full recognition of the value of these losses, which
would adversely affect our results of operations, financial
condition and future prospects.
The
Irish banking system may restructure and change significantly,
which could have a material adverse effect on our competitive
position.
The banking system in Ireland was impacted by the systemic
issues facing the financial sector globally caused by factors
such as the collapse of
sub-prime
mortgage lending in the United States, the failure of a number
of high profile financial institutions, such as Lehman Brothers
and Bear Stearns, the global credit crisis and rapidly
deteriorating economic conditions, particularly in Ireland.
Arising from these events, there have been a number of
government and market responses impacting or potentially
impacting on the structure of the Irish banking sector,
including:
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the Irish Government has taken steps to support or recapitalize
certain of the domestic major Irish banks and building societies
and in doing so has taken significant equity positions in
certain of the major domestic Irish banks and building
societies, in some cases amounting to majority voting control or
nationalization;
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on January 19, 2010, the Irish Government announced a
framework for an investigation into the factors which
contributed to the Irish banking crisis within the context of
the international economic and financial environment at that
time. On June 9, 2010, two independent preliminary reports
dealing with aspects of the banking crisis were published and
the Irish Government announced the establishment of a Commission
of Investigation to investigate certain issues identified in the
preliminary reports. The Commission of Investigation was
formally established on September 21, 2010 and is expected
to complete its report within six months;
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the Central Bank Reform Act 2010 was signed into law on
July 17, 2010. This legislation, which was brought into
operation by the Minister for Finance on October 1, 2010,
establishes a new regulatory authority, the Central Bank of
Ireland, which now performs the functions of the Financial
Regulator. It has been indicated that the approach to the manner
in which Irish financial institutions are regulated
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S-41
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and supervised will change resulting in the delivery of a more
assertive, risk based and challenging approach to banking
supervision carrying a credible threat of enforcement; and
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the Irish Government has indicated that it proposes, as part of
a series of legislative amendments, to provide broader
regulatory powers to the new Central Bank of Ireland, in
addition to the wide range of statutory powers that already
exist.
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Our directors believe it is possible that, arising from these
responses to the banking crisis in Ireland, a restructuring of
the Irish banking system may occur in addition to the changes
that have happened to date. It is unclear the form that any such
restructuring might take or over what timeframe it might occur.
It is also unclear whether such restructuring might take place
on a market driven basis or whether other factors such as the
involvement of the European Commission or the Irish Government
would have an impact. As a material part of our business and
activities are in Ireland, our competitive position in the Irish
banking system may be materially adversely affected by any such
restructuring.
We may
not be able to recruit, retain and develop appropriate senior
management and skilled personnel.
Our success depends in part on the availability of skilled
management and the continued service of key members of our
management team. We depend on the availability of skilled
management both at our head office and at each of our business
units. On September 30, 2010, we announced that our board
of directors has agreed with Mr. Dan OConnor that he
will step down as Executive Chairman within the coming weeks and
that our board of directors has also agreed with Group Managing
Director Mr. Colm Doherty the termination of his contract
on existing terms. Mr. Doherty will depart AIB before the
end of 2010. On October 4, 2010, we received notification
from Mr. Robert G. Wilmers of his resignation from our
board of directors, to take effect immediately in light of our
disposition of our shares of M&T common stock. In addition,
on October 4, 2010, Mr. Kieran Crowley notified us of
his intention to resign from our board of directors at its next
meeting on October 13, 2010. There may be additional
changes to the composition of our board of directors and senior
executives in due course. Our failure to staff our
day-to-day
operations appropriately, or the further loss of one or more key
senior executives, and failure to replace them in a satisfactory
and timely manner, has had and could have an adverse effect on
our results, financial condition and prospects.
Under the terms of the NPRFC Investment and the ELG Scheme, we
are also required to comply with certain executive pay and
compensation arrangements. As a result of these restrictions, we
cannot guarantee that we will be able to attract, retain and
remunerate highly skilled and qualified personnel competitively
with our peers. If we fail to attract and appropriately develop,
motivate and retain highly skilled and qualified personnel, our
business and results of operations may be negatively affected.
We are required pursuant to Central Bank Reform Act 2010 to
submit for review and approval, proposed new appointments to
some senior management positions. This may have a material
adverse effect on us if the approval process resulted in delays
in filling key positions or impacted our ability to recruit
suitable candidates.
We are
and may be subject to litigation and regulatory investigations
that may impact our business.
We operate in a legal and regulatory environment that exposes it
to potentially significant litigation and regulatory risks.
Disputes and legal proceedings in which we may be involved are
subject to many uncertainties, and their outcomes are often
difficult to predict, particularly in the earlier stages of a
case or investigation. The Irish Government has established a
commission to investigate, inter alia, the main causes of the
serious failure within each covered institution to implement and
adhere to appropriate standards and controls in the context of
corporate governance and prudent risk management. Adverse
regulatory action or adverse judgments in litigation could
result in restrictions or limitations on our operations or
result in a material adverse effect on our reputation or results
of operations.
S-42
We
operate in competitive markets (subject to some price
regulation) that are subject to significant change and
uncertainty, which could have a material adverse effect on our
results, financial condition and prospects.
The markets for financial services within which we operate are
highly competitive. It is anticipated that such competition may
intensify in response to regulatory actions, competitor
behavior, consumer demand, technological changes, the impact of
consolidation, new market entrants and other factors. In the
event that financial markets remain unstable, competitor and
market consolidation may accelerate.
In particular, competitive pricing pressures may limit our
ability to normalize our deposit rates and increase rates on
customer loans, which would prevent us from restoring our net
interest margin to target levels, which is a key driver of
future profitability. In addition, we could also encounter
difficulties in increasing interest rates to borrowers,
particularly in respect of residential mortgages, due to the
reputational impact such increases could have on us in the Irish
market, and the other consequences that such an impact could
have for us. Any of these events could have an adverse impact on
net interest margins, and consequently on our results and
financial condition.
Intervention by monetary authorities in the banking sector may
impact our competitive position relative to our international
competitors, who may be subject to intervention of a different
quantum and nature, potentially putting us at a competitive
disadvantage in certain markets. Competition may increase in
some or all of our principal markets and may have an adverse
effect on our results, financial condition and prospects.
In
Ireland, the United Kingdom and in some other jurisdictions, we
are liable to contribute to compensation programs in respect of
banks and other authorized financial services firms that are
unable to meet their obligations to customers.
In Ireland, the United Kingdom and in other jurisdictions, we
are liable to contribute to compensation plans set up to address
banks and other authorized financial services firms
inability to meet their obligations to customers. Such programs
include the Deposit Guarantee Scheme and the Investor
Compensation Scheme (the ICS). Under the Deposit
Guarantee Scheme, each licensed bank must contribute to the
deposit protection account held by the Central Bank of Ireland.
Currently, the level of contribution required under the Deposit
Guarantee Scheme is 0.2% of eligible deposits (in whatever
currency) held at all branches of the licensed bank in the
European Economic Area. The Minister for Finance announced on
September 20, 2008 that the maximum amount of deposit
protection would be increased to 100,000 per depositor per
institution. The ICS is administered by the Investor
Compensation Company Limited, which was established under the
Investor Compensation Act 1998. The ICS is Irelands
statutory fund of last resort for customers of authorized
financial services firms, and is funded by levies on firms
authorized by the Central Bank of Ireland, including AIB.
In the event that the contributions or levies to be paid by us
in relation to such programs are raised more frequently, or
should the amounts of contributions or levies to be paid under
such programs be significantly increased, the associated costs
to us may have a material impact on our results of operations
and financial condition.
In addition, to the extent that other jurisdictions where we
operate have introduced or plan to introduce similar
compensation, contributory or reimbursement schemes (such as in
the United States with the Federal Deposit Insurance
Corporation), we may incur additional costs and liabilities,
which may negatively impact our results of operations and
financial condition.
S-43
CAPITAL
RESOURCES AND LIQUIDITY
Capital
Resources
AIBs policy is to maintain adequate capital resources at
all times, having regard to the nature and scale of its business
and the risks inherent in its operations. AIB is focused on
managing its balance sheet efficiently.
AIBs board of directors reviews and approves AIBs
capital plan on an annual basis. The capital plan identifies the
amount and type of capital that AIB requires to support its
business strategy and to comply with regulatory requirements,
taking into account the results of stress testing in order to
arrive at and maintain AIBs desired capital profile.
Stress testing, in the context of capital planning, is a
technique used to evaluate the potential effect on an
institutions capital adequacy of a specific event or
movement in a set of economic variables, and focuses on
exceptional but plausible events. This means that AIBs
capital requirement can increase significantly during an
economic stress despite a decrease in nominal exposures.
AIB manages its capital resources through an Internal Capital
Adequacy Assessment Process known as ICAAP. The
overarching principle of ICAAP is the explicit link between
capital and risk, and in the application of this approach the
adequacy of AIBs capital is assessed on the basis of the
risks to which it is exposed. This requires a clear assessment
of the material risk profile of AIB, and a consideration of the
extent to which identified risks, both individually and in
aggregate, require capital to support them. In addition, the
level of capital held by AIB is influenced by its target debt
rating and minimum regulatory requirements. In order to assist
in the management of capital, AIB also assesses both market and
internal opportunities that may generate or strengthen
AIBs capital position.
AIBs principal sources of capital comprise ordinary
shareholders funds and preference share capital. These
sources of capital are supplemented by non-core Tier 1
instruments and Tier 2 instruments.
The following table outlines AIBs capital and key capital
ratios at June 30, 2010 and December 31, 2009. The
information contained in this table is extracted from the 2010
Half-Yearly Financial Report filed with the SEC on
Form 6-K
on September 27, 2010 and the 2009 Annual Report for the
year ended December 31, 2009 filed with the SEC on
Form 20-F
on March 8, 2010 and amended on September 27, 2010.
Allied
Irish Banks, p.l.c. Tier 1
Capital
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As of
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As of
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June, 30,
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December 31,
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2010
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2009
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( million)
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Core Tier 1 Capital
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Paid up share capital
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392
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329
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Eligible reserves
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8,404
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9,952
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Non-controlling interests in subsidiaries
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447
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437
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Supervisory deductions from Core Tier 1 Capital
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(1,478
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(1,187
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Total Core Tier 1 Capital (after deductions)
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7,765
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9,531
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Non-Core Tier 1 Capital
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Non-equity minority interest in subsidiaries
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189
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189
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Non-cumulative perpetual preferred securities
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140
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136
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Reserve capital instruments
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239
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239
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Total non-core capital (before deductions)
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568
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564
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Supervisory deductions from total Tier 1
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(1,593
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(1,425
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Total Tier 1 Capital (after deductions)
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6,740
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8,670
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S-44
Allied
Irish Banks, p.l.c. Tier 2 and Total
Capital
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As of
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As of
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June, 30,
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December 31,
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2010
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2009
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( million)
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Upper Tier 2
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Subordinated perpetual loan capital
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207
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189
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Eligible reserves and credit provisions
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781
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749
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Upper Tier 2
sub-total
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988
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938
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Subordinated term loan capital
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4,085
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4,261
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Total Tier 2 before deductions
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5,073
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5,199
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Supervisory deductions from Tier 2
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(1,593
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(1,425
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Total Tier 2 after deductions
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3,480
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3,774
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Total eligible capital
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Equity Tier 1 Capital*
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4,265
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6,031
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Tier 1 Capital
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6,740
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8,670
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Tier 2 Capital
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3,480
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3,774
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Supervisory deductions from Total Capital
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(120
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(129
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Total Capital
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10,100
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12,315
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Key capital ratios
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Risk-weighted assets
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112,679
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120,380
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Equity Tier 1 Capital Ratio
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3.8%
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5.0%
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Core Tier 1 Capital Ratio
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6.9%
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7.9%
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Tier 1 Capital Ratio
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6.0%
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7.2%
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Total Capital Ratio
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9.0%
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10.2%
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* |
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Excludes the 3.5 billion of Core Tier 1 2009
Preference Shares issued to the NPRFC from the Core Tier 1
Capital. |
AIB is subject to the regulatory capital and the capital
adequacy requirements set by the Central Bank of Ireland. The
Central Bank of Ireland follows the provisions of the Capital
Requirements Directive (comprising Directive 2006/48/EC and
Directive 2006/49/EC) by applying a risk asset ratio framework
to the measurement of capital adequacy. The adequacy of
AIBs capital is assessed by comparing available regulatory
capital resources with capital requirements expressed relative
to risk weighted assets. The internationally agreed minimum
Total Capital Ratio of 8% is the base standard from which the
Central Bank of Ireland has historically set the individual
minimum capital ratio for banks within its jurisdiction. The
minimum Tier 1 Capital Ratio set by the Central Bank of
Ireland is currently 4%.
During 2008, as a result of continuing market uncertainty,
regulators and market participants became more focused on the
quality of bank capital and the key focus of capital adequacy
shifted to the Core Tier 1 Capital Ratio. As a result of
the increased focus on Core Tier 1 Capital, and increasing
impairments and supervisory deductions arising from the
deterioration in AIBs property portfolios in Ireland and
the U.K., AIB recognized the need to strengthen its capital
position.
AIBs board of directors has taken a number of key steps in
order to bolster AIBs Core Tier 1 Capital position.
In May 2009, AIB issued 3.5 billion of Core
Tier 1 Capital preference shares under the NPRFC Investment.
In June 2009, as part of the commitment announced by AIB on
April 20, 2009 to increase its Core Tier 1 Capital
beyond the 3.5 billion capital increase pursuant to
the NPRFC Investment by the end of 2009, AIB completed an
exchange of non-Core Tier 1 Capital instruments (comprising
the LP1 Securities, the LP2
S-45
Securities, the LP3 Securities and the RCI Securities) and upper
Tier 2 Capital instruments (comprising subordinated loan
notes) for lower Tier 2 Capital instruments (comprising
dated subordinated loan notes). The exchange was carried out at
discounts to the nominal value but at a premium to the trading
prices of the repurchased capital instruments. The discounts
ranged from 33% to 50% to the nominal value of the repurchased
capital instruments, resulting in a gain of approximately
1.2 billion for AIB, thereby generating additional
Core Tier 1 Capital for AIB.
On March 29, 2010, AIB completed a further liability
management exercise to enhance its Equity Tier 1 and Core
Tier 1 Capital positions. AIB accepted offers to exchange
2.2 billion of lower Tier 2 Capital instruments
denominated in Euro, Sterling and US dollars for
1.8 billion of new lower Tier 2 capital
instruments (made up of 419 million (Euro
denominated), £1,097 million (Sterling denominated)
and US$177 million (U.S. dollar denominated)). The exchange
was carried out at a discount to the nominal value but at a
premium to the trading prices of the repurchased capital
instruments. The discount ranged from 9% to 26% to the nominal
value of the repurchased capital instruments and the average
take-up rate
was 76%. The liability management exercise generated a net gain
of 372 million in both Equity Tier 1 Capital and
Core Tier 1 Capital for AIB.
AIB has at all times been in compliance with the minimum
Tier 1 Capital Ratio and Total Capital Ratio set by the
Central Bank of Ireland. As of June 30, 2010, AIB had an
Equity Tier 1 Capital Ratio of 3.8%, a Core Tier 1
Capital Ratio of 6.9%, a Tier 1 Capital Ratio of 6.0% and a
Total Capital Ratio of 9.0%.
On March 30, 2010, the Financial Regulator announced the
results of the PCAR of certain Irish credit institutions in the
CIFS Scheme. The Financial Regulators PCAR methodology
assessed the capital requirements of AIB and certain other Irish
financial institutions in the context of expected base and
potential stressed losses, and other financial developments,
over a three year time horizon from 2010 to 2012.
The original PCAR concluded that, in common with certain other
Irish credit institutions, the target Equity Tier 1 Capital
Ratio for AIB would be 7.0% and its target Core Tier 1
Capital Ratio would be 8.0%. In the absence of the planned
disposals and a subsequent equity fundraising to be undertaken
by the end of 2010, AIB would not be able to fulfill the
original PCAR capital requirement determined by the Financial
Regulator.
Based on the approach adopted under the PCAR review outlined
above, the Financial Regulator determined on March 30, 2010
that AIB must generate the equivalent of 7.4 billion
of equity capital in total. On September 30, 2010, the
Financial Regulator updated its assessment of AIBs capital
requirement and increased the amount of equivalent equity
capital required under the PCAR from 7.4 billion to
10.4 billion. The increased PCAR requirement for AIB
has been set following an assessment by the Financial Regulator
of AIBs potential losses on AIBs NAMA Assets and
must be met by December 31, 2010.
In April and July 2010, AIB transferred to NAMA the first and
second tranches of its NAMA Assets with a total value of
6.0 billion (being the value of the relevant NAMA
Assets on a gross loan basis). In return, AIB received payment
for these assets by way of NAMA Bonds (amounting to 95% of the
nominal value of the consideration received) and Subordinated
NAMA Bonds (amounting to 5% of the nominal value of the
consideration received) with an aggregate nominal value of
3.3 billion, representing a discount of approximately
45% to the gross value of the assets transferred. AIBs
NAMA Assets transferred in the first and second tranches
represent approximately 31% of the total NAMA Assets now
expected to be transferred by AIB (being 6.0 billion
of NAMA Assets transferred in the first and second tranches and
the remaining balance of 13.5 billion of NAMA Assets).
On September 30, 2010, the Minister for Finance announced
changes to the NAMA Program, including in relation to AIB, where
the total exposure of a debtor is below a 20 million
threshold, that debtors loans will not now be transferred
to NAMA whereas the threshold had previously been set at 5
million. The Minister for Finance has stated that NAMA has
reviewed the quality of NAMA Assets still to be transferred to
NAMA from AIB and that it has estimated the discount to be
applied to the remaining 13.5 billion of NAMA Assets at
60%. A major factor in this increased discount was stated to be
the predominance of land bank loans, many of which were
speculative investments that now have little value.
S-46
The actual discount on our remaining NAMA Assets to be
transferred to NAMA will not be known until the completion of
the final objection valuation review procedure in accordance
with the terms of the NAMA Act. The Financial Regulator
announced that any differences between the estimate of the
discount provided by NAMA, which was used for the revised PCAR
capital requirement announced on September 30, 2010, and the
final discounts on transfer will be included in the next PCAR
which the Central Bank of Ireland will conduct in 2011. If among
other factors, the total consideration received by the AIB is
less than that assumed by the Financial Regulator in the revised
PCAR, any future capital requirement determined by the Central
Bank of Ireland may be more than the revised PCAR requirement to
generate 10.4 billion of new equity capital by December
31, 2010. AIB expects a further transfer of assets as part of
the final tranche may be completed in October 2010 and, in any
event, NAMA has stated that its objective is that all assets
transferring to NAMA will be transferred by December 31, 2010
and, in any event by no later than the end of February 2011.
The NAMA Participation has and will have a negative impact on
the capital position of AIB as a result of the crystallization
of loan losses on AIBs NAMA Assets. Those losses will
reduce AIBs Equity Tier 1 Capital, Core Tier 1
Capital, Tier 1 Capital and Total Capital, and its
corresponding capital ratios. That participation will, however,
result in a reduction in AIBs risk-weighted assets, which
will positively affect AIBs capital ratios. Taking account
of both impacts on capital, the positive benefit of reducing its
risk-weighted assets will, however, be insufficient to offset
the negative impact from the crystallization of loan losses on
the transfer of AIBs NAMA Assets to NAMA.
On March 30, 2010, following publication of the original
PCAR, AIB announced a series of capital raising initiatives to
generate the necessary capital to meet the
7.4 billion equivalent equity capital requirement
determined by the Financial Regulator under the original PCAR.
These initiatives included plans to sell AIBs M&T
shares, as well as AIBs shareholding in BZWBK and its U.K.
business, which comprises Allied Irish Bank (GB) in
Great Britain and First Trust Bank in Northern
Ireland. On September 10, 2010, AIB announced that (through
AIB European Investments Limited and AIB Capital Markets,
p.l.c.) it had conditionally agreed to sell its interest in
BZWBK and BZWBK AIB Asset Management S.A. to Banco Santander
S.A. AIB expects to realize total proceeds of approximately
3.1 billion from the BZWBK Disposal. AIB also intends
to dispose of its 49.99% shareholding in BACB, a Bulgarian Bank.
AIB has also undertaken to launch a 5.4 billion equity
capital raising during November 2010 which is expected to be
completed before December 31, 2010. This equity capital raising
will be fully underwritten by the NPRFC and will be subject,
among other matters, to European Commission, shareholder and
other regulatory approvals.
If necessary, the NPRFCs underwriting commitment will be
met through a new cash contribution of up to 3.7 billion
for new Ordinary Shares from existing cash resources of the
NPRFC and by the conversion of up to 1.7 billion of the
2009 Preferences Shares held by the NPRFC. Assuming conversion
of 1.7 billion of the 2009 Preference Shares, the
NPRFC would continue to hold 1.8 billion of the 2009
Preference Shares.
On completion of the equity capital raising it is likely that
the NPRFC will own a significant majority stake in AIB. It is
intended to structure the transaction in a manner which
optimizes the ability of AIB to retain its existing stock
exchange listings, including on the ISE and the LSE, by
appropriate structuring of voting rights (subject to agreement
with the relevant exchanges and the UKLA), even in circumstances
where the NPRFC purchases all or substantially all of the
underwritten new Ordinary Shares. The mechanics of
implementation will be subject to discussion with the ISE and
the UKLA.
It is anticipated that the 2009 Warrants issued to the NPRFC
will be repurchased on terms to be agreed. As terms have not yet
been agreed, it is not possible to quantify the likely impact;
however, the reduction in capital is not expected to be material.
In addition to the capital generated from the BZWBK Disposal,
AIB expects to raise 2.5 billion from the planned
disposals of our shares of M&T common stock and our U.K.
business and additional capital generating initiatives (such as
other minor asset disposals, risk weighted asset reduction
initiatives and liability 2009 Preference Shares at that date,
on commercial terms to be agreed between AIB and the NPRFC prior
to the date of conversion.
S-47
The Basel III proposals which have been revised since first
introduced in December 2009 set out a fundamental rewriting of
certain aspects of the regulatory capital framework. Overall
they introduce tougher and increased requirements to improve
both the quality and quantity of capital and liquidity buffers
which must be held by a firm; propose new capital buffer
requirements to address procyclicality issues (so that banks
would be encouraged to build up capital buffers in good times);
require a strengthening of capital requirements for accounting
for certain activities such as derivatives and impose a non risk
based limit on a firms balance sheet by reference to
capital held. The new and higher levels for capital ratios
announced, provided: (a) that the common equity element of
Tier 1 Capital, broadly shares and retained earnings (which
replaces the core tier 1 concept under Basel II) would
ultimately be raised from 2% to 4.5% by January 2015;
(b) the originally proposed capital conservation buffer
would be made up solely of common equity after deductions and be
introduced in increments over the period from 2016 to 2019 when
it would reach 2.5%; (c) Tier 1 Capital would be
increased from 4% to 6% by January 2015 and (d) Total
Capital would remain at 8% before the application of the capital
conservation buffer. Though the Basel III proposals are not
finalized and certain elements will be subject to observation
and modification during trial periods at a later date, they are
expected to be approved by the G20 at its November 2010 summit.
The Basel III proposals will be subject to staggered
implementation with different elements coming into force at
various times over the period from January 1, 2013 to
January 1, 2019.
The impact of the Basel III proposals (among other things)
requires banks to hold a minimum equity capital ratio of 7% of
RWAs, which is broadly in line with the target capital ratios
announced by the Financial Regulator in the context of the
original PCAR on March 30, 2010. The detailed impact of the
new Basel III proposals for AIB is not clear because
certain elements of the package have not been finalized,
including the transitional arrangements. Once the finalized
proposals are assessed against AIBs particular balance
sheet and business strategy, changes may need to be made to
AIBs capital structure
and/or its
asset base which may adversely impact its profitability and
results of operations.
Although the capital generated from the proceeds of the sale of
its M&T shares alone will not enable AIB to meet the entire
PCAR capital requirement announced by the Financial Regulator
for AIB on March 30, 2010, the sale of AIBs M&T
shares is one of the significant steps being taken by AIB
towards generating the additional capital required in order to
meet that capital requirement.
If the necessary shareholder approval for the disposition of
AIBs shares of M&T common stock is not obtained, such
disposition will become incapable of completion. If this were to
occur, then there is no assurance that AIB will be able to
dispose of its M&T shares at a later date, in favorable or
equivalent market circumstances or to dispose of its M&T
shares at all. In those circumstances, AIB would need to rely to
a greater extent on Irish Government support through the
conversion of the 2009 Preference Shares into Ordinary Shares on
commercial terms to be agreed between AIB and the NPRFC prior to
the date of conversion. AIBs board of directors therefore
believes that if AIB is unable to proceed with the sale of its
M&T shares and the other planned disposals, then it is
highly likely that such events would result in increased
ownership and control by the Irish Government or full
nationalization. If this were to occur, AIBs existing
shareholders could lose the value of their Ordinary Shares.
Liquidity
Liquidity
Management and Funding Strategy
The objective of AIBs liquidity management policy is to
ensure that it can at all times meet its obligations as they
fall due at an economic price. AIBs funding strategy is
designed to anticipate funding requirements, based upon actual
and projected balance sheet movements.
This liquidity management policy and funding strategy is
implemented through active monitoring of AIBs liability
maturity profile, and by maintaining a stock of high-quality
liquid assets, at a level considered sufficient to meet the
withdrawal of deposits and to cover calls on commitments, in
both normal and a range of abnormal trading conditions. In all
cases, net cash outflows are monitored on a daily basis.
S-48
In accordance with internal policies, AIB actively manages the
risks arising from the mismatch of assets and liabilities across
its balance sheet by ensuring that it maintains a balanced
spread of repayment obligations with a focus on zero to
eight-day
and nine-day
to one month time periods, which accords with the Central Bank
of Irelands own requirements. AIB continues to operate
within all regulatory liquidity ratios imposed on it by the
Central Bank of Ireland, and has implemented a series of
internal measures that are more restrictive than the regulatory
minimum levels.
AIB maintains a diversified funding base across all segments of
the markets in which it operates, while focusing on minimizing
concentration in any single source of funding and maintaining a
balance between short-term and long-term funding sources. AIB
analyzes the structure of its wholesale term funding and the
stability of its customer deposit base. Customer deposits
represent the largest source of funding, with AIBs retail
franchise providing AIB with a stable and predictable source of
funds.
AIB manages its funding position with continual focus on the
relationship between its deposit base and its loan book through
a series of measures, including the industry benchmark customer
loan-to-deposit
ratio. More refined measures are utilized internally that
recognize the capacity of AIB to generate contingent liquidity
from its loan book. See Government and Central
Bank Funding and Liquidity Support below in this respect.
At December 31, 2009, AIB had a customer
loan-to-deposit
ratio of 146% (123% excluding loans classified as held for sale
to NAMA as of that date), compared to 156% at June 30,
2009. At June 30, 2010, AIB had a customer loan-to-deposit
ratio of 143% (approximately 127% excluding loans classified as
held for sale to NAMA as of that date). A progressive reduction
in the loan to deposit ratio is targeted by AIB.
Government
and Central Bank Funding and Liquidity Support
Challenging market conditions in 2009 resulted in a contraction
of wholesale market appetite for liquidity risk. This manifested
itself through a shortening of duration in available wholesale
funding, leading to a contraction in the term funding profile of
many institutions, including AIB. As a consequence, AIB had to
increase its use of secured funding to offset limited wholesale
market access experienced in the first half of 2009. AIB
decreased its use of secured funding in the latter part of 2009
as markets became less stressed.
During 2009, AIB increased its access to assets which can
provide liquidity within four working days (which include
central government securities or securities issued by financial
institutions) (Qualifying Liquid Assets) and
pre-approved facilities where cash can be accessed subject to
certain conditions being met (Contingent Funding)
through the structuring of loan portfolios into central bank
eligible assets. Those initiatives helped to increase AIBs
capacity to access further liquidity. Over the second half of
2009, AIB reduced its reliance on secured funding from
32.3 billion at June 30, 2009 to
24.3 billion at December 31, 2009 and over that
period medium and long-term unsecured funding activity
increased. AIBs secured funding levels at June 30,
2010 remained similar at 24.5 billion. At
June 30, 2010, AIB held 49 billion in Qualifying
Liquid Assets and Contingent Funding.
General funding market conditions since June 30, 2010 have
become increasingly challenging, which has had a negative impact
on AIBs funding position, which has seen a reduction in
debt securities in issue and customer accounts offset by an
increase in deposits by banks. While AIB has issued term funding
of 6.6 billion during 2010 in anticipation of term
funding maturing in September 2010, current market conditions
are limiting funding access to shorter durations.
As a result of prevailing market conditions and in line with
other global financial institutions, AIB has also accessed a
range of central bank liquidity facilities. AIB participates in
global central bank money market repurchase agreement operations
as part of its normal
day-to-day
funding activity. These facilities are part of standard central
bank operations. AIB continues to rely on central bank liquidity
facilities as an additional source of liquidity, as required.
AIB has also availed itself of certain additional liquidity
schemes introduced by central banks for market participants
during the period of dislocation within the funding markets. Due
to the limited access to, and high costs of, short term funding
under current market conditions, AIB expects to draw on its
Qualifying Liquid Assets and Contingent Funding capacity to
continue to access secured lending facilities. Any reduction in
the Qualifying Liquid Assets and Contingent Funding capacity
will have an impact on AIBs liquidity risk profile.
S-49
The Irish Government, in acknowledging the difficulties
experienced by Irish financial institutions in accessing
wholesale bank markets and recognizing the systemic importance
of certain institutions, including AIB, to the wider Irish
economy, announced the CIFS Scheme on September 30, 2008.
Under the CIFS Scheme, the Minister for Finance guaranteed
specific categories of liabilities for certain participating
institutions (including AIB and certain of its subsidiaries) for
the two-year period from September 30, 2008 to
September 29, 2010. The liabilities originally covered
under the CIFS Scheme comprised all retail and corporate
deposits (to the extent not covered by existing deposit
protection schemes), inter-bank deposits, senior unsecured debt,
asset-covered securities and dated subordinated debt (lower
Tier 2). Covered bonds and dated subordinated debt issued
by a participating institution after the date it joined the ELG
Scheme are not guaranteed by the Minister for Finance.
The Irish Government introduced the ELG Scheme on
December 9, 2009 to supplement and ultimately replace the
CIFS Scheme, and AIB and certain of its subsidiaries joined that
new scheme on January 21, 2010. The NTMA was appointed the
ELG Scheme operator by the Minister for Finance. The ELG Scheme
is intended to facilitate the ability of certain participating
credit institutions in Ireland to issue debt securities and take
deposits with a maturity of up to five years on debt securities
issued on deposits taken before, originally, September 29,
2010, which has been extended to December 31, 2010.
Eligible liabilities under the ELG Scheme comprise any of the
following liabilities:
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(a)
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all deposits (to the extent not covered by deposit protection
schemes in Ireland or in any other jurisdiction);
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(b)
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senior unsecured certificates of deposit;
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(c)
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senior unsecured commercial paper;
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(d)
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other senior unsecured bonds and notes; and
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(e)
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other forms of senior unsecured debt which may be specified by
the Minister for Finance, consistent with the European Union
state aid rules and the European Commissions Banking
Communication (2008/C 270/02) and subject to prior consultation
with the European Commission.
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Under the ELG Scheme, eligible liabilities must not have a
maturity in excess of five years and must be incurred during the
period from the commencement date of the ELG Scheme to,
originally, September 29, 2010, and which has been extended
to December 31, 2010 (the ELG Scheme is subject to a six
monthly review and approval by the European Commission under EU
state aid rules). On June 28, 2010, following a request
from the Minister for Finance, the European Commission approved
a modification of the ELG Scheme to provide for a prolongation
of the issuance period from September 29, 2010 to
December 31, 2010 (subject to the introduction of new
pricing rates for participating institutions) for (a) debt
liabilities of between three months and five years
duration (other than inter-bank deposits); (b) retail
deposits of any duration up to five years and (c) corporate
deposits with a maturity of between three months and five years.
On September 21, 2010, following a further request from the
Minister for Finance, the European Commission approved an
amendment to the ELG Scheme to extend the issuance
window in respect of inter-bank deposits and short-term
liabilities (zero to three months) (including corporate
deposits) of a participating institution, from
September 29, 2010 to December 31, 2010. On
September 29, 2010, the Minister for Finance, following the
approval of the Oireachtas (the Irish Parliament) signed into
law a statutory instrument that gave effect to the changes to
the ELG Scheme approved by the European Commission on
June 28, 2010 and September 21, 2010. Accordingly, the
issuance window in respect of every eligible
liability of a participating institution under the ELG Scheme
(including retail deposits over 100,000 for any duration
up to five years and corporate and inter-bank deposits for any
duration up to five years) has been extended from
September 29, 2010 to December 31, 2010 so that a
State guarantee is now available for short- and long-term
liabilities issued or accepted up to the end of 2010. Retail
deposits of an amount up to 100,000 remain outside the ELG
Scheme but continue to be guaranteed indefinitely under the
Deposit Guarantee Scheme.
From the time that a participating institution joins the ELG
Scheme (which in the case of AIB ELG covered institutions, was
January 21, 2010), any liabilities incurred or contracted
for thereafter by that participating institution may be
guaranteed under the ELG Scheme only.
S-50
Since the commencement of the CIFS Scheme in September 2008 and
since joining the ELG Scheme in January 2010, AIB has issued
term funding on a guaranteed basis, totaling
8.25 billion under the CIFS Scheme and
6.6 billion under the ELG Scheme. At
December 31, 2009, excluding shareholders funds,
AIBs total funding liabilities of 152.6 billion
were split 116.3 billion (or approximately 76% of the
total funding) issued on a guaranteed basis and
36.3 billion (or approximately 24% of the total
funding) issued on an un-guaranteed basis. As of June 30,
2010, excluding shareholders funds, our total funding
liabilities of 148.1 billion were split into
108.6 billion (or approximately 73% of the total
funding) issued on a guaranteed basis and
39.5 billion (or approximately 27% of the total
funding) issued on an un-guaranteed basis. Of this guaranteed
amount of 108.6 billion, 24.5 billion is
guaranteed under the CIFS Scheme, 62.5 billion is
guaranteed under the ELG Scheme with a further
21.6 billion guaranteed under the Irish Government
deposit scheme. At June 30, 2010, 21% of the total deposits
by banks, 93% of the total debt securities in issue, 88% of
customer accounts and 49% of the subordinated debt was held or
issued on a guaranteed basis.
AIB issued the following two senior unsecured un-guaranteed
bonds in the second half of 2009: (i) 1.0 billion
three-year bond issued in September 2009; and (ii)
750 million five-year bond issued in November 2009.
In 2010, AIB has issued term funding totaling
6.6 billion under the ELG Scheme with a significant
bias towards maturities ranging from two to five years, thereby
enhancing the underlying duration of its term debt funding
profile. In addition, AIB has commenced a program of issuing
small quantities of shorter-term un-guaranteed commercial paper.
Up to June 30, 2010, AIB had balances of
54.5 million under this unguaranteed commercial paper
program. In addition, since December 31, 2009, AIB issued
25 million in asset covered securities on an
un-guaranteed basis outside the remit of the ELG Scheme.
AIBs strategy, subject to market conditions, is to extend
the duration of its funding, which would positively impact the
overall profile of AIBs funding base. While AIB has been
successful in accessing the un-guaranteed market for funding, it
continues to rely on the continuation of the ELG Scheme and
continues to access certain central bank liquidity schemes. AIB
will avail of opportunities to access un-guaranteed sources of
funds in future in order to reduce AIBs reliance on
guaranteed funding.
In summary, since September 2008 AIB was heavily reliant on the
CIFS Scheme until its expiration on September 29, 2010, and
more recently has been and continues to be heavily reliant on
the ELG Scheme, and it has also availed of central bank
liquidity facilities in continuing to access funding and
liquidity. In 2010, AIB has availed of funds on a guaranteed and
unguaranteed basis under the ELG Scheme. On June 28, 2010,
the European Commission approved a modification of the ELG
Scheme to provide for an extension of the issuance period from
September 29, 2010 to December 31, 2010 (subject to
the introduction of new pricing rates) for participating
institutions for (a) debt liabilities of between three
months and five years maturity (other than
inter-bank
deposits); (b) retail deposits of any duration up to five
years; and (c) corporate deposits with a maturity of
between three months and five years. On September 21, 2010,
following a further request from the Minister for Finance, the
European Commission approved an amendment to the ELG Scheme to
extend the issuance window in respect of inter-bank
deposits and short-term liabilities (zero to three months)
(including corporate deposits) of a participating institution,
from September 29, 2010 to December 31, 2010. On
September 29, 2010, the Minister for Finance, following the
approval of the Oireachtas (the Irish Parliament), signed into
law a statutory instrument that gave effect to the changes to
the ELG Scheme approved by the European Commission on
June 28, 2010 and September 21, 2010. Accordingly,
this has the effect that the issuance window in
respect of every eligible liability of a participating
institution under the ELG Scheme (including inter-bank deposits
for any duration up to five years) has been extended from
September 29, 2010 to December 31, 2010.
If the issuance window of the ELG Scheme is not
further extended beyond December 31, 2010, AIB would likely
face an increase in its reliance on short-term money market
funding, which would materially increase ongoing refinancing
risk. In line with its prudent funding strategy, AIB will
continue to avail itself of opportunities to replace short-term
funds with longer-dated liabilities.
S-51
The
Impact of NAMA on Funding and Liquidity
AIB has commenced transferring assets to NAMA and the terms of
its NAMA Participation will have a significant positive impact
on AIBs liquidity profile and funding risk. The NAMA
Participation will further reduce the leverage of AIB by
removing a significant number of customer loans from the balance
sheet, thereby enhancing AIBs
loan-to-deposit
ratio. At December 31, 2009, AIB had a customer
loan-to-deposit
ratio of 146% (123% excluding loans classified as held for sale
to NAMA as of that date). As of June 30, 2010, we had a
customer
loan-to-deposit
ratio of 143% (127% excluding loans classified as held for sale
to NAMA as of that date).
As market conditions allow, AIB will access un-guaranteed
sources of funds which will further reduce the level of
AIBs reliance on existing Irish Government support
(including the ELG Scheme) and global central bank facilities.
AIB is receiving NAMA Bonds and Subordinated NAMA Bonds in
consideration for the sale of its NAMA Assets to NAMA. In
respect of the consideration received, 95% of the nominal value
will be in the form of NAMA Bonds and 5% will be in the form of
Subordinated NAMA Bonds. The NAMA Bonds provide AIB with access
to additional liquidity and funding, should this be required.
AIB may use the NAMA Bonds to finance its ordinary business
activities, for example, by entering into liquidity-providing
transactions with market counterparties, including the European
Central Bank. The NAMA Bonds will materially increase the level
of Qualifying Liquid Assets and Contingent Funding held by AIB.
At June 30, 2010, AIB held 49 billion in
Qualifying Liquid Assets and Contingent Funding, of which
approximately 24.5 billion had been pledged.
Following the transfer of the second tranche of AIBs NAMA
Assets in July 2010, AIB has 3.1 billion of NAMA
Bonds and 0.2 billion of Subordinated NAMA Bonds.
A combination of AIBs ongoing focus on de-leveraging its
balance sheet, together with the positive impact of the NAMA
Participation (as referred to above, resulting from
(i) reducing the
loan-to-deposit
ratio, (ii) increasing certainty regarding AIBs loan
losses through the transfer of loans to NAMA, primarily relating
to land and development, leading to increased certainty
regarding the level of provisions, improved wholesale market
access and an improved cost of funds and (iii) enhancing
AIBs Qualifying Liquid Assets and Contingent Funding pool)
will reduce AIBs overall funding and liquidity risk in the
future.
S-52
Funding
Structure and Profile
Sources
of Funds
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Total Funding as of
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June 30,
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December 31,
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June 30,
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December 31,
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2010(4)
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2009(3)
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2009(2)
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2008(1)
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( billion)
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Bank deposits unsecured
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8.3
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5%
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9.0
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5%
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12.7
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8%
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17.0
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10%
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Bank deposits secured
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24.5
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15%
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24.3
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15%
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32.3
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19%
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8.6
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5%
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Total deposits by banks
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32.8
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20%
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33.3
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20%
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45.0
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27%
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25.6
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15%
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Commercial certificates of deposit
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1.7
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1%
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5.4
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3%
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4.1
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2%
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15.1
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9%
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European medium-term note program
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20.1
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13%
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15.6
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10%
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12.1
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7%
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9.6
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6%
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Bonds and other medium-term notes
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2.8
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2%
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4.7
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3%
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4.7
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3%
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7.2
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4%
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Commercial paper
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3.4
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2%
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5.0
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3%
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3.6
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2%
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5.9
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3%
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Total debt securities in issue
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28.0
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18%
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30.7
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19%
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24.5
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14%
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37.8
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22%
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Total wholesale funding
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60.8
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38%
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64.0
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39%
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69.5
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41%
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63.4
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37%
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Subordinated debt
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4.5
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3%
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4.6
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3%
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4.7
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3%
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4.5
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3%
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Total wholesale funding including subordinated debt
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65.3
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41%
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68.6
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42%
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74.2
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44%
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67.9
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40%
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Customer accounts
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82.9
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53%
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84.0
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51%
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82.7
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49%
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92.6
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54%
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Total shareholders equity including non-controlling
interests
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9.5
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6%
|
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11.3
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7%
|
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|
12.1
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7%
|
|
|
|
10.3
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|
6%
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Total Group Funding
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157.7
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100%
|
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163.9
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100%
|
|
|
|
169.0
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100%
|
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170.8
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100%
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Note:
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(1) |
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The information as of December 31, 2008 has been extracted
from the 2008 Annual Financial Report. |
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(2) |
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The information as of June 30, 2009 has been extracted from
the unaudited 2009 Half-Yearly Financial Report. |
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(3) |
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The information as of December 31, 2009 has been extracted
from the 2009 Annual Financial Report. |
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(4) |
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The information as of June 30, 2010 has been extracted from
the unaudited 2010 Half-Yearly Financial Report. |
Residual
Maturity Funding Analysis Excluding secured bank
deposits
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Total Wholesale
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Total Wholesale
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Total Wholesale
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Total Wholesale
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Funding
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Funding
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Funding
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Funding
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Including
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Including
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Including
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Including
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Subordinated
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Subordinated
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Subordinated
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Subordinated
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Debt as of
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Debt as of
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Debt as of
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Debt as of
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June 30,
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December 31,
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June 30,
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December 31,
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2010(1)
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2009(1)
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2009(1)
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2008(1)
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( billion)
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Less than one year
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21.9
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54%
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31.1
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70%
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24.9
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59%
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41.9
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71%
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One to two years
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5.4
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13%
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1.7
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4%
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5.5
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13%
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6.1
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10%
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Two to five years
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7.4
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18%
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5.2
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12%
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5.1
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12%
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5.1
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9%
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More than five years
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6.0
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15%
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6.3
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14%
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6.4
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15%
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6.2
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10%
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Total wholesale funding including subordinated debt
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40.7
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100%
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44.3
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100%
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41.9
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100%
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59.3
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100%
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Note:
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(1) |
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The residual maturity funding analysis excluding secured bank
deposits has been extracted for the relevant period end, from
AIBs books and records and has not been published or
audited. |
S-53
Compared to a six month decline at June 30, 2009 of 12%,
excluding currency factors, AIBs customer deposits
recovered in the second half of 2009, with a full year decline
of 9% (11% excluding currency factors) (as against
December 31, 2008). The reduction in deposits was
concentrated in the first quarter and the start of the second
quarter of 2009, with conditions improving as the second quarter
progressed. Retaining and gathering customer deposits was a key
focus for AIB in 2009, with good progress made in the second
half of that financial year as deposits grew by
1.3 billion over this period despite challenging
market conditions. Net customer loans, including AIBs NAMA
Assets, decreased by 7% (excluding currency factors) over 2009,
which, when combined with the
year-on-year
decline in customer deposits, resulted in a loan to deposit
ratio of 146% at December 31, 2009 (156% at June 30,
2009 and 140% at December 31, 2008). The loan to deposit
ratio was 123% (excluding loans held for sale to NAMA) at
December 31, 2009 and 127% (excluding loans held for sale
to NAMA) at June 30, 2010.
The decrease in net customer loans reflected a combination of
higher provisions for impairments and successful de-leveraging
within AIBs international loan portfolios. The decreases
in customer deposits and commercial certificates of deposit
between December 31, 2008 and June 30, 2009 were
attributable to a number of factors, including the continuing
impact of the economic downturn, sovereign and bank credit
rating downgrades and negative sentiment towards Ireland,
impacting AIBs market activities in general and its
overseas franchises in particular in the first quarter of 2009.
This negative sentiment receded to a point where the reduction
in customer deposits stabilized in the second quarter of 2009.
At December 31, 2009, customer deposits represented 51% of
AIBs total funding, up from 49% at June 30, 2009 (54%
at December 31, 2008). At June 30, 2010, customer
deposits increased to 53% of AIBs total funding.
In a difficult market environment, AIB continued to diversify
its funding across currencies, geographies, investor base and
products through a range of programs. During 2009, AIB
successfully issued over 6.0 billion under the CIFS
Scheme through a series of public and private placements. AIB
also issued senior unsecured un-guaranteed bonds totaling
1.75 billion in 2009 and it received a
3.5 billion equity capital injection from the Irish
Government in May 2009 under the NPRFC Investment. Over the
second half of 2009, AIB reduced its secured funding from
32.3 billion at June 30, 2009 to
24.3 billion at December 31, 2009 and increased
its medium and long-term funding activity. Secured funding
remained similar at 24.5 billion at June 30,
2010.
The delivery of NAMA Bonds for AIBs NAMA Assets on the
basis of loan transfers undertaken in the first and second
tranche of transfers to NAMA by AIB will materially increase
AIBs Qualifying Liquid Assets and Contingent Funding. At
June 30, 2010, AIB held 49 billion (including
pledged assets) in Qualifying Liquid Assets and Contingent
Funding. Liquidity levels continue to represent a surplus over
the liquidity requirements set for AIB by the Central Bank of
Ireland.
The funding profile at June 30, 2010 highlights the ongoing
de-leveraging in AIBs balance sheet with AIBs total
funding requirement decreasing by 6.2 billion since
December 31, 2009. Term funding increased in the first half
of 2010 due to issuances under AIBs European medium-term
note program totaling a net increase of 4.6 billion.
Customer deposits fell 1.1 billion (1.3%) in the
first half of 2010, principally represented by a fall in the
Capital Markets division (primarily driven by concerns in
relation to sovereign ratings which resulted in a decrease
mainly in deposits from non-bank financial institutions (NBFIs)
and international corporates), with an increase in the UK
division, while the Republic of Ireland division and Poland were
relatively unchanged over the year to June 30, 2010 in
difficult market conditions.
The residual maturity funding position at June 30, 2010
highlights AIBs efforts to increase the duration of its
funding with 46% of wholesale funding (including subordinated
debt, excluding secured bank deposits) classified in the greater
than one year time period, up from 30% at December 31, 2009.
Since January 21, 2010, AIB has issued term bonds totaling
6.6 billion under the ELG Scheme, thereby enhancing
the underlying duration of its term debt funding profile.
However, more recently, AIB has not issued term bonds due to
market conditions. AIB continues to develop contingent
collateral and liquidity facilities to further support its
ongoing funding requirements.
S-54
The Basel III package also endorses the liquidity package
announced by the Basel Committee in July 2010. Phase-in
arrangements for the leverage ratio announced by the Basel
Committee in its proposals in July 2010 outlined that the
supervisory monitoring period in relation to leverage ratios
will commence on January 1, 2011. After the observation
period, a new liquidity coverage ratio will be introduced on
January 1, 2015, while the net stable funding ratio will
apply as a minimum standard from January 1, 2018. As
mentioned above, the detailed impact of the Basel III
proposals for AIB is not entirely clear and future review in
this context may require changes to AIBs funding profile
and strategy.
The
Potential Impact of EU State Aid Review by the European
Commission
In order to comply with EU state aid requirements, a number of
European banks that received state aid have been required by the
European Commission to commit to a series of restructuring
measures. These measures have been reported to include
fundamental change (e.g., disposals and market share
limitations)
and/or
certain capital burden sharing measures (e.g., non-payment of
hybrid debt coupons). Further details on the issue of EU state
aid are outlined above under Risk Factors
Risks Relating to AIB.
Once given, the commitments of the banks are recorded in a
European Commission decision that will usually set out a time
period for implementation. The time period of the commitments is
likely to involve a long stop date.
In connection with the European Commissions May 2009
approval of the 3.5 billion capital injection under
the NPRFC Investment, AIB was required to prepare a
restructuring plan, which was submitted to the European
Commission in November 2009. A revised plan was submitted by the
Irish Department of Finance to the European Commission on
May 4, 2010 to reflect AIBs capital raising
initiatives, which include its intention to raise additional
equity capital and undertake a number of asset and business
disposals. The announcement by AIB on September 30, 2010
relating to increased capital requirements, an equity capital
raising plan and management and board changes represents
additional and alternative measures to achieve viability which
is likely to result in a requirement to submit an amended
restructuring plan to the European Commission.
That assessment is conducted by reference to the basic
principles set out in the European Commissions
communication on the assessment under the EU state aid rules of
restructuring measures in the financial sector in the current
crisis. Those principles require, first and foremost, that
restructuring aid should lead to the restoration of viability in
the longer term without state aid. They also require
restructuring aid to be accompanied, to the extent possible, by
adequate burden sharing (including the disposal of assets) and
by measures that minimize distortions of competition. The
updated restructuring plan submitted by the Irish Department of
Finance on behalf of AIB reflects these measures. The European
Commission, in its working paper dated April 30, 2010 on
the phasing out of EU Member State bank guarantee programs from
June 30, 2010, has indicated that, in the case of a bank,
such as AIB, that is already obliged to prepare a restructuring
plan under EU state aid rules, the award of additional state aid
will have to be taken into account within the framework of the
ongoing restructuring/viability review process.
AIB, through the Irish Department of Finance, is involved in
detailed negotiations and discussions with the European
Commission in relation to the terms of the existing
restructuring plan, and substantive engagement and progress has
been achieved. AIB expects the decision of regarding approval of
the proposed measures, including the terms of the restructuring
plan to be taken by the European Commission in late 2010/early
2011.
In accordance with the European Commissions policy
relating to EU state aid rules on restructuring aid to banks,
AIB agreed not to pay discretionary dividends on its Tier 1
Capital instruments (including the 2009 Preference Shares and
the RCI Securities) and Tier 2 Capital instruments.
A deferral of a coupon under the RCI Securities triggers the
dividend stopper provisions under those securities
which prevent any dividend or coupon payments being made on the
Ordinary Shares or preference shares of AIB, including the 2009
Preference Shares, until the deferred coupon is satisfied
through the issue of Ordinary Shares.
S-55
As a result of the dividend stopper provisions of
the LP3 Securities (and subsequently under the commitments to be
made under the EU restructuring plan), the AIB Group is
currently precluded, for a period of one calendar year from and
including December 14, 2009, from making discretionary
payments of coupons or exercising voluntary call options on
hybrid capital securities. As a result, on May 13, 2010,
AIB issued Bonus Shares to the NPRFC following the Boards
decision not to pay the cash dividend on the 2009 Preference
Shares on May 13, 2010. This issue resulted in the dilution
of the existing AIB shareholders proportionate ownership
by 18.33%.
At the date of this prospectus supplement, there can be no
certainty as to the outcome of the state aid proceedings
involving AIB and the content of the final EU restructuring
plan. In the event that AIB determines not to pay coupons on the
LP3 Securities, thereby triggering the dividend
stopper provisions for further one year periods, or AIB
otherwise elects not to pay a cash dividend otherwise due on the
2009 Preference Shares, RCI Securities or any other series of
securities which include a dividend stopper
provision within their terms which would preclude payment of
coupons under the RCI Securities, AIB would be required to issue
further Ordinary Shares to the NPRFC
and/or for
the purposes of funding deferred coupons on the RCI Securities.
See also The equity capital raising announced
by us is to be fully underwritten by the NPRFC. If the structure
of the transaction does not enable us to retain our ISE and LSE
listings as a result of the Irish Government acquiring more than
75% of our issued ordinary share capital, then we could be
delisted from the ISE and the LSE and our shareholders could
lose the value of their shareholding for further risks
associated with the issue of additional Ordinary Shares.
Working
Capital
The global markets for short and medium-term sources of funding
on which banks rely to support their business activities remain
constrained. As a result, support by the Minister for Finance to
directly supplement existing sources of funding and create the
environment for an improvement in the availability of other
traditional sources of funding remains necessary.
S-56
OUR
RELATIONSHIP WITH THE IRISH GOVERNMENT
The following is an update to, and should be read in conjunction
with, the descriptions of our relationship with the Government
contained in our Annual Report on
Form 20-F,
as amended, for the year ended December 31, 2009.
Credit
Institutions (Financial Support) Scheme 2008 and the Acceptance
Deeds
On October 24, 2008, AIB and its subsidiaries, AIB Group
(UK) p.l.c., AIB Mortgage Bank, AIB Bank (CI) Limited and
Allied Irish Banks North America Inc. each executed a guarantee
acceptance deed in accordance with the terms of the CIFS Scheme,
and were each specified as covered institutions under the Credit
Institutions (Financial Support) (Specification of Institutions)
Order 2008 (S.I. No. 416 of 2008) of Ireland, pursuant
to which such entities agreed to the terms and conditions of the
CIFS Scheme and to indemnify the Minister for Finance against
any payments the Minister for Finance is required to make in
respect of their respective liabilities. The CIFS Scheme expired
on September 29, 2010.
The CIFS Scheme gave effect to the bank guarantee announced by
the Irish Government on September 30, 2008. Under the CIFS
Scheme, the Minister for Finance has guaranteed the following
liabilities of certain participating institutions, including AIB
and certain of its subsidiaries, for a two-year period beginning
September 30, 2008:
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all retail and corporate deposits (to the extent not covered by
existing deposit protection schemes in Ireland or any other
jurisdiction);
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interbank deposits;
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senior unsecured debt;
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asset covered securities; and
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dated subordinated debt (lower Tier 2 Capital),
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excluding any intra-group borrowing and any debt due to the
European Central Bank arising from Eurosystem monetary
operations.
Covered bonds and dated subordinated debt issued by a
participating institution after the date it joined the ELG
Scheme were not guaranteed by the Minister for Finance.
If AIB defaulted in respect of a guaranteed liability during the
period of the guarantee, the Minister for Finance committed to
pay to the creditor an amount equal to that liability. There was
no monetary cap on the guarantee, and it covered all guaranteed
liabilities of AIB which became due for payment up to
September 29, 2010. AIB was required to pay a quarterly fee
to the Irish Government for the guarantee. The cost of the CIFS
Scheme to AIB for the year ended December 31, 2009 was
146.4 million. On January 8, 2010, we have paid
58.4 million to the Minister for Finance in respect
of fees for the CIFS Scheme. This payment was in respect of
(a) the liabilities covered by the CIFS Scheme for the
period from January 1, 2010 to January 21, 2010, the
date on which we joined the ELG Scheme and (b) following
our joining the ELG Scheme, the liabilities outstanding after
January 21, 2010 that continued to have the benefit of the
guarantee under the CIFS Scheme, up to September 29, 2010,
or their maturity, whichever was the earlier.
Originally under the CIFS Scheme and now under the ELG Scheme,
the Minister for Finance
and/or the
Central Bank of Ireland exercises the following rights and
powers with respect to AIB:
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AIB must comply with rules governing the declaration and payment
of dividends made by the Minister for Finance, in consultation
with the Governor of the Central Bank of Ireland and the
Financial Regulator, and may not declare or pay new dividends
before such rules are made (and no such rules have yet been made
by the Minister for Finance).
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AIB may not, without the prior approval of the Minister for
Finance, acquire shares in any other credit institution or
financial institution, establish any subsidiaries or enter into
or acquire any new business or businesses if such action would,
in the opinion of the Minister for Finance following
consultation with
|
S-57
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the Governor of the Central Bank of Ireland and the Financial
Regulator, increase the liability of the Irish Government under
the guarantee.
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The Minister for Finance must impose specific restrictions on
AIB in respect of certain dated subordinated debt covered by the
guarantee, including the maintenance of solvency ratios during
the guarantee period.
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The Minister for Finance may, after consultation with the
Governor of the Central Bank of Ireland and the Financial
Regulator, direct AIB to prepare a restructuring plan to ensure
compliance with the objectives of the CIFS Scheme or, as
appropriate, the ELG Scheme. The Minister for Finance, in
consultation with the Governor of the Central Bank of Ireland,
may direct AIB to make changes to such restructuring plan(s) and
to implement such plan(s) within a specified timeframe as
determined by him.
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The Minister for Finance may, during the guarantee period,
require AIB to appoint up to two non-executive directors to its
board of directors from a panel approved by the Minister for
Finance. Two directors have been appointed to AIBs board
of directors. The Minister for Finance also has the right to
appoint persons to attend all meetings of AIBs
remuneration, audit, credit and risk committees. In addition,
the Central Bank of Ireland may require changes to AIBs
board of directors if it does not contain an appropriate balance
between executive and nonexecutive directors. AIB must comply
with any direction from the Minister for Finance
and/or the
Central Bank of Ireland to take steps to restructure its
executive management responsibilities, strengthen its management
capacity and improve its corporate governance.
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If, in the opinion of the Minister for Finance, AIB is in breach
of its obligations under the CIFS Scheme or, as appropriate, the
ELG Scheme in a manner that is material in the context of
the provisions of the guarantee, the Minister for Finance may
increase the fee payable by AIB in respect of the CIFS Scheme,
impose additional unspecified conditions on AIB or revoke the
guarantee (but may not do so retroactively).
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The Central Bank of Ireland, in consultation with the Minister
for Finance, must impose conditions regulating AIBs
commercial conduct, taking into account its capital ratios,
market share and balance sheet growth. AIB must take steps to
comply with any liquidity, solvency and capital ratios that the
Central Bank of Ireland, following consultation with the
Minister for Finance, may direct.
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To progressively reduce the risk to the Irish Government under
the guarantee, AIB must: (i) appropriately manage its
balance sheet in a manner consistent with the CIFS Scheme or, as
appropriate, the ELG Scheme and the need to avoid
significant distortion of financial flows; (ii) put in
place improved structures to ensure long-term stability of
funding; (iii) improve liquidity, solvency and capital
ratios in circumstances where that is required; and
(iv) take measures to minimize any risk of recourse to the
guarantee as directed by the Governor of the Central Bank of
Ireland after consultation with the Minister for Finance.
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AIB must comply with targets set for AIB by the Central Bank of
Ireland, in consultation with the Minister for Finance, such as
loan/deposit targets and wholesale funding/total liabilities
targets. AIB may also be required to limit its exposure to
certain sectors, customers or connected persons where it is in
the public interest and in the interests of financial stability
and the maintenance of confidence in the banking system.
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AIB may not engage in buy-backs or redemptions of its shares
without the approval of the Central Bank of Ireland, given after
consultation with the Minister for Finance.
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Originally the CIFS Scheme and now the ELG Scheme imposes
restrictions on guaranteed institutions, including AIB, in
relation to directors and executives remuneration
and termination payments during the guarantee period.
|
S-58
Credit
Institutions (Eligible Liabilities Guarantee) Scheme 2009 (S.I.
No. 490 of 2009)
On January 20, 2010, the Company and its subsidiaries, AIB
Group (UK) p.l.c., AIB Bank (CI) Limited and Allied Irish
Bank North America Inc. each executed an eligible liabilities
guarantee scheme agreement with the Minister for Finance in
accordance with the terms of the ELG Scheme, and on
January 21, 2010, each was issued a participating
institution certificate by the Irish National Treasury
Management Agency (the NTMA), the operator of the
ELG Scheme, specifying each as a participating institution in
the Credit Institutions (Eligible Liabilities Guarantee) Scheme.
The ELG Scheme commenced on December 9, 2009 and an
extension of the ELG Scheme until December 31, 2010 was
most recently approved by the Oireachtas (the Irish Parliament)
and signed into law by the Minister for Finance on
September 29, 2010. The ELG Scheme is a guarantee scheme
designed to facilitate credit institutions in Ireland that wish
to issue debt securities and take deposits with a maturity of up
to five years before, originally, September 29, 2010 which
has now been extended to December 31, 2010.
By entering into the ELG Scheme agreement, each participating
institution has agreed to be bound by the terms of the ELG
Scheme and to indemnify the Minister for Finance against all
payments the Minister for Finance may be required to make under
the ELG Scheme in respect of the liabilities of such
institutions.
Eligible liabilities under the ELG Scheme comprise the following
liabilities:
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all deposits (to the extent not covered by deposit protection
schemes in Ireland or in any other jurisdiction);
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senior unsecured certificates of deposit;
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senior unsecured commercial paper;
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other senior unsecured bonds and notes; and
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other forms of senior unsecured debt that may be specified by
the Minister for Finance, consistent with European Union state
aid rules and the European Commissions Banking
Communication and subject to prior consultation with the
European Commission,
|
in each case incurred by a participating institution during the
period from the date it joined the ELG Scheme (in the case of
AIB, January 21, 2010) through, originally,
September 29, 2010 and which has now been extended to
December 31, 2010.
An eligible liability under the ELG Scheme must not have a
maturity in excess of five years and must be incurred during an
issuance window.
On June 28, 2010, following a request from the Minister for
Finance, the European Commission approved a modification of the
ELG Scheme to provide for an extension of the issuance period
from September 29, 2010 to December 31, 2010 (subject
to the introduction of new pricing rates for participating
institutions) for (a) liabilities of between three months
and five years duration (other than inter-bank deposits),
(b) retail deposits of any duration up to five years and
(c) corporate deposits with a maturity of between three
months and five years.
On September 21, 2010, following a further request from the
Minister for Finance, the European Commission approved an
amendment to the ELG Scheme to extend the issuance
window in respect of inter-bank deposits and short-term
liabilities (zero to three months) (including corporate
deposits) of a participating institution, from
September 29, 2010 to December 31, 2010. On
September 29, 2010, the Minister for Finance, following the
approval of the Oireachtas (the Irish Parliament), signed into
law a statutory instrument that gave effect to the changes to
the ELG Scheme approved by the European Commission on
June 28, 2010 and September 21, 2010. Accordingly, the
issuance window in respect of every eligible
liability of a participating institution under the ELG Scheme
(including retail deposits over 100,000 for any duration
up to five years and corporate and inter-bank deposits for any
duration up to five years) has been extended from
September 29, 2010 to December 31, 2010 so that a
State guarantee is now available for short- and long-term
liabilities issued or accepted up to the end of 2010. Retail
deposits of an amount up to 100,000 remain outside the ELG
Scheme but continue to be guaranteed indefinitely under the
Deposit Guarantee Scheme.
S-59
The Minister for Finance has amended the rules of the ELG Scheme
so that the pricing of the ELG Scheme guarantee will increase in
line with the recommendations of the Governing Council of the
European Central Bank on government guarantees for bank debt
dated October 20, 2008 the European Commission DG
Competition staff working document entitled The
Application of State Aid Rules to Government Guarantee Schemes
Covering Bank Debt to be Issued after 30 June 2010
dated April 30, 2010 and any Eurosystem guidelines. The
Minister for Finance has also said that progress in relation to
the phasing out of the ELG Scheme guarantee will be achieved
over time consistent with any requirement for continued support
of the funding conditions of participating institutions and the
maintenance of financial stability overall. The rules of the ELG
Scheme have also been amended to reflect the changes to the ELG
Scheme approved by the European Commission on June 28, 2010
and September 21, 2010. The ELG Scheme remains subject to
six-monthly review and approval by the European Commission in
accordance with EU state aid rules. The next review of the ELG
Scheme is due to take place before December 31, 2010,
although the result of any such review will not affect the
status of guaranteed liabilities that are, by then, already in
place. There can be no assurance that the ELG Scheme will be
extended beyond December 31, 2010.
Under the terms of the ELG Scheme, a participating institution
must apply to the Minister for Finance for an eligible liability
or eligible liabilities issued under a program to be guaranteed
under the ELG Scheme and such eligible liabilities will only be
guaranteed if the NTMA, with delegated authority from the
Minister for Finance, accepts an application from a
participating institution for the inclusion of that eligible
liability or those eligible liabilities in the ELG Scheme.
From the time that a participating institution is designated as
such the ELG Scheme, any liabilities incurred or contracted for
thereafter by that participating institution may be guaranteed
under the ELG Scheme only. Dated subordinated debt and asset
covered securities issued after a covered institution joined the
ELG Scheme will not be guaranteed under the ELG Scheme.
The Minister for Finance, in consultation with the Governor of
the Central Bank, may issue directions to a participating
institution, which are necessary to ensure that the objectives
of the ELG Scheme are met. Such directions may include
directions to comply with some or all of the provisions on
conduct, transparency and reporting requirements which were
applicable to covered institutions pursuant to the CIFS Scheme,
including restrictions on the declaration and payment of
dividends. Each participating institution will be required to
comply with such directions even though the CIFS Scheme has
expired.
The Minister for Finance may, after consultation with the
Governor of the Central Bank, direct AIB to prepare a
restructuring plan to ensure compliance with the objectives of
the ELG Scheme. The Minister for Finance, in consultation with
the Governor of the Central Bank, may direct AIB to make changes
to such restructuring plan(s) and to implement such plan(s).
As described above, participating institutions must pay a fee to
the Minister for Finance in respect of each liability guaranteed
under the ELG Scheme. Participating institutions will also be
required to indemnify the Minister for Finance for any costs and
expenses of the Minister for Finance and for any payments made
by the Minister for Finance under the ELG Scheme that relate to
the participating institutions guarantee under the ELG
Scheme.
The European Commission published a staff working paper dated
April 30, 2010 titled The Application of State Aid
Rules on Government Guarantee Schemes Covering Bank Debt to be
Issued after 30 June 2010 on the phasing out of EU
Member State bank guarantee schemes after June 30, 2010 in
which it has called for a review of the conditions (in addition
to the existing criteria for the clearance of EU state aid to
financial institutions in the context of the global financial
crisis) under which guarantee schemes are approved by the
European Commission with a view to (a) increasing guarantee
fees in order to bring the funding costs of beneficiary banks
closer to market conditions and thereby reduce distortions of
competition, and (b) requiring banks that continue to rely
heavily on government guarantees but are not under restructuring
obligations to demonstrate their long-term viability to the
European Commission. According to the working paper, the
combined effect of these adjustments would be to incentivize the
banks concerned to scale down or terminate their use of
government guarantees
and/or to
require banks that cannot convincingly establish their long-term
viability to undertake the necessary restructuring to address
their structural weakness.
S-60
Furthermore, on November 9, 2009, the European Central Bank
highlighted that guarantees of short-term bank debt (maturity
profile of less than three months) and interbank deposits should
be avoided to the extent possible. The extended ELG Scheme does
not cover inter-bank deposits and corporate deposits and debt
liabilities of less than three months-maturity (e.g.,
certificates of deposit and commercial paper).
For the period from January 21, 2010 to June 30, 2010,
we have paid 118.9 million to the Minister for
Finance in respect of fees for the ELG Scheme.
Arrangements
in Relation to the NPRFC Investment
Warrant
Instrument
Pursuant to the terms of the Warrant Instrument between the
Company and the NPRFC entered into on May 13, 2009, the
Company agreed to issue 294,251,819 warrants to subscribe for
Ordinary Shares to the NPRFC on the terms summarized below (the
Warrants).
The Warrants represented 25% of the Ordinary Shares (excluding
treasury shares) in issue on May 13, 2009 (being the date
of completion of the NPRFC Investment) computed as if the
Warrants were exercisable and had been exercised in full on that
date.
Each of the Core Tranche Warrants (155,780,375 warrants)
entitles the holder to subscribe for one Ordinary Share at a
subscription price of 0.975 per share and each of the
Secondary Tranche Warrants (138,471,444 warrants) entitles
the holder to subscribe for one Ordinary Share at a subscription
price of 0.375 per share.
The Warrants are exercisable in the period between May 13,
2014 and May 13, 2019, or earlier if a third party proposes
to acquire control of the Company or ownership of all or
substantially all of the Companys business and assets.
While the NPRFC holds warrant shares, the voting rights on those
shares will be restricted to 50% of the voting rights attaching
to such shares. If those warrant shares are transferred to any
person other than a government entity, full voting rights will
attach to those warrant shares.
Upon issuance, each Warrant will entitle the holder to subscribe
for one Ordinary Share. This ratio will be adjusted upon the
occurrence of certain share capital-related events in order to
adjust the number of warrant shares the subject of the Warrants
to compensate the NPRFC for the dilutive effects of such share
capital-related events (for example, a bonus issue of shares,
certain capital distributions, a consolidation or subdivision of
shares and a rights issue of shares at an issue price above a
prescribed discount to the market price). If an anti-dilution
adjustment would otherwise result in the issue of Ordinary
Shares under the Warrant Instrument at a discount to their
nominal value, the shortfall between the exercise price and the
nominal value of Ordinary Shares will be paid up from AIBs
undistributable reserves (including the share premium account)
or, subject to there being no contravention of the rights of
other Shareholders, from AIBs distributable reserves.
The Warrants are not transferable, except to a government
entity, without the prior written consent of the Company and are
not listed or quoted on any stock exchange.
Subscription
Agreement
Pursuant to the terms of the Subscription Agreement between AIB,
the Minister for Finance and the NPRFC dated May 13, 2009,
AIB agreed to issue the 2009 Preference Shares and the Warrants
to the NPRFC at an aggregate subscription price of
3.5 billion.
AIB gave the NPRFC and the Minister for Finance certain
warranties relating to the business and operations of the
Company. These warranties are considered standard for this type
of agreement and cover issues such as the Companys issued
share capital, accuracy and completeness of certain information,
accuracy of audited financial statements, payment of taxes,
possession of all material licenses and absence of material
litigation.
S-61
AIB provided various undertakings to the NPRFC and the Minister
for Finance, including agreeing to commit to the Minister for
Finances Bank Customer Package. This includes,
inter alia, obligations on AIB to: (i) increase lending
capacity to small to medium-sized enterprises by 10% and provide
an additional 30% capacity for lending to first-time buyers
during each quarter of the financial year compared to the
corresponding quarter in the year commencing January 1,
2008; (ii) establish a 100 million fund to
support environmentally friendly investment and innovations in
clean energy; (iii) comply with the Code of Conduct for
Business Lending to Small and Medium Enterprises and the Code of
Conduct for Mortgage Arrears published by the Central Bank of
Ireland; (iv) make every effort to avoid repossessions and,
in any case, not commence court proceedings for repossession of
a principal private residence within 12 months of arrears
appearing, where the customer maintains contact and cooperates
reasonably with AIB; (v) fund and cooperate with an
Independent Review of Credit Availability; and
(vi) work closely with IDA Ireland, Enterprise Ireland and
with other Irish state agencies to ensure the supply of
appropriate finance to contractors engaged on major projects
sponsored by those agencies.
AIB also agreed to submit a restructuring plan to the Minister
for Finance, including an assessment of AIBs business
models viability and details of how AIB intends to repay
the state aid provided to it by means of the NPRFC Investment.
That restructuring plan, which was prepared by AIB, was
submitted to the European Commission by the Irish Government in
November 2009. A revised plan, prepared by AIB to reflect
AIBs capital raising initiatives, which include its
intention to raise additional equity capital and undertake a
number of asset and business disposals, was submitted by the
Irish Department of Finance to the European Commission on
May 4, 2010.
Under the terms of the Subscription Agreement, AIB must consult
with the Minister for Finance or his nominee prior to taking any
material action which may be reasonably expected to have a
public interest dimension.
On May 13, 2009, the NPRFC paid to AIB
3.5 billion (less an arrangement fee of
30 million paid by AIB to the NPRFC) in respect of
the issue to it of the 2009 Preference Shares and the Warrants.
AIB undertook in the Subscription Agreement that application
would be made in due course for any warrant shares and Bonus
Shares issued by AIB to be admitted to the Official Lists and to
trading on the main markets for listed securities of the Irish
Stock Exchange and the London Stock Exchange.
In addition to agreeing to allow the governmental entities to
make use of any public offer prospectus issued by the Company
for the purposes of placing such Ordinary Shares with investors,
the Company also undertook to cooperate in the preparation and
issue of a public offer prospectus where this is required for
the purposes of an offering to the public, a placing or listing
of the 2009 Preference Shares or any Ordinary Shares acquired as
a result of holding 2009 Preference Shares or Warrants.
The Subscription Agreement provides that AIB shall ensure that
the aggregate remuneration of AIBs senior executives
employed by AIB at any time during the financial year ended
December 31, 2009 for that year shall be 33% less than the
aggregate remuneration of each of these senior executives for
the preceding financial year and the aggregate fees paid to any
Non-Executive Director during the year ended December 31,
2009 for that year shall be 25% less than the aggregate fees
paid to that Non-Executive Director during the preceding
financial year. The fees payable to any new Non-Executive
Director appointed during the year ended December 31, 2009
were also to be adjusted accordingly. The Subscription Agreement
also provides that no bonus calculated on the basis of or
related to the performance of any individual, any team or
department or division of AIB shall be paid to any of the its
senior executives in respect of either of the financial years
ended December 31, 2009 or December 31, 2010, and the
annual base salary of any employee or services provider or
appointee or officer of the Group shall not, for a period of two
years from May 13, 2009, exceed a maximum amount equal to
the lower of 500,000 and the amount recommended by the
Covered Institution Remuneration Oversight Committee in the
CIROC Report in any financial year. Further, from May 13,
2011, any proposal to increase base salary for any employee or
service provider or appointee or officer of AIB to a level which
would otherwise exceed the cap described in the preceding
sentence or to pay an annual bonus to any of AIBs senior
executives will be subject to agreement between AIB and the
NPRFC. No pension augmentation which enhances the retirement
S-62
benefits of a senior executive under the current rules of
AIBs pension scheme of which he is a member may be awarded
by AIB without the prior consent of the NPRFC.
Application
to Participate in NAMA
On February 12, 2010, the Minister for Finance, under
section 67 of that Act, designated us as a
Participating Institution (as defined by the NAMA
Act). As a result, we are subject to a range of constraints and
obligations (including in terms of our freedom of commercial
action) and are subject to additional powers of the Bank of
Ireland and the Minister.
Synopsis
of the NAMA Program
Under the NAMA Program, NAMA is, on a phased basis, acquiring
NAMA Assets from us. NAMA Assets include performing and
non-performing land and development loans, together with
associated loans. We must identify for NAMA each of our NAMA
Assets, and NAMA may then choose which NAMA Assets to acquire
from us. The NAMA Assets that NAMA acquires will be valued on a
loan-by-loan
basis, using the valuation methodology specified in the NAMA Act
and in regulations made by the Minister for Finance. We have a
limited right to seek a review of a valuation that NAMA has
determined. We transferred our first and second tranches of NAMA
Assets to NAMA on April 2, 2010 and July 12, 2010,
respectively.
NAMA has, in the first and second acquisition tranches, acquired
the largest systemic exposures to the Irish banking system. In
the first and second tranches, we transferred
6.0 billion of NAMA Assets (the value of the relevant
NAMA Assets on a gross loan basis) to NAMA, receiving in
exchange NAMA Bonds and subordinated NAMA Bonds with a value of
3.3 billion. On September 30, 2010, the Minister
announced changes to the NAMA Program including in relation to
AIB, where the total exposure of a debtor is below a
20 million threshold, that debtors loans will
not now be transferred to NAMA whereas the threshold had
previously been set at 5 million. AIB expects this to
result in approximately 4.4 billion of AIB loans
previously designated as NAMA Assets no longer being
transferred. AIB expects that it has 13.5 billion of
NAMA Assets still to be transferred to NAMA (being eligible NAMA
Assets as of June 30, 2010 of 20.4 billion
including the 3.2 billion of eligible NAMA Assets of
AIB Group (UK) p.l.c. which were not classified as held for sale
to NAMA in the unaudited 2010 Half Yearly Report, as they may
be, subject to certain conditions specified by NAMA, included in
the sale of AIB Group (UK) p.l.c., less the second tranche of
2.7 billion that was transferred in July 2010, less
eligible NAMA Assets below 20 million which will no
longer be transferred of 4.4 billion plus other
movements of 0.2 billion).
If, on a
winding-up
of NAMA or after ten years since its establishment or on the
dissolution, restructuring or material alteration of NAMA, NAMA
incurred a loss that the Minister for Finance believes is
unlikely to be otherwise made whole, the Oireachtas (the Irish
Parliament) may, at the request of the Minister for Finance,
impose, as a special tax, a surcharge on the profits of a
Participating Institution. Any such surcharge would be:
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applied proportionately to each Participating Institution, on
the basis of the book value of the NAMA Assets acquired from
each of them as a proportion of the total book value of the NAMA
Assets acquired from all Participating Institutions; and
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subject to prescribed ceilings relating to the actual loss
incurred by NAMA and to the amount of corporation tax paid by
any particular Participating Institution in the relevant
surcharge period.
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NAMA may specify the terms and conditions that are to apply
generally to the acquisition of our NAMA Assets, including a
requirement that we provide various warranties to NAMA,
including warranties as to enforceability of security, good and
marketable title, accuracy and completeness of information and
other customary warranties. We may also be required to indemnify
NAMA against various potential third-party claims against NAMA,
including claims arising from errors, omissions or misstatements
that may have been made by us or on our behalf, and redundancy
and other employment-related disputes arising from a transfer of
any of our NAMA Assets or from the enforcement of any security
concerning a NAMA Asset and other matters.
S-63
While the NAMA draft business plan provides that a Participating
Institution will continue to conduct routine loan administration
work in respect of NAMA Assets that NAMA acquires from the
relevant institution, NAMA may, under the NAMA Act, terminate
any such servicing arrangement if it wishes.
Additional
Constraints and Regulatory Powers, Procedures and
Oversight
As a Participating Institution, we are subject to a range of
constraints and obligations as to the conduct of our business
and are subject to additional powers of the Central Bank of
Ireland
and/or the
Minister for Finance. We are also subject to additional
regulatory procedures and oversight. These include:
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We must act in good faith in relation to our NAMA Assets, having
regard to the purposes of the NAMA Act, and must administer,
service and deal with our NAMA Assets as would a prudent lender
acting reasonably.
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We require the prior written approval of NAMA to take certain
actions in respect of a NAMA Asset, such as to amend or vary any
contract relating to a NAMA Asset unless contractually obligated
to do so.
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Following its acquisition of a NAMA Asset from us, NAMA may
direct us to deal in a specified way with any part of that NAMA
Asset that is not acquired by NAMA.
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The Central Bank of Ireland may, with the approval of the
Minister for Finance, require us to take certain actions to
achieve the purposes of the NAMA Act. Such requirements may
restrict balance sheet growth, restrict our ability to take over
other credit institutions, require balance sheet reductions, or
restrict or require consolidation and merger of Participating
Institutions (including AIB).
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The Central Bank of Ireland may direct us in writing to make any
report that the Central Bank of Ireland considers it necessary
to monitor our compliance with our obligations under or in
respect of the NAMA Act.
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The Minister for Finance may direct us to draft, or amend, a
restructuring or business plan and to take reasonable steps to
ensure that any draft business plan submitted to the Minister
for Finance accurately contains all relevant information. If the
Minister for Finance approves a draft business plan, we must
take reasonable steps to implement it.
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The Minister for Finance has, under the NAMA Act, introduced
statutory guidelines on lending practices and procedures of
Participating Institutions and on the review of their decisions
to refuse credit facilities to small- and medium-sized
enterprises (SMEs) (including farmers and sole
traders) where the relevant sum is greater than 1,000 and
does not exceed 250,000. After exhausting any credit
appeal procedures within the Participating Institution, an SME
customer may require a review of a decision of a Participating
Institution to refuse credit or to reduce an existing credit
facility by applying to an Irish Government-appointed
Credit Reviewer who will investigate the decision
and may make a non-binding recommendation to the Participating
Institution. The Credit Reviewer may also review the lending
policies (including from the perspective of a particular sector)
of a Participating Institution and may issue reports to the
Minister for Finance following such a review.
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Various initiatives taken by us to support customers and
economic recovery include among others, 3 billion of
planned new or additional credit lines to the SME market in 2010
and 2011, a 500 million small business recovery
scheme launched in May 2010, the launch of a
100 million fund for personal and business customers
to support environmentally friendly initiatives in June 2009 and
the provision of wide ranging support facilities to mortgage
customers in difficulty. Additional contingent liabilities arise
in the normal course of our business. It is not currently
anticipated that any material loss will arise from these
transactions.
S-64
RATIO OF
EARNINGS TO FIXED CHARGES
(unaudited)
Our consolidated ratios of earnings to fixed charges calculated
in accordance with IFRS for the six months ended June 30,
2010 and the years ended December 31, 2009, 2008, 2007,
2006 and 2005 are as follows:
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For the Six
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Months Ended
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June 30,
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Years Ended December 31,
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2010
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2009
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2008
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2007
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2006
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2005
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Ratio including interest on deposits(1),(2)
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*
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**
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1.08
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1.27
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1.60
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1.57
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Ratio excluding interests on deposits(1),(2)
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*
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**
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1.19
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1.69
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2.92
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3.02
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(1) |
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Earnings for the six months ended June 30, 2010 and the
fiscal years ended December 31, 2009, 2008 and 2007
represent income from continuing operations and the portion of
the earnings and distributions related to equity interests from
continuing operations as per the 2010 Half-Yearly Financial
Report and from the
Form 6-K
filed with the SEC on September 27, 2010. Earnings for the
fiscal years 2006 and 2005 represent income and earnings and
distributions related to equity interests as per the 2009 Annual
Financial Report. |
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(2) |
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Fixed charges for the six months ended June 30, 2010 and
the fiscal years ended December 31, 2009, 2008 and 2007
represent the interest expense from continuing operations and
the portion of the rental expense from continuing operations as
per the 2010 Half-Yearly Financial Report and from the
Form 6-K
filed with the SEC on September 27, 2010. Fixed charges for
the fiscal years 2006 and 2005 represent the interest expense
and rental expense as per the 2009 Annual Financial Report. |
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The earnings for the six months ended June 30, 2010 were
inadequate to cover fixed charges. The coverage deficiency for
fixed charges was 2.4 billion. |
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The earnings for 2009 were inadequate to cover fixed charges.
The coverage deficiency for fixed charges was
2.6 billion. |
S-65
CAPITALIZATION
AND INDEBTEDNESS
The following table sets forth AIBs capitalization and
indebtedness position as of June 30, 2010 on an unaudited
consolidated basis in accordance with IFRS, (1) the
issuance of the Notes and (2) as further adjusted to
reflect the exchange (assuming shareholder approval of the
exchange is obtained) of the Notes for AIBs shares of
M&T common stock as described herein.
You should read this table in conjunction with AIBs
unaudited Half-Yearly Financial Report 2010 filed with the SEC
on Form 6-K on September 27, 2010.
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As Adjusted
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As of
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As Adjusted for
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for the
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June 30,
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the Issuance of
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Exchange of
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2010(8)
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the Notes(5)
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the Notes(6)
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million
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million
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million
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Equity
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Equity attributable to shareholders(1)
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8,830
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8,830
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Non-controlling interests in subsidiaries
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636
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636
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636
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Total shareholders equity including non-controlling interests
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9,466
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9,466
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Debt
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Perpetual preferred securities
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140
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140
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140
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Undated capital notes
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207
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207
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207
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Dated capital notes(2)
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4,122
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4,122
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4,122
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Total subordinated debt(2),(3)
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4,469
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4,469
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4,469
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Total capital resources
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13,935
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13,935
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Debt Securities in Issue(4)
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27,990
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27,990
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Total Capitalization and Indebtedness
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41,925
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Notes:
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(1) |
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Includes reserve capital instruments of 239 million
together with the net proceeds of a May 2009 issue of
3.5 billion preference shares and warrants. |
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(2) |
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All of AIBs subordinated debt is unguaranteed with the
exception of certain dated capital notes. Dated capital notes
amounting to a nominal value of 2,245 million are
guaranteed under the CIFS Scheme until September 29, 2010
or at maturity, whichever is earlier. |
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All of the subordinated debt set out in the above table is
unsecured. |
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2,765 million of the debt securities in issue are
issued under the AIB Mortgage Bank covered bank program.
1,753 million of the debt securities in issue are
issued by Allied Irish Banks North America Inc., and guaranteed
by Allied Irish Banks, p.l.c., the remaining debt securities in
issue are issued directly by Allied Irish Banks, p.l.c. With the
exception of the 2,765 million securities issued
under AIB Mortgage Bank covered bond program, none of the debt
securities in issue is secured. |
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(5) |
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As adjusted to reflect the issuance of the Notes offered
pursuant to this prospectus translated from U.S. dollars
into euros using the , 2010
European Central Bank reference exchange rate of
1=$ for a total amount of
approximately . |
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(6) |
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As adjusted to reflect the exchange of the Notes for AIBs
shares of M&T common stock on the Exchange Date following
receipt of shareholder approval as described in this prospectus
supplement. Assumes receipt of shareholder approval for such
disposal. |
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(7) |
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With the exception of the undated loan capital, the perpetual
preferred securities and the liabilities under the AIB Mortgage
Bank covered bond program, the indebtedness is subject to
various Irish Governmental guarantee schemes, namely
(a) the CIFS Scheme up to September 29, 2010 or at
maturity, whichever is earlier or (b) if issued after
January 21, 2010 under the ELG Scheme. |
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(8) |
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Term issuances between July 1, 2010 and July 31, 2010
of 25 million in debt securities have been added to
the reported June 30, 2010 balance of
27,965 million. |
The amounts reflected in the foregoing table do not reflect any
adjustments for the estimated impact of the NAMA Program on our
capitalization and indebtedness.
S-66
USE OF
PROCEEDS
An amount equal to 101% of the aggregate principal amount of the
Notes will be deposited into the Control Account and pledged to
the Trustee for the benefit of the holders of the Notes and the
Record Date Holders. If the Notes are mandatorily exchanged on
the Exchange Date for our shares of M&T common stock, the
funds in the Control Account in excess of the aggregate cash
amounts to be returned to Record Date Holders with respect to a
Cash M&T Distribution Adjustment, if any, plus any cash
amounts then payable to the Trustee or the Bank pursuant to the
Indenture or the Security Agreement will be released from the
Control Account to us. Any portion of the Cash Collateral Amount
retained in the Control Account in connection with any Cash
M&T Distribution Adjustment will be released to us on the
applicable Collateral Release Date, if any, for such Cash
M&T Distribution Adjustment (however, any amounts then owed
by us to the Trustee or the Bank pursuant to the Indenture or
the Security Agreement will be retained in the Control Account),
unless earlier released to the Trustee or the Paying Agent for
payment to the Record Date Holders as provided herein.
However, if (i) the Exchange Condition is not satisfied or
(ii) the Exchange Condition is satisfied but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event, the
applicable Redemption Price will be released to holders
upon redemption of the Notes. An amount of cash equal to any
Cash M&T Distribution Adjustment to which Record Date
Holders are entitled will be retained in the Control Account for
the benefit of the Record Date Holders and will be released to
us on the applicable Collateral Release Date, if any, for such
Cash M&T Distribution Adjustment (however, any amounts then
owed by us to the Trustee or the Bank pursuant to the Indenture
or the Security Agreement will be retained in the Control
Account), unless earlier released to the Trustee or the Paying
Agent for payment to the Record Date Holders as provided herein.
The funds in the Control Account in excess of the applicable
Redemption Price, the aggregate cash amount to be retained
in the Control Account with respect to any Cash M&T
Distribution Adjustment and any cash amounts then payable to the
Trustee or the Bank pursuant to the Indenture or the Security
Agreement will be released from the Control Account to us on the
Maturity Date.
We will use any amounts released to us from the Control Account
to meet in part the increased capital requirement required to be
met by us by the Irish financial regulatory body and as an
additional source of liquidity to support our business
activities.
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DESCRIPTION
OF NOTES
A total of 26,700,000 Contingent Mandatorily Exchangeable Notes
due November , 2010 (the Notes)
will be issued under an indenture for senior debt securities
dated as of June 2, 2008, as supplemented by the first
supplemental indenture dated October , 2010
(collectively, the Indenture), between us and The
Bank of New York Mellon, as trustee (the Trustee).
The following description of the particular terms of the Notes
offered hereby supplements the descriptions of the general terms
and provisions of the debt securities set forth in our
accompanying prospectus, to which reference is hereby made. The
Notes are a series of our debt securities described in our
accompanying prospectus and referred to therein as Senior
Debt Securities. This description is not complete and is
subject to, and is qualified in its entirety by reference to,
all provisions of the Notes and the Indenture. In this section,
we, our, AIB or
us means solely Allied Irish Banks, p.l.c. and not
any of its subsidiaries or M&T Bank Corporation
(M&T). M&T will not have any obligation of
any kind with respect to the Notes.
General
The Notes will be limited to an aggregate number of 26,700,000
Notes and, unless earlier exchanged, will mature on
November , 2010 (the Maturity
Date), the ninth business day immediately following
October , 2010, (the Expected Meeting
Date). The issue price and principal
amount of each Note is $ . If
the Exchange Condition (as defined in Exchange
Condition; Extraordinary General Meeting below) is
satisfied and no Regulatory Event (as defined in
Regulatory Event below) occurs, the
Notes will be mandatorily exchanged for shares of M&T
common stock on the third business day immediately following the
date the Exchange Condition is satisfied (the Exchange
Date), as described in Mandatory
Exchange below. If (i) the Exchange Condition is not
satisfied or (ii) the Exchange Condition is satisfied but
we fail to deliver the aggregate number of shares of M&T
common stock required to exchange all of the outstanding Notes
on the Exchange Date due to the occurrence of a Regulatory
Event, the Notes will be redeemed for cash, as described in
Mandatory Redemption.
No interest will accrue or be paid with respect to the Notes.
Except with respect to the Cash Collateral Amount (as defined in
Security; Cash Collateral Amount below),
the Notes will be our senior unsecured debt obligations and will
rank equal in right of payment with all of our existing and
future senior unsecured indebtedness and senior in right of
payment to our future subordinated debt.
The Notes will be issuable in denominations of
$ and any integral multiple
thereof. The Notes will initially be issued as global securities
in book-entry form. All cash payments on the Notes will be made
in U.S. dollars.
A business day means any day other than a Saturday,
Sunday or any other day on which banking institutions and trust
companies in the City of New York, London, England or Dublin,
Ireland are permitted or required by any applicable law to close.
Exchange
Condition; Extraordinary General Meeting
We own 26,700,000 shares of M&T common stock,
$0.50 par value. Our shares of M&T common stock
represent, in the aggregate, 22.4% of M&Ts
outstanding shares of common stock, based on
119,119,328 shares of outstanding common stock of M&T
as of July 23, 2010, as reported on M&Ts
Quarterly Report on
Form 10-Q
for the year ended June 30, 2010.
On the Expected Meeting Date, we intend to hold an extraordinary
general meeting of our shareholders (an Extraordinary
General Meeting) to seek the approval of shareholders
holding a majority of AIBs Ordinary Shares present and
voting at such Extraordinary General Meeting, in person or by
proxy, for the disposition of our shares of M&T common
stock in connection with the exchange of the Notes. Prior
shareholder approval for the disposition of our shares of
M&T common stock is required by the Listing Rules of the
Irish Stock Exchange and the Listing Rules of the United Kingdom
Listing Authority because of, among other things, the potential
value of the disposition relative to our market capitalization.
The mandatory
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exchange of the Notes is contingent upon our obtaining such
shareholder approval at an Extraordinary General Meeting no
later than November , 2010, the fifth business
day after the Expected Meeting Date (such requirement, the
Exchange Condition). If the Exchange Condition is
satisfied and no Regulatory Event occurs, the Notes will be
mandatorily exchanged for M&T common stock on the Exchange
Date based on the Exchange Ratio (as defined below). If
(i) the Exchange Condition is not satisfied or
(ii) the Exchange Condition is satisfied but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event, the
Notes will not be exchanged for M&T common stock, and will,
instead, be mandatorily redeemed on the Maturity Date at their
principal amount plus a $0.26 premium per Note (the
Redemption Premium and together with the
principal amount per Note, the
Redemption Price); provided that, the
Redemption Price will be reduced by the amount of any Cash
M&T Distribution Adjustment (as defined in
M&T Distribution Adjustment below)
per Note in excess of $ per Note.
As a result, the Redemption Price per Note, together with
any Cash M&T Distribution Adjustment per Note, will not
exceed 101% of the Notes principal amount. For the
avoidance of doubt, the Redemption Price will never be
reduced to an amount less than zero. The Redemption Premium
times the number of Notes offered hereby will be slightly less
than 1% of our market capitalization on the close of the trading
day in Dublin, Ireland immediately prior to the commencement of
the offering of the Notes. There can be no assurance that the
Exchange Condition will be satisfied or that a Regulatory Event
will not occur.
A Circular, containing a Notice of Extraordinary General Meeting
(the Shareholder Circular), will be submitted to the
Irish Stock Exchange and the United Kingdom Listing Authority
for approval on October , 2010, one business
day after pricing of the Notes. We anticipate receiving approval
from the Irish Stock Exchange and the United Kingdom Listing
Authority on October , 2010. Upon receipt of
such approval, we will promptly distribute the Shareholder
Circular to our shareholders. Under Irish company law, the
earliest day we may hold the Extraordinary General Meeting is
16 days after we mail the Shareholder Circular to our
shareholders. Accordingly, we intend to hold the Extraordinary
General Meeting on the Expected Meeting Date of
October , 2010, which is 16 days after we
intend to mail the Shareholder Circular to our shareholders.
At the Extraordinary General Meeting, an ordinary resolution
will be proposed, which, if passed, would approve the disposal
of our shares of M&T common stock by way of mandatory
exchange of the Notes and would authorize our board of directors
to take any steps necessary to complete such exchange. The vote
on the resolution will be decided on a poll at the Extraordinary
General Meeting. We expect the results of the vote to be
available on the same business day that the Extraordinary
General Meeting is held.
The disposal of our shares of M&T common stock is one of
the key steps being undertaken by us to meet the increased
capital requirement determined by the Irish Financial Services
Regulatory Authority as part of its Prudential Capital
Assessment Review, which was announced on March 30, 2010
and revised on September 30, 2010. The increased capital
requirement must be satisfied by December 31, 2010. In
addition to the disposal of our shares of M&T common stock
through the issue of the Notes, we intend to sell other assets
and complete an equity capital raising prior to the end of 2010
to ensure we satisfy our increased capital requirement. See
Summary Recent Developments.
The Shareholder Circular will contain a statement from all of
the members of our board of directors recommending that our
shareholders approve the disposal of our shares of M&T
common stock and incorporating their opinion that such disposal
is in our best interests and the best interests of our
shareholders. The Shareholder Circular will also advise our
shareholders that their failure to approve the disposition of
M&T common stock will obligate us to redeem the Notes at
the applicable Redemption Price, and that if we fail to
complete such disposition at this time and the other announced
disposals, then it is highly likely that such events would
result in increased majority Irish Government ownership or
control or full nationalization and that if this were to occur,
shareholders could lose the value of their Ordinary Shares and
suffer further significant dilution.
S-69
Mandatory
Exchange
If we satisfy the Exchange Condition and no Regulatory Event
occurs, the Notes will be mandatorily exchanged for M&T
common stock on the Exchange Date. The Notes will be exchanged,
with respect to each Note, for a number of shares of M&T
common stock equal to the Exchange Ratio.
Exchange Ratio means the ratio at which each Note
will be exchanged for M&T common stock, initially one share
of M&T common stock per Note, subject to certain
antidilution adjustments for stock splits and stock combinations
as described in Antidilution Adjustments
below.
The exchange of Notes for M&T common stock on the Exchange
Date does not terminate or extinguish (i) our obligations,
if any, to make any Cash M&T Distribution Adjustment or any
Non-cash M&T Distribution Adjustment (each as defined in
M&T Distribution Adjustment below)
or (ii) any rights the record holders of Notes as of the
close of business on the record date of a Qualifying
Distribution (as defined in M&T
Distribution Adjustment below) (the Record Date
Holders) or the record holders of the Notes as of the open
of business on the Exchange Date (the Exchange Date
Holders), as applicable, have to receive any Cash M&T
Distribution Adjustment or any Non-cash M&T Distribution
Adjustment.
If we satisfy the Exchange Condition, we will, (i) provide
written notice (the Exchange Notice) to the Trustee
and M&Ts stock transfer agent by 5:00 p.m. (New
York City time) on the date the Exchange Condition is satisfied
notifying the Trustee (a) that we have satisfied the
Exchange Condition on such date, (b) that the Notes are to
be mandatorily exchanged for M&T common stock on the
Exchange Date unless a Regulatory Event occurs, (c) of the
expected number of shares of M&T common stock to be
exchanged for each Note, which will equal the Exchange Ratio as
of the Exchange Date and (d) of the aggregate cash amount
(including the cash amount per Note) to be returned to the
Record Date Holders with respect to a Cash M&T Distribution
Adjustment, if any, which is to be retained in an account (the
Control Account) held with The Bank of New York
Mellon, as account bank (the Bank) and
(ii) unless a Regulatory Event has occurred, deliver to
M&Ts stock transfer agent (with a notice to the
Trustee) by 9:30 a.m. (New York City time) on the Exchange
Date an M&T stock certificate representing the aggregate
number of shares of M&T common stock sufficient to exchange
all of the outstanding Notes such that each Note is exchanged
for a number of shares of M&T common stock equal to the
Exchange Ratio as of the Exchange Date with appropriate
instructions to issue M&T common stock in book-entry form
to the Exchange Date Holders. Promptly upon receipt of an
Exchange Notice, the Trustee will notify DTC, as the holder of
the Notes, of the Exchange Date and the Exchange Ratio. The
Trustee will authorize the delivery through DTC of the M&T
common stock to Exchange Date Holders upon delivery of such
Notes on or after the Exchange Date to the Trustee for exchange.
Other than any Cash M&T Distribution Adjustment and
Non-cash M&T Distribution Adjustment that Record Date
Holders or Exchange Date Holders, as applicable, may be entitled
to receive, no interest or other amount will be payable if the
Notes are presented for exchange after the Exchange Date. If a
Regulatory Event occurs, we will so notify the Trustee by
9:30 a.m. (New York City time) on the Exchange Date. Upon
such occurrence, and in lieu of exchanging the Notes, we will be
required to redeem the Notes for cash as described below under
Mandatory Redemption.
We will not deliver any fractional shares of M&T common
stock in connection with a mandatory exchange. Instead, we will
deliver or cause to be delivered funds to the Trustee by
9:30 a.m. (New York City time) on the Exchange Date in lieu
of any fractional shares based on the closing sale price of
M&T common stock on the trading day immediately prior to
the Exchange Date.
Trading day means, with respect to any security, a
day on which such security (i) is not suspended from
trading on any U.S. national or regional securities
exchange or
over-the-counter
market at the close of business and (ii) has traded at
least once on the U.S. national or regional securities
exchange or
over-the-counter
market that is the primary market for the trading of such
security; except that if such security is not listed for trading
or quotation on or by any exchange, bureau or other
organization, trading day shall mean any business
day.
The closing sale price on any trading day will be
determined by us and means the per share price of M&T
common stock on such trading day, (i) determined on the
basis of the closing per share sale price (or if
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no closing per share sale price is reported, the average of the
bid and ask prices or, if there is more than one in either case,
the average of the average bid and the average ask prices) on
such trading day on the principal U.S. national or regional
securities exchange on which shares of M&T common stock are
listed; or (ii) if shares of M&T common stock are not
listed on a U.S. national or regional securities exchange,
as reported on such trading day by Pink OTC Markets Inc. or a
similar organization; provided that the closing sale price will
be determined without regard to
after-hours
trading or extended market making; provided further,
that, in the event M&T common stock is not so listed or
reported on the applicable trading day, the closing sale price
will be the market value of M&T common stock on the
applicable trading day as determined by us in good faith.
For the avoidance of doubt, any reference in this prospectus
supplement to the delivery of M&T common stock by us and
the Exchange Date Holders rights to receive M&T
common stock in connection with the mandatory exchange of the
Notes on the Exchange Date will be deemed to include any cash
delivered in lieu of any fractional shares of M&T common
stock.
The delivery of our shares of M&T common stock to
M&Ts stock transfer agent will be irrevocable. Upon
delivery of our shares of M&T common stock to
M&Ts stock transfer agent, we will have no ownership
interest in such M&T common stock. We expect such M&T
common stock will be distributed to the Exchange Date Holders on
the Exchange Date in accordance with the standard rules and
procedures of DTC (as defined in Book-Entry,
Delivery and Form below) and its direct and indirect
participants. See Book-Entry, Delivery and
Form below.
Upon exchange of the Notes for M&T common stock, we will
pay any documentary, stamp or similar transfer tax due on the
transfer of our shares of M&T common stock.
Mandatory
Redemption
The provisions in Description of Debt
Securities Redemption of the accompanying
prospectus will not apply to the Notes.
If (i) we do not satisfy the Exchange Condition or
(ii) we do satisfy the Exchange Condition but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event, the
Notes will not be exchanged for M&T common stock and all of
the Notes will be mandatorily redeemed on the Maturity Date at
their aggregate applicable Redemption Price.
If (i) the Trustee has not received the Exchange Notice by
5:00 p.m. (New York City time) on
November , 2010, the fifth business day
immediately following the Expected Meeting Date, (ii) we
notify the Trustee by such time that the Exchange Condition has
not been satisfied or (iii) the Trustee receives a notice
from us by 9:30 a.m. (New York City time) on the Exchange
Date of the occurrence of a Regulatory Event, we will be
required to redeem the Notes on the Maturity Date at a price per
Note equal to its applicable Redemption Price. Promptly
upon the occurrence of any of the events described in the
preceding sentence, the Trustee will notify DTC, as the holder
of the Notes, that the Notes will be redeemed on the Maturity
Date. We will provide written notice to the Trustee and the
Paying Agent by 9:00 a.m. (New York City time) on the
Maturity Date notifying the Trustee and the Paying Agent of
(i) the amount, if any, by which the Redemption Price
has changed from the initial Redemption Price (such
determination to be made by us) and (ii) the aggregate cash
amount (including the cash amount per Note) to be returned to
the Record Date Holders with respect to a Cash M&T
Distribution Adjustment, if any, that is to be retained in the
Control Account held with the Bank (pursuant to instructions
from the Trustee). Pursuant to such redemption, the aggregate
applicable Redemption Price payable on the Notes will be
released by the Bank (pursuant to instructions from the Trustee)
on the Maturity Date from the Control Account (as defined in
Security; Cash Collateral Amount below)
to the Trustee or Paying Agent. The Trustee or Paying Agent will
pay the applicable Redemption Price to holders of Notes
upon delivery of such Notes on or after the Maturity Date to the
Trustee or the Paying Agent for payment. Other than any Cash
M&T Distribution Adjustment that Record Date Holders may be
entitled to receive, no interest or other amount will be payable
on the applicable Redemption Price if Notes are presented
for redemption after the Maturity Date. An amount of cash equal
to any Cash M&T Distribution Adjustment to which Record
Date Holders are entitled will be retained in the
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Control Account for the benefit of the Record Date Holders and
will be released to us on the applicable Collateral Release Date
(as defined below) for such Cash M&T Distribution
Adjustment (however, any amounts then owed by us to the Trustee
or the Bank pursuant to the Indenture or the Security Agreement
will be retained in the Control Account), unless earlier
released to the Trustee or the Paying Agent for the benefit of
the Record Date Holders as provided herein. The funds in the
Control Account in excess of the applicable
Redemption Price, the aggregate cash amount to be retained
in the Control Account for payment to Record Date Holders with
respect to any Cash M&T Distribution Adjustment and any
cash amounts then payable to the Trustee or the Bank pursuant to
the Indenture or the Security Agreement will be released from
the Control Account to us on the Maturity Date.
The redemption of Notes on the Maturity Date will not terminate
or extinguish (i) our obligations, if any, to make any Cash
M&T Distribution Adjustment or (ii) any rights the
Record Date Holders have to receive any Cash M&T
Distribution Adjustment.
We expect the applicable Redemption Price will be paid to
the holders of the Notes against delivery of the Notes for
payment on the date it is released to the Trustee in accordance
with the standard rules and procedures of DTC and its direct and
indirect participants. See Book-Entry,
Delivery and Form below.
Regulatory
Event
If we satisfy the Exchange Condition but a Regulatory Event
occurs on the Exchange Date, we will not later than
9:30 a.m. (New York City time) on the Exchange Date
(i) issue a press release stating that a Regulatory Event
has occurred and (ii) provide written notice to the Trustee
and M&Ts stock transfer agent that a Regulatory Event
has occurred and that we will not deliver M&T common stock
to M&Ts stock transfer agent for delivery to Exchange
Date Holders. We will instead be required to redeem the Notes
for cash as described above under Mandatory
Redemption.
Regulatory Event means the existence at
9:00 a.m. (New York City time) on the Exchange Date of an
order, direction or decree (which order, direction or decree
need not be final or non-appealable) by an official of the Irish
Government, any Irish governmental or regulatory body, an Irish
court or any officer appointed by an Irish court, the Irish
Government or an Irish statutory entity preventing us from
delivering M&T common stock to Exchange Date Holders on the
Exchange Date.
Security;
Cash Collateral Amount
Upon the closing of this offering, we will deposit an amount of
cash equal to $ , which represents
101% of the aggregate principal amount of the Notes (such amount
together with any earnings thereon, the Cash Collateral
Amount) into the Control Account held with the Bank. Upon
the closing of this offering, we will pledge to the Trustee, for
the benefit of the holders of the Notes and the Record Date
Holders, the Control Account and the Cash Collateral Amount to
secure any cash payments that we are required to make to holders
of the Notes or Record Date Holders, whether in connection with
a redemption of the Notes or a Cash M&T Distribution
Adjustment, as described below under M&T
Distribution Adjustment.
The pledge will be granted by us to the Trustee, for the benefit
of the holders of the Notes and the Record Date Holders,
pursuant to the terms of the security agreement dated as of
October , 2010 among us, the Trustee and the
Bank (the Security Agreement).
We will be prohibited from encumbering, divesting, pledging,
disposing of or permitting any lien to be attached to the Cash
Collateral Amount and the Control Account other than under the
Security Agreement. Pursuant to the Security Agreement, the
Trustee and the Bank (each in their capacity as such) will have
a lien on funds in the Control Account as security for any
obligations we may owe to the Trustee and the Bank, as
applicable, pursuant to the Indenture or the Security Agreement.
Such obligations are payable out of the funds in the Control
Account only after the later of (a) the Exchange Date or the
Maturity Date, as applicable, and (b) if we receive a Qualifying
Distribution from M&T relating to a Cash M&T
Distribution Adjustment on or prior to the applicable Delayed
Payment Date, the date such Cash M&T Distribution
Adjustment becomes due
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and only to the extent such funds exceed all amounts we may owe
to the holders of the Notes or the Record Date Holders, as
applicable.
If we exchange the Notes for M&T common stock, the funds in
the Control Account will be released to us by the Bank (pursuant
to instructions from the Trustee) on the Exchange Date, except
that a portion of the Cash Collateral Amount equal to the
aggregate cash amount to be returned to Record Date Holders with
respect to a Cash M&T Distribution Adjustment, if any, plus
any cash amounts then payable to the Trustee or the Bank
pursuant to the Indenture or the Security Agreement (but in no
event greater in the aggregate than the Cash Collateral Amount),
will be retained in the Control Account. If (i) we do not
satisfy the Exchange Condition or (ii) we do satisfy the
Exchange Condition but we fail to deliver the aggregate number
of shares of M&T common stock required to exchange all of
the outstanding Notes on the Exchange Date due to the occurrence
of a Regulatory Event, holders of Notes will not be entitled to
receive any M&T common stock and the aggregate applicable
Redemption Price of the Notes will be released by the Bank
(pursuant to instructions from the Trustee) from the Control
Account to the Trustee or the Paying Agent for the benefit of,
and payment to, the holders of the Notes on the Maturity Date.
An amount of cash equal to any Cash M&T Distribution
Adjustment to which Record Date Holders are entitled will be
retained in the Control Account for the benefit of the Record
Date Holders and will be released to us on the applicable
Collateral Release Date for such Cash M&T Distribution
Adjustment (however, any amounts then owed by us to the Trustee
or the Bank pursuant to the Indenture or the Security Agreement
will be retained in the Control Account), unless earlier
released to the Trustee or the Paying Agent for the benefit of
the Record Date Holders as provided herein. The funds in the
Control Account in excess of the applicable
Redemption Price, the aggregate cash amount to be retained
in the Control Account with respect to any Cash M&T
Distribution Adjustment and any cash amounts then payable to the
Trustee or the Bank pursuant to the Indenture or the Security
Agreement will be released from the Control Account to us on the
Maturity Date.
If (i) M&T has declared a dividend or other
distribution on M&T common stock having an ex-dividend date
after October , 2010, which is the date of
pricing of the Notes (the Pricing Date), and a
record date prior to the Exchange Date or the Maturity Date, as
applicable (a Qualifying Distribution) and such
Qualifying Distribution includes cash and (ii) M&T
does not pay the cash portion of such Qualifying Distribution to
us within 30 days of the payment date specified in
M&Ts declaration of such Qualifying Distribution
(each such thirtieth day, a Delayed Payment Date),
an amount of cash equal to the unpaid cash portion of such
Qualifying Distribution will be released from the Control
Account to us by the Bank (pursuant to instructions from the
Trustee) on the business day immediately following such Delayed
Payment Date (each such date, a Collateral Release
Date); provided that any amounts then owed by us to the
Trustee or the Bank pursuant to the Indenture or the Security
Agreement will be retained in the Control Account. We will
provide written notice to the Trustee on the Delayed Payment
Date if M&T does not pay a Qualifying Distribution that
includes cash on or prior to the related Delayed Payment Date.
Such notice will include information about the record date,
scheduled payment date and amount of such Qualifying
Distribution (including the cash amount per Note).
If the Notes are exchanged for M&T common stock on the
Exchange Date or redeemed on the Maturity Date, as applicable,
then upon the earlier of (i) the final Collateral Release
Date with respect to all Qualifying Distributions and
(ii) the satisfaction by us of all cash payment obligations
with respect to any Cash M&T Distribution Adjustment, any
remaining funds in the Control Account will be released by the
Bank (pursuant to instructions from the Trustee) from the
Control Account to us provided that any amounts then owed by us
to the Trustee or the Bank pursuant to the Indenture or the
Security Agreement will be retained in the Control Account.
Release of all or any portion of the Cash Collateral Amount from
the Control Account, whether to the Trustee or the Paying Agent
for payment to holders of the Notes or to us, will be made by
the Bank (pursuant to instructions from the Trustee) in
accordance with the Security Agreement.
Our obligation to make any Non-cash M&T Distribution
Adjustment is not secured by the Cash Collateral Amount, and any
claims against us arising from such Non-cash M&T
Distribution Adjustment are unsecured.
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No
Guaranteed Return of Principal
Unlike ordinary debt securities, the Notes do not guarantee any
return of principal. Instead, a holder of the Notes will receive
either (i) if we have satisfied the Exchange Condition and
no Regulatory Event occurs, one share of M&T common stock
for each Note held by such holder, subject to antidilution
adjustments as described herein, or (ii) (x) if we have not
satisfied the Exchange Condition or (y) if we have
satisfied the Exchange Condition but we fail to deliver the
aggregate number of shares of M&T common stock required to
exchange all of the outstanding Notes on the Exchange Date due
to the occurrence of a Regulatory Event, in each case, the
applicable Redemption Price.
If the market price of M&T common stock on the Exchange
Date is less than $ , and the Notes
are exchanged for M&T common stock, you may receive a
number of shares of M&T common stock with a value, on that
date, less than the initial Redemption Price of the Notes.
If the market price of M&T common stock on the date we
redeem the Notes for cash is greater than
$ , you will not be entitled to
receive the excess of such price above the initial
Redemption Price of each Note.
M&T
Distribution Adjustment
If M&T has declared a Qualifying Distribution and
(i) if such Qualifying Distribution includes cash, the
Record Date Holders will be entitled to a return of a portion of
the original issue price of each Note equal to the related
portion of any cash to be paid by M&T in such Qualifying
Distribution, without deduction for withholding or other taxes,
if any (each a Cash M&T Distribution
Adjustment), on the later of (a) the Exchange Date or
the Maturity Date, as applicable, and (b) the business day
immediately following our receipt of such Qualifying
Distribution from M&T
and/or
(ii) if such Qualifying Distribution includes non-cash
property, including shares of capital stock, securities or other
property, and if the Notes are exchanged for M&T common
stock, the Exchange Date Holders will be entitled to a return of
a portion of the original issue price of each Note in the form
of the related portion of any non-cash property to be delivered
by M&T in such Qualifying Distribution, without deduction
for withholding or other taxes, if any (each a Non-cash
M&T Distribution Adjustment), on the later of the
Exchange Date and the business day immediately following our
receipt of such Qualifying Distribution from M&T, as
described below. We will notify the Trustee of any future record
date for any Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment with respect to the Notes and
the amount of cash
and/or other
property to be distributed per share of M&T common stock no
later than one business day after M&T publicly announces
the record date and other relevant information with respect to
any Qualifying Distribution.
A Cash M&T Distribution Adjustment will consist of an
amount of cash per Note determined by us equal to the Exchange
Ratio (as of the record date of such Qualifying Distribution)
multiplied by the amount of cash to be paid by M&T
per share of M&T common stock (without any deductions for
withholding or other taxes) in connection with such Qualifying
Distribution that includes cash. Such Cash M&T Distribution
Adjustment will be made to the Record Date Holders by
9:30 a.m. (New York City time) (or as soon thereafter as is
reasonably practicable) on the later of (i) the Exchange
Date or the Maturity Date, as applicable, and (ii) the
business day immediately following our receipt of such
Qualifying Distribution.
A Non-cash M&T Distribution Adjustment will consist of an
amount of such non-cash property per Note determined by us equal
to the Exchange Ratio (as of the record date of such Qualifying
Distribution) multiplied by the amount of non-cash
property to be delivered by M&T per share of M&T
common stock (without any deductions for withholding or other
taxes) in connection with such Qualifying Distribution that
includes non-cash property. If the Notes are exchanged for
M&T common stock, such Non-cash M&T Distribution
Adjustment will be made to the Exchange Date Holders by
9:30 a.m. (New York City time) (or as soon thereafter as is
reasonably practicable) on the later of (i) the Exchange
Date and (ii) the business day immediately following our
receipt of such Qualifying Distribution.
We will deliver cash in lieu of any fractional non-cash property
that an Exchange Date Holder is entitled to receive in
connection with a Non-cash M&T Distribution Adjustment,
including shares of capital stock, securities or other non-cash
property. The amount of non-cash property will be computed on
the basis of the aggregate number of Notes held by any Exchange
Date Holder. For purposes of determining the amount of
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cash to be so delivered, with respect to any such capital stock
or other securities that are listed on a U.S. national or
regional securities exchange, we will deliver cash in lieu of
any fractional securities based on the market price of the
applicable securities on the business day (or if such business
day is not a trading day, on the trading day next preceding such
business day) that we receive the applicable Qualifying
Distribution from M&T. The market price on any
trading day will be determined by us and means the price per
security on such trading day, (i) determined on the basis
of the closing sale price of such security (or if no closing
sale price is reported, the average of the bid and ask prices
or, if there is more than one in either case, the average of the
average bid and the average ask prices) on such trading day on
the principal U.S. national or regional securities exchange
on which the applicable securities are listed; or (ii) if
the applicable securities are not listed on a U.S. national
or regional securities exchange, the closing sale price of such
security as reported on such trading day by Pink OTC Markets
Inc. or a similar organization; provided that the closing sale
price will be determined without regard to
after-hours
trading or extended market making. In the event that the
applicable securities are not so listed or reported on the
applicable trading day, or in the event that the Qualifying
Distribution consists of other non-cash property, the amount of
cash to be delivered in lieu of any fractional non-cash property
shall be determined based on the value of the applicable capital
stock, securities or other non-cash property on the business day
that we receive such Qualifying Distribution from M&T as
determined by us in good faith. Any cash in lieu of fractional
non-cash property will be delivered to the Exchange Date Holders
on the later of (i) the Exchange Date and (ii) the
business day immediately following our receipt of such
Qualifying Distribution.
For the avoidance of doubt, any reference in this prospectus
supplement to the delivery of shares of capital stock,
securities or other non-cash property by us and the Exchange
Date Holders rights to receive such shares of capital
stock, securities or other non-cash property, in connection with
a Non-cash M&T Distribution Adjustment will be deemed to
include any cash delivered in lieu of any such fractional
non-cash property.
We are obligated to make (i) any Cash M&T Distribution
Adjustment when due notwithstanding the prior (a) exchange
of the Notes for M&T common stock or the prior redemption
of the Notes for their applicable Redemption Price, as
applicable, and (b) release and return of cash held in the
Control Account in connection with such Cash M&T
Distribution Adjustment from the Control Account to us on the
relevant Collateral Release Date and (ii) any Non-cash
M&T Distribution Adjustment only if the Notes are exchanged
for M&T common stock. If we have received the cash payment
that relates to a Qualifying Distribution that includes cash
from M&T on or prior to the applicable Delayed Payment
Date, cash in an amount equal to our cash payment obligation in
connection with the Cash M&T Distribution Adjustment
related to such Qualifying Distribution (but in no event greater
in the aggregate than the Cash Collateral Amount) will be
released by the Bank (pursuant to instructions from the Trustee)
from the Control Account to the Trustee or the Paying Agent for
the benefit of, and payment to, the Record Date Holders. If we
have not received the cash payment that relates to a Qualifying
Distribution that includes cash from M&T on or prior to the
applicable Delayed Payment Date, an amount of cash equal to the
aggregate amount of such unpaid cash payment related to such
Qualifying Distribution will be released by the Bank (pursuant
to instructions from the Trustee) from the Control Account to us
on the applicable Collateral Release Date, provided that any
amounts then owed by us to the Trustee or the Bank pursuant to
the Indenture or the Security Agreement will be retained in the
Control Account, and we will continue to be obligated to make
such payment to the Record Date Holders if and when such cash
payment is finally received by us.
No accrued interest will be paid to the Record Date Holders or
the Exchange Date Holders with respect to any Cash M&T
Distribution Adjustment or Non-cash M&T Distribution
Adjustment, respectively.
Upon our receipt of a Qualifying Distribution from M&T
giving rise to a Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment, we will provide
written notice to the Trustee by 5:00 p.m. (New York City
time) on the date of our receipt of such Qualifying Distribution
notifying the Trustee:
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that we have received a Qualifying Distribution relating to a
Cash M&T Distribution Adjustment or Non-cash M&T
Distribution Adjustment from M&T;
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if the Qualifying Distribution includes cash, whether we
received such Qualifying Distribution on or prior to the
applicable Delayed Payment Date;
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the amount of such Qualifying Distribution paid
and/or
delivered by M&T per share of M&T common stock
(without any deductions for withholding or other taxes) and to
be delivered to the Trustee or the Paying Agent for payment or
transfer to the Record Date Holders or the Exchange Date
Holders, as applicable (including the aggregate amount and the
amount per Note to be so paid or transferred), and the amount of
cash (both the aggregate cash amount and the cash amount per
Note) from the Control Account to be delivered in respect of
Cash M&T Distribution Adjustments, as applicable; and
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the market price with respect to any cash to be
delivered in lieu of fractional property.
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Upon our receipt of a Qualifying Distribution that includes cash
after the applicable Delayed Payment Date or upon our receipt of
a Qualifying Distribution that includes non-cash property (if
the Notes are exchanged for M&T common stock), we will
deliver to the Trustee or the Paying Agent by the later of
9:30 a.m. (New York City time) on the Exchange Date and
9:30 a.m. (New York City time) on the business day
immediately following our receipt of such Qualifying
Distribution the aggregate amount of such Qualifying
Distribution (without any deductions for withholding or other
taxes) for payment
and/or
delivery to the Record Date Holders or Exchange Date Holders, as
applicable.
We expect that any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment will be made to the
Record Date Holders or the Exchange Date Holders, respectively,
in accordance with the standard rules and procedures of DTC and
its direct and indirect participants. See
Book-Entry, Delivery and Form below.
Upon payment
and/or
delivery of any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment, we will pay any
documentary, stamp or similar tax due on the payment
and/or
delivery of such Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment, as applicable.
Because the date on which the Notes begin trading without the
entitlement to a Cash M&T Distribution Adjustment and the
record date for a Cash M&T Distribution Adjustment with
respect to the Notes will match the ex-dividend date and record
date for the corresponding Qualifying Distribution with respect
to the M&T common stock, we expect the Notes to trade
without the entitlement to a Cash M&T Distribution
Adjustment when the M&T common stock trades ex-dividend.
However, because holders of the Notes will only receive a
Non-cash M&T Distribution Adjustment if the Notes are
exchanged for M&T common stock, the record date with
respect to the Notes for a Non-cash M&T Distribution
Adjustment will not match the record date for the corresponding
Qualifying Distribution with respect to the M&T common
stock, and we do not expect the Notes to trade without the
entitlement to a Non-cash M&T Distribution Adjustment prior
to the Exchange Date.
No Early
Exchange or Redemption
If we satisfy the Exchange Condition and no Regulatory Event
occurs, we will not have the option to exchange the Notes for
M&T common stock prior to the Exchange Date, nor will we
have the option to redeem the Notes. If we do not satisfy the
Exchange Condition, we will not have the option to redeem the
Notes prior to the Maturity Date, nor will we have the option to
exchange the Notes for M&T common stock.
If we satisfy the Exchange Condition and no Regulatory Event
occurs, you will not have the option to cause us to exchange the
Notes for M&T common stock prior to the Exchange Date, nor
will you have the option to cause us to redeem or otherwise
repurchase the Notes. If we do not satisfy the Exchange
Condition, you will not have the option to cause us to redeem or
otherwise repurchase the Notes prior to the Maturity Date, nor
will you have the option to cause us to exchange the Notes for
M&T common stock.
Remedies
The provisions set forth in Description of Debt
Securities Events of Default; Limitation of
Remedies of the accompanying prospectus (i) defining
Senior Debt Securities Event of Default,
(ii) relating to the
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acceleration of debt securities issued under the Indenture and
(iii) relating to Withheld Amounts will not
apply to the Notes.
If there is a (a) failure to pay to holders all or any part
of the applicable Redemption Price when due on the Maturity
Date, (b) failure to deliver the M&T common stock when
due on the Exchange Date (including cash in lieu of any
fractional shares of M&T common stock) or (c) failure
to make any Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment when due (including cash in
lieu of any fractional non-cash property), the Trustee
(i) may in its discretion or (ii) shall, at the
request of holders of at least 25% in aggregate outstanding
principal amount of the Notes (or, if on or after the Exchange
Date or Maturity Date, as applicable, and with respect to a
failure to make any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment when due (including
cash in lieu of any fractional non-cash property), at the
request of Record Date Holders or Exchange Date Holders entitled
to at least 25% of the applicable Cash M&T Distribution
Adjustment or Non-cash M&T Distribution Adjustment,
respectively) and after such holders provide the Trustee with
satisfactory indemnity, and subject to certain other conditions
specified in the Indenture, bring suit to enforce the provision
with respect to which the default has occurred and is
continuing. Subject to the Indenture provisions for the
indemnification of the Trustee, the holder(s) of a majority in
aggregate principal amount of the Notes (or, if on or after the
Exchange Date or Maturity Date, as applicable, and with respect
to a failure to make any Cash M&T Distribution Adjustment
or Non-cash M&T Distribution Adjustment when due (including
cash in lieu of any fractional non-cash property), Record Date
Holders or Exchange Date Holders entitled to more than 50% of
the applicable Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment, respectively) will have the
right to direct the time, method and place of conducting any
proceeding in the name of and on the behalf of the Trustee for
any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Notes.
However, this direction must not be in conflict with any rule of
law or the Indenture, and must not be unjustly prejudicial to
the holder(s) of any Notes or Record Date Holders, as
applicable, not taking part in the direction, as determined by
the Trustee. The Trustee may also take any other action,
consistent with the direction, that it deems proper.
The holder(s) of a majority of the aggregate principal amount of
the outstanding Notes may waive any past default under the
Indenture on behalf of the holders of all outstanding Notes,
except that the consent of the holders of each Note affected
thereby (or, if on or after the Exchange Date or Maturity Date,
as applicable, and with respect to a failure to make any Cash
M&T Distribution Adjustment or Non-cash M&T
Distribution Adjustment when due (including cash in lieu of any
fractional non-cash property), the consent of each Record Date
Holder or each Exchange Date Holder, as applicable, affected
thereby) is required to waive any default in respect of:
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failure to pay the applicable Redemption Price when due on
the Maturity Date;
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failure to make any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment (including cash in
lieu of any fractional non-cash property) when due;
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if the Exchange Condition is satisfied, a failure to deliver the
aggregate number of shares of M&T common stock required to
exchange all of the outstanding Notes on the Exchange Date
(including cash in lieu of any fractional shares of M&T
common stock) unless such failure is due to the occurrence of a
Regulatory Event; or
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a covenant or provision of the Indenture that cannot be modified
or amended without the consent of each holder of Notes or Record
Date Holder, as applicable.
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The Trustee will, within two business days of a default with
respect to the payment of the Redemption Price, the payment
or delivery of a Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment or the delivery of
M&T common stock, give to each affected holder of the Notes
notice of any such default of which the Trustee has knowledge,
unless such default has been cured or waived.
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Notwithstanding any contrary provisions, nothing will impair the
right of a holder, absent the holders consent, to sue for
any payments
and/or
deliveries due but not paid
and/or
delivered with respect to the Notes.
Antidilution
Adjustments
The Exchange Ratio will be adjusted by the Trustee if M&T
common stock is subject to a stock split or stock combination
with an effective date after the Pricing Date, and prior to the
Exchange Date or the Maturity Date, as applicable. We will
provide written notice to the holders of the Notes and the
Trustee notifying them of the stock split or stock combination
and the proposed effective date within two business days of an
announcement by M&T of such stock split or stock
combination. Once such split or combination becomes effective,
the Exchange Ratio will be adjusted based on the following
formula:
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ER¢ = ER(0) × Share Ratio
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where,
ER0
= the Exchange Ratio in effect immediately prior to the open of
business on the effective date of such stock split or stock
combination;
ER¢
= the Exchange Ratio in effect immediately after the open of
business on the effective date of such stock split or stock
combination; and
Share Ratio = the ratio of (x) the number of shares of
M&T common stock outstanding immediately after such stock
split or stock combination to (y) the number of shares of
M&T common stock outstanding immediately prior to the open
of business on the effective date of such stock split or stock
combination.
Any adjustment to the Exchange Ratio will become effective
immediately after the open of business on the effective date for
such stock split or stock combination. We will provide the
Trustee written notice no later than 6:00 p.m. (New York
City time) on the effective date of a stock split or stock
combination of the nature of such stock split or stock
combination, the effective date thereof and the ratio of
(x) the number of shares of M&T Common Stock
outstanding immediately after such stock split or stock
combination to (y) the number of shares of M&T common
stock outstanding immediately prior to the open of business on
the effective date of such stock split or stock combination. The
Trustee will provide to us a written statement setting out in
reasonable detail the calculation of the revised Exchange Ratio
no later than the business day after its receipt of the notice
specified in the preceding sentence.
Limited
Rights with Respect to M&T Common Stock
If (i) the Exchange Condition is not satisfied or
(ii) the Exchange Condition is satisfied but we fail to
deliver the aggregate number of shares of M&T common stock
required to exchange all of the outstanding Notes on the
Exchange Date due to the occurrence of a Regulatory Event,
holders of the Notes will have no rights with respect to our
shares of M&T common stock or any dividend or other
distribution declared in connection with M&T common stock
other than the right to receive any Cash M&T Distribution
Adjustment. If the Notes are exchanged for M&T common
stock, holders of the Notes will have no rights with respect to
our shares of M&T common stock until the consummation of
the mandatory exchange on the Exchange Date. AIBs right to
representation on M&Ts board of directors and other
rights under the Agreement and Plan of Reorganization dated as
of September 26, 2002 between AIB and M&T will
generally expire upon the exchange of the Notes pursuant to the
terms of that agreement, and, in any event, will not be
available to any holder of Notes or person that acquires our
shares of M&T common stock upon or following exchange of
the Notes.
Modification
and Waiver
The Indenture may be modified and amended as described in
Description of Debt Securities Modification
and Waiver in the accompanying prospectus. In addition to
the modifications or amendments described in the accompanying
prospectus that may not be made without the consent of the
holder of each Note affected (or, in the case of any
modification or amendment that relates to a Cash M&T
Distribution
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Adjustment or Non-cash M&T Distribution Adjustment, without
the consent of each Record Date Holder or each Exchange Date
Holder entitled to the applicable Cash M&T Distribution
Adjustment or Non-cash M&T Distribution Adjustment), no
modification or amendment may be made that as to each
non-consenting holder:
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changes the amount or type of collateral required to be
deposited into the Control Account and pledged to the Trustee
for the benefit of the holders of the Notes and the Record Date
Holders;
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reduces the Exchange Ratio, other than pursuant to the
antidilution adjustments set forth above under
Antidilution Adjustments;
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reduces the applicable Redemption Price (other than as
provided for in this prospectus supplement in connection with
Cash M&T Distribution Adjustments);
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reduces any Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment or makes any adverse changes to
the rights of the Record Date Holders or Exchange Date Holders
to receive such Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment, respectively;
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changes any date for payment
and/or
delivery of the applicable Redemption Price, M&T
common stock or any Cash M&T Distribution Adjustment or
Non-cash M&T Distribution Adjustment; or
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changes in any manner adverse to the interests of the holders of
the Notes the provisions relating to the exchange of the Notes,
including the terms of a Regulatory Event or the Exchange
Condition.
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Additional
Amounts
The provisions set forth in Description of Debt
Securities Additional Amounts of the
accompanying prospectus will not apply to the Notes.
Any amounts (including capital stock or other non-cash property)
to be paid
and/or
delivered by us with respect to the Notes (the Original
Amount) will be paid without deduction or withholding for,
or on account of, any and all present or future taxes, duties,
assessments or other governmental charges (Taxes)
now or hereafter imposed, levied, collected, withheld or
assessed by or on behalf of Ireland (the Taxing
Jurisdiction), unless such deduction or withholding is
required by law. If any such Taxes shall at any time be required
by the Taxing Jurisdiction to be deducted or withheld, we will
pay such additional amounts of, or in respect of, any Original
Amount (Additional Amounts) as may be necessary in
order that the net amounts paid to the holders of the Notes or
the Record Date Holders, as applicable, after such deduction or
withholding, will equal such Original Amount, had no such
deduction or withholding been required; except that the
foregoing will not apply to any such Taxes that would not have
been payable or due but for the fact that:
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the holder or the beneficial owner of the Notes or the Record
Date Holder, as applicable, is a domiciliary, national or
resident of, or engages in business or maintains a permanent
establishment or is physically present in, the Taxing
Jurisdiction requiring such deduction or withholding of Taxes,
or otherwise has some connection with the Taxing Jurisdiction
other than the holding or ownership of the Notes, or the
collection of the Original Amount;
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except in the case of our
winding-up
in Ireland, the Notes are presented for payment
and/or
exchange in Ireland;
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the relevant Notes are presented for payment
and/or
delivery more than 30 days after the date payment
and/or
delivery became due or was provided for, whichever is later,
except to the extent that the holder of the Notes or the Record
Date Holder, as applicable, would have been entitled to such
Additional Amounts on presenting the same for payment
and/or
delivery at the close of such
30-day
period;
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the holder or the beneficial owner of the Notes or the Record
Date Holder, as applicable, or the beneficial owner of any
payment
and/or
delivery of the Original Amount failed to make any necessary
claim or to comply with any certification, identification or
other requirements concerning the nationality, residence,
identity or connection with the taxing jurisdiction of such
holder or beneficial
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owner or Record Date Holder, as applicable, if such claim or
compliance is required by statute, treaty, regulation or
administrative practice of the Taxing Jurisdiction as a
condition to relief or exemption from such Taxes;
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such Taxes are imposed on a payment to an individual and are
required to be made pursuant to the Directive on the Taxation of
Savings 2003/48/EC (the Directive) adopted by the
Council of the European Union on June 3, 2003, or any law
implementing or complying with, or introduced in order to
conform to, such Directive;
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the Notes are presented for payment or exchange by or on behalf
of a holder who would have been able to avoid such Taxes by
presenting or exchanging the relevant Notes to another Paying
Agent in a member state of the European Union or
elsewhere; or
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if such Taxes would not have been so imposed, or would have been
excluded pursuant to the bullet points above, if the beneficial
owner of, or person ultimately entitled to obtain an interest
in, such Notes had been the holder of such Notes.
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Whenever in this prospectus supplement or the accompanying
prospectus, there is mentioned, in any context, the payment
and/or
delivery of the Original Amount, such mention will be deemed to
include mention of the payment of Additional Amounts to the
extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof as if express mention of the
payment of Additional Amounts (if applicable) were made in any
provisions hereof where such express mention is not made.
No
Personal Liability of Incorporator, Stockholders, Officers or
Directors
No incorporator, stockholder, officer or director, past, present
or future, of AIB will have any personal liability for
AIBs obligations under the Notes. To the extent lawful,
all such liability is waived and released as a condition of, and
as consideration for, the execution of the Indenture and the
issue of the Notes.
Book-Entry,
Delivery and Form
The Notes will be issued in the form of one or more fully
registered global securities, which will be deposited with, or
on behalf of, The Depository Trust Company, New York, New
York, the depositary or DTC, and
registered in the name of Cede & Co., the
depositarys nominee.
So long as Cede & Co. is the registered owner of any
Notes, Cede & Co. will be considered the sole holder
of outstanding Notes represented by such global securities under
the Indenture. Except as provided below, owners of Notes will
not be entitled to have the Notes registered in their names and
will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving
of any directions, instructions, or approvals to the Trustee.
Neither we nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments
made on account of Notes by DTC or its participants, or for
maintaining, supervising or reviewing any records of DTC or its
participants relating to such Notes.
The depositary has advised us as follows: the depositary is a
limited-purpose trust company organized under the New York
Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of
1934, as amended. The depositary holds securities deposited with
it by its participants and facilitates the settlement of
transactions among its participants in those securities through
electronic computerized book-entry changes in participants
accounts, eliminating the need for physical movement of
securities certificates. The depositarys participants
include securities brokers and dealers (including underwriters),
banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own
the depositary. Access to the depositarys book-entry
system is
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also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Purchases of the Notes under the depositarys system must
be made by or through its direct participants, which will
receive a credit for the Notes on the depositarys records.
The ownership interest of each actual purchaser of each Note
(the beneficial owner) is in turn to be recorded on the records
of direct and indirect participants. Beneficial owners will not
receive written confirmation from the depositary of their
purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct or
indirect participants through which the beneficial owner entered
into the transaction. Transfers of ownership interests in the
Notes are to be made by entries on the books of direct and
indirect participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing
their ownership interests in the Notes, except in the event that
use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, all securities deposited
with the depositary are registered in the name of the
depositarys partnership nominee, Cede & Co., or
such other name as may be requested by the depositary. The
deposit of securities with the depositary and their registration
in the name of Cede & Co. or such other nominee of the
depositary do not effect any change in beneficial ownership. The
depositary has no knowledge of the actual beneficial owners of
the Notes; the depositarys records reflect only the
identity of the direct participants to whose accounts the Notes
are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by the depositary
to direct participants, by direct participants to indirect
participants, and by direct participants and indirect
participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the depositary nor Cede & Co. (nor any other
nominee of the depositary) will consent or vote with respect to
the Notes unless authorized by a direct participant in
accordance with the depositarys procedures. Under its
usual procedures, the depositary mails an omnibus proxy to us as
soon as possible after the applicable record date. The omnibus
proxy assigns Cede & Co.s consenting or voting
rights to those direct participants identified in a listing
attached to the omnibus proxy to whose accounts the securities
are credited on the record date.
Payments in respect of the Redemption Price and any Cash
M&T Distribution Adjustment and delivery of M&T common
stock and any Non-cash M&T Distribution Adjustment will be
made to Cede & Co. or such other nominee as may be
requested by the depositary. The depositarys practice is
to credit direct participants accounts upon the
depositarys receipt of funds and other property and
corresponding detail information from us or any agent of ours,
on the date payable in accordance with their respective holdings
shown on the depositarys records. Payments by participants
to beneficial owners will be governed by standing instructions
and customary practices, as is the case with securities held for
the accounts of customers in bearer form or registered in street
name, and will be the responsibility of such participant and not
of the depositary or its nominee, the Trustee, any agent of
ours, or us, subject to any statutory or regulatory requirements
as may be in effect from time to time. The payment of the
Redemption Price and any Cash M&T Distribution
Adjustment and delivery of M&T common stock and any
Non-cash M&T Distribution Adjustment to Cede &
Co. or such other nominee as may be requested by the depositary
is our responsibility or the responsibility of any paying agent
or other agent of ours, disbursement of such payments
and/or
delivery of other property to direct participants will be the
responsibility of the depositary, and disbursement of such
payments
and/or
delivery of other property to the beneficial owners will be the
responsibility of direct and indirect participants.
We may decide to discontinue use of the system of book-entry
transfers through the depositary or any successor depositary. We
understand, however, that under its current practices, the
depositary would notify its participants of our request, but
will only withdraw beneficial interests from a global security
at the request of each participant. We would issue definitive
certificates in exchange for any such interests withdrawn. See
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Description of Debt Securities Legal
Ownership; Form of Debt Securities in the accompanying
prospectus.
According to the depositary, the foregoing information relating
to the depositary has been provided to the financial community
for informational purposes only and is not intended to serve as
a representation, warranty or contract modification of any kind.
The information in this section concerning the depositary and
depositarys book-entry system has been obtained from
sources we believe to be reliable, but we take no responsibility
for the accuracy thereof. The depositary may change or
discontinue the foregoing procedures at any time.
Governing
Law
The Notes, the Indenture and the Security Agreement are each
governed by and will be construed in accordance with the laws of
the State of New York without giving effect to the principles of
conflicts of laws of that State.
Information
Concerning the Trustee, the Paying Agent and the Bank
The Bank of New York Mellon will be the initial Trustee and
Paying Agent for the Notes and the Bank with respect to the
Control Account. The Bank of New York Mellon is one of a number
of banks with which we maintain banking relationships in the
ordinary course of business, and The Bank of New York Mellon and
its affiliates may also provide other services to us in the
ordinary course of their business.
All determinations made by the Trustee with respect to
antidilution adjustments described in
Antidilution Adjustments above
will, in the absence of manifest error, be conclusive for all
purposes and binding on the holders of the Notes or the Record
Date Holders, the Paying Agent and us.
All calculations with respect to the Exchange Ratio will be made
by the Trustee and will be rounded to the nearest one
hundred-thousandth, with five one-millionths rounded upward
(e.g., .876545 would be rounded to .87655), and all
dollar amounts paid to you with respect to the Notes will be
rounded to the nearest cent with one-half cent rounded upward.
Any notice provided by us to the Trustee in connection with the
Notes and the Indenture will be in the form of an officers
certificate.
M&T
Bank Corporation
The obligations represented by the Notes are obligations of AIB
and not of M&T. M&T will not receive any of the
proceeds from the sale of the Notes.
Additional
Covenants
Pursuant to the Indenture, we have agreed that, other than with
respect to the Notes, we will not, during the term of the Notes,
(i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend or
otherwise transfer or dispose of, directly or indirectly, any
M&T common stock or any security convertible into or
exercisable or exchangeable for M&T common stock or
(ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic
consequences of ownership of M&T common stock, whether any
such transaction described in (i) or (ii) above is to
be settled by delivery of M&T common stock or such other
securities, in cash or otherwise.
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In addition, we have agreed to provide written notice to the New
York Stock Exchange of the date of the Extraordinary General
Meeting as soon as it is known to us and of any future record
date for any Cash M&T Distribution Adjustment or Non-cash
M&T Distribution Adjustment with respect to the Notes not
later than one business day after M&T publicly announces
the record date for any Qualifying Distribution. Such record
date for the Notes will be the same as the record date for the
Qualifying Distribution.
Listing
There is currently no public market for the Notes. The Notes
have been approved for listing on the New York Stock
Exchange, under the symbol MTC and are expected to
trade on the New York Stock Exchange on the trading day
following the Pricing Date. Our American depositary shares are
listed on the New York Stock Exchange under the symbol
AIB. The last reported sale price of our American
depositary shares on October 4, 2010 was $1.35 per share.
M&T common stock is listed on the New York Stock Exchange
under the symbol MTB. The last reported sale price
of M&T common stock on October 4, 2010 was $82.15 per
share.
S-83
CERTAIN
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion sets forth certain anticipated
United States federal income tax considerations relating to the
ownership and disposition of the Notes. This discussion does not
address the tax consequences of the ownership and disposition of
the Notes arising under the unearned income Medicare
contribution tax pursuant to the Health Care and Education
Reconciliation Act of 2010, and does not address any tax
consequences arising under the laws of any state, local or
foreign jurisdiction, or under any United States federal
laws other than those pertaining to income tax. This discussion
does not address the U.S. federal income tax consequences
of the ownership or disposition of the M&T common stock
should you receive the M&T common stock on the Exchange
Date. You should consult your tax advisor regarding the
potential U.S. federal income tax consequences of the
ownership and disposition of the M&T common stock. This
discussion is based upon the Internal Revenue Code of 1986, as
amended, or the Code, the regulations promulgated
under the Code and court and administrative rulings and
decisions, all as in effect on the date of this document. These
laws may change, possibly retroactively, and any change could
affect the accuracy of the statements and conclusions set forth
in this discussion.
This discussion addresses only those initial holders that
purchase the Notes at the issue price and that hold the Notes as
capital assets within the meaning of Section 1221 of the
Code. Further, this discussion does not address all aspects of
United States federal income taxation that may be relevant to
you in light of your particular circumstances or that may be
applicable to you if you are subject to special treatment under
the United States federal income tax laws, including if you are:
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a financial institution;
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a tax-exempt organization;
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an S corporation, a partnership or other pass-through
entity (or an investor in an S corporation, a partnership
or other pass-through entity);
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an insurance company;
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a mutual fund;
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a dealer or broker in stocks and securities, or currencies;
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a trader in securities that elects
mark-to-market
treatment;
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a holder of Notes subject to the alternative minimum tax
provisions of the Code;
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a U.S. holder (as defined below) that has a functional
currency other than the U.S. dollar;
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a
non-U.S. investor
whose gain or loss with respect to the Notes is effectively
connected with the conduct of a trade or business in the United
States;
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a holder of Notes that holds the Notes as part of a hedge,
straddle, constructive sale, conversion, integrated transaction
or similar transaction; or
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a United States expatriate.
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Determining the actual tax consequences of owning and disposing
of the Notes to you may be complex. They will depend on your
specific situation and on factors that are not within our
control. The Notes are novel financial instruments, and there is
no clear authority addressing their United States federal income
tax treatment. We have not sought and do not intend to seek any
rulings concerning the treatment of the Notes, and no assurances
can be given that the IRS will agree with the discussion set
forth herein. As the law applicable to the United States federal
income taxation of instruments such as the Notes is technical
and complex, the discussion below necessarily represents only a
general summary. You should consult with your own tax advisor as
to the tax consequences of owning and disposing of the Notes in
your particular circumstances, including the applicability and
effect of the alternative minimum tax and any state, local,
foreign or other tax laws and of changes in those laws.
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Except to the extent discussed under
Non-U.S. Holders,
this summary only addresses the tax considerations to a
beneficial owner of Notes that is a
U.S. Holder. For purposes of this discussion,
the term U.S. holder means a beneficial owner
of Notes that is for United States federal income tax purposes
(i) an individual citizen or resident of the United States,
(ii) a corporation, or entity treated as a corporation,
organized in or under the laws of the United States or any state
thereof or the District of Columbia, (iii) a trust if
(a) a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more U.S. persons have the authority to control all
substantial decisions of the trust or (b) such trust has
made a valid election to be treated as a U.S. person for
United States federal income tax purposes or (iv) an
estate, the income of which is includible in gross income for
United States federal income tax purposes regardless of its
source.
The United States federal income tax consequences to a partner
in an entity or arrangement treated as a partnership, for United
States federal income tax purposes, that holds Notes generally
will depend on the status of the partner and the activities of
the partnership. Partners in a partnership holding Notes should
consult their own tax advisors. As used in this section,
M&T Distribution Adjustment shall refer to both
a Cash M&T Distribution Adjustment and a Non-cash M&T
Distribution Adjustment.
You are urged to consult your own tax advisor regarding all
aspects of the U.S. federal income tax consequences of
investing in the Notes, as well as any tax consequences arising
under the laws of any state, local or foreign taxing
jurisdiction.
General
In purchasing the Notes, you agree with us that you will be
obligated (in the absence of an administrative determination or
judicial ruling to the contrary) to characterize the Notes for
all tax purposes as a forward purchase contract to purchase
M&T common stock on the Exchange Date, coupled with an
interest in a deposit of a fixed amount of cash, equal to the
issue price, to secure your obligation under the forward
purchase contract. Under the terms of this forward purchase
contract:
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at the time of issuance of the Notes, you deposit with us a
fixed amount of cash equal to the purchase price of the Notes to
assure the fulfillment of your purchase obligation described
below;
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if the Exchange Condition is satisfied (and no Regulatory Event
occurs), the cash deposit (reduced by the amount of any cash
owed to holders of Notes with respect to a Cash M&T
Distribution Adjustment) will unconditionally and irrevocably be
applied on the Exchange Date to satisfy such obligation and we
will deliver to you the number of shares of M&T common
stock that you are entitled to receive at that time pursuant to
the terms of the Notes; and
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if we do not satisfy the Exchange Condition (or we do satisfy
the Exchange Condition but a Regulatory Event occurs), the cash
deposit, together with the Redemption Premium (but reduced by
the amount of any declared Cash M&T Distribution Adjustment
in excess of $ per Note), will be
released from the Control Account to you on the Maturity Date.
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U.S.
Holders
Sale
or Other Disposition of the Notes
Upon the sale or other taxable disposition of a Note, under the
characterization above, you generally will recognize capital
gain or loss equal to the difference between the amount realized
on the sale or other taxable disposition and your tax basis in
the Note. Your tax basis in a Note generally will equal your
cost for the Note. Such gain or loss generally will be
short-term capital gain or loss.
Settlement
of the Forward Contract
On the delivery of M&T common stock on the Exchange Date,
under the characterization above, you will recognize no gain or
loss on the purchase of the M&T common stock by application
of the cash received by
S-85
us in respect of the Notes. Your holding period with respect to
the M&T common stock will begin on the day after the
Exchange Date.
Your tax basis in the M&T common stock acquired pursuant to
the forward purchase contract is uncertain. It is possible that
you will have a tax basis in the M&T common stock equal to
your tax basis in the Notes. If, however, the amount of the cash
deposit that is applied to satisfy your obligation under the
forward contract is reduced by the amount of any cash owed to
you with respect to a Cash M&T Distribution Adjustment,
your basis may be treated as having been reduced by the amount
of such Cash M&T Distribution Adjustment. In the event that
the M&T Distribution Adjustment includes property other
than cash, it is also possible that a portion of your basis in
the Notes would be allocable to such property as described below
under Treatment of any M&T Distribution
Adjustment upon Mandatory Exchange. You should consult
with your own tax advisors regarding your tax basis in the
M&T common stock acquired pursuant to the forward purchase
contract.
If you receive cash instead of a fractional share of M&T
common stock, you generally will be treated as having received
the fractional share of M&T common stock and then as having
sold that fractional share of M&T common stock for cash. As
a result, you generally will recognize gain or loss equal to the
difference between the amount of cash received and the basis in
your fractional share of M&T common stock as set forth
above. This gain or loss generally will be short-term capital
gain or loss.
Mandatory
Redemption of the Notes
If we do not satisfy the Exchange Condition (or we do satisfy
the Exchange Condition but a Regulatory Event occurs) and redeem
the Notes on the Maturity Date, you will have gross income equal
to the excess of the Redemption Price over your tax basis
in the Note in respect of each Note. The United States federal
income tax treatment of this excess amount is uncertain, and
there is no legal authority addressing the United States
federal income tax consequences of its receipt. It is possible
that this excess amount may be treated as additional
consideration paid in exchange for the Notes, which would be
treated in the manner described above under
Sale or Other Disposition of the Notes.
In addition, the U.S. federal income tax treatment of the
Cash M&T Distribution Adjustment is unclear. In the event
that the Notes are not mandatorily exchanged into M&T
common stock, the Cash M&T Distribution Adjustment may be
taken into account by increasing any gain recognized on the
redemption of the Notes. It is also possible, however, that this
excess amount and the Cash M&T Distribution Adjustment may
be treated as interest or as a separate fee, in which case such
payments would be treated as ordinary income to you. You should
consult with your own tax advisors regarding the United States
federal income tax treatment of this excess amount and the Cash
M&T Distribution Adjustment received in the event the Notes
are redeemed.
Treatment
of any M&T Distribution Adjustment upon Mandatory
Exchange
The United States federal income tax treatment of the M&T
Distribution Adjustment is uncertain, and there is no legal
authority addressing the United States federal income tax
consequences of its receipt. In the event the Notes are
mandatorily exchanged into M&T common stock, it is possible
that any amount of cash owed to you with respect to a Cash
M&T Distribution Adjustment will be treated as an
adjustment to the purchase price under the forward contract. In
such case, the amount will not be treated as income to you but,
instead, will reduce your basis in any M&T common stock
received by you, as discussed above under
Settlement of the Forward Contract. It
is also possible that you may have ordinary income equal to the
amount of cash and the fair market value of property included in
the M&T Distribution Adjustment. In that event, your tax
basis in any property that you receive in the M&T
Distribution Adjustment other than cash generally would equal
the amount of gross income included with respect thereto and
your holding period with respect to such property would begin on
the day after the date of receipt of such property. It is also
possible, however, that you may be treated as allocating your
basis in the Notes to the M&T common stock, on the one
hand, and cash and property other than cash to which you are
entitled as a result of the M&T Distribution Adjustment, on
the other hand. Under this treatment, (i) you would have
taxable gain or loss upon receipt of any cash equal to the
difference between the amount of cash received and your basis in
your pro rata portion of the Notes for which such cash was
received, and any gain or loss generally would be short-term
capital
S-86
gain or loss; (ii) your basis in the M&T common stock
and any property other than cash would equal the portion of your
basis in the Notes allocated thereto. You should consult with
your own tax advisors regarding the United States federal income
tax treatment of the M&T Distribution Adjustment.
Information
Reporting and Backup Withholding
If you are a non-corporate holder of Notes, you may be subject
to information reporting and backup withholding on certain
amounts paid to you. You generally will not be subject to backup
withholding, however, if you:
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furnish a correct taxpayer identification number, certify that
you are not subject to backup withholding on an IRS
Form W-9
or successor form included in the election form/letter of
transmittal you will receive and otherwise comply with all the
applicable requirements of the backup withholding rules; or
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provide proof that you are otherwise exempt from backup
withholding.
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Any amounts withheld under the backup withholding rules will
generally be allowed as a refund or credit against your United
States federal income tax liability, provided you timely furnish
the required information to the IRS.
Non-U.S.
Holders
This section only applies to you if you are a
Non-U.S. holder.
As used herein, the term
Non-U.S. holder
means a beneficial owner of the Notes that is for
U.S. federal income tax purposes (i) a nonresident
alien individual, (ii) a foreign corporation, or
(iii) a foreign trust or estate.
Any amounts (including shares of the M&T common stock, Cash
M&T Distribution Adjustment and Non-cash M&T
Distribution Adjustment) to be paid
and/or
delivered to a
Non-U.S. holder
will not be subject to United States withholding tax. Gain
realized by a
Non-U.S. holder
on its disposition of the Notes will not be subject to
U.S. federal income tax unless the
Non-U.S. holder
is an individual who is present in the United States for at
least 183 days during the taxable year of disposition and
certain other conditions are met.
Information
Reporting and Backup Withholding
Unless the
Non-U.S. holder
complies with certification procedures to establish that it is
not a United States person, information returns may be
filed with the IRS in connection with payments on the Notes or
with the proceeds from a sale or other disposition of the Notes
and the
Non-U.S. holder
may be subject to United States backup withholding on payments
on the Notes or on the proceeds from a sale or other disposition
of the Notes. The amount of any backup withholding from a
payment to a
Non-U.S. holder
will be allowed as a credit against the
Non-U.S. holders
U.S. federal income tax liability and may entitle the
Non-U.S. holder
to a refund, provided that the required information is timely
furnished to the IRS.
S-87
MATERIAL
IRISH INCOME TAX CONSEQUENCES
Ireland
The following is a general summary of certain material Irish tax
considerations relating to the issue, disposal, mandatory
redemption or mandatory exchange of the Notes for the M&T
common stock and any payments
and/or
deliveries made in relation to the Notes. It does not purport to
be, and is not, a complete description of all the tax
considerations that may be relevant to a decision to subscribe
for, buy, hold, sell, exchange or redeem the Notes. The summary
does not deal with the Irish tax consequences for any Irish tax
resident persons (or any persons who carry on a trade in Ireland
through a branch or agency) of acquiring, holding, exchanging or
disposing of the Notes. The summary assumes the Notes will be
listed on a stock exchange. Any Note holders who are in any
doubt as to the applicable tax consequences of their acquiring,
holding, disposing or exchanging the Notes for M&T common
stock should seek their own professional tax advice.
Irish
Withholding Tax
There is no obligation for any amount on account of Irish tax to
be withheld from payments
and/or
deliveries made on the Notes.
Income
Tax
Interest, discount or premium on the Notes may have an Irish
source and consequently may be chargeable to Irish income tax.
Any liability to Irish tax may be reduced or eliminated under
the terms of the Double Taxation Agreement between Ireland and
the United States.
In addition, the Irish Revenue Commissioners generally do not
seek to assess such interest, discount or premium on debt
securities to Irish tax in the hands of persons who are neither
resident nor ordinarily resident in Ireland, except where such
persons:
(a) are chargeable in the name of a person (including a
trustee) or in the name of an agent or a branch in Ireland which
has the management or control of its interest, discount or
premium; or
(b) seek to claim relief
and/or
repayment of tax deducted at source in respect of taxed income
from Irish sources; or
(c) are chargeable to Irish corporation tax on the income
of an Irish branch or agency or to Irish income tax on the
profits of a trade or business carried on in Ireland to which
the interest, discount or premium is attributable.
Capital
Gains Tax
A holder of the Notes will not be subject to Irish tax on
capital gains provided that such holder of the Notes is neither
resident nor ordinarily resident in Ireland and such holder does
not carry on an enterprise in Ireland through a branch or agency
to which the Notes are or were attributable.
Capital
Acquisitions Tax
Where a gift or inheritance is taken under a disposition and the
date of the disposition is on or after December 1, 1999,
gifts or bequest of debt securities may be liable to Irish
capital acquisitions tax if the disposer or the beneficiary is
resident or ordinarily resident in Ireland for Irish tax
purposes or if the debt securities which are subject of the
disposition are regarded as property situated in Ireland.
Different rules
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apply where the gift or inheritance is taken under a disposition
where the date of the disposition is before December 1,
1999.
Stamp
Duty
The issue of the Notes will not give rise to a charge to Irish
stamp duty.
As the Notes are issued outside of Ireland and are issued in
U.S. dollars and are not being offered for subscription in
Ireland or being offered for subscription with a view to an
offer for sale in Ireland, they will constitute a foreign loan
security for Irish stamp duty purposes and no Irish stamp duty
will arise on any transfer of the Notes.
No Irish stamp duty will arise on the exchange of the Notes for
M&T common stock in the event of a mandatory exchange of
the Notes.
S-89
CERTAIN
ERISA AND OTHER BENEFIT PLAN CONSIDERATIONS
The following is a summary of certain considerations
associated with the purchase, holding and, to the extent
relevant, disposition, exchange or redemption of the Notes by an
employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), a plan described in Section 4975 of
the Code, including an individual retirement account or a Keogh
plan, a plan subject to provisions under applicable federal,
state, local,
non-U.S. or
other laws or regulations that are similar to the provisions of
Title I of ERISA or Section 4975 of the Code
(Similar Laws) and any entity whose underlying
assets include plan assets by reason of any such
employee benefit or retirement plans investment in such
entity (each of which we refer to as a Plan).
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TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230,
HOLDERS OF THE NOTES ARE HEREBY NOTIFIED THAT: (A) ANY
DISCUSSION OF UNITED STATES FEDERAL TAX ISSUES IN THIS OFFERING
CIRCULAR IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND
CANNOT BE RELIED UPON, BY HOLDERS OF THE NOTES FOR THE
PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON SUCH
HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH
DISCUSSION IS INCLUDED HEREIN BY THE ISSUER IN CONNECTION WITH
THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR
230) BY THE ISSUER OF THE TRANSACTIONS OR MATTERS ADDRESSED
HEREIN; AND (C) HOLDERS OF THE NOTES SHOULD SEEK
ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN
INDEPENDENT TAX ADVISOR.
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General
Fiduciary Matters
ERISA and the Code impose certain duties on persons who are
fiduciaries of a Plan subject to Title I of ERISA or
Section 4975 of the Code (an ERISA Plan) and
prohibit certain transactions involving the assets of an ERISA
Plan with its fiduciaries or other interested parties. In
general, under ERISA and the Code, any person who exercises any
discretionary authority or control over the administration of
such an ERISA Plan or the management or disposition of the
assets of such an ERISA Plan, or who renders investment advice
for a fee or other compensation to such an ERISA Plan, is
generally considered to be a fiduciary of the ERISA Plan. Plans
that are governmental plans (as defined in Section 3(32) of
ERISA), certain church plans (as defined in Section 3(33)
of ERISA or Section 4975(g)(3) of the Code) and
non-U.S. plans
(as described in Section 4(b)(4) of ERISA) are not subject
to the requirements of ERISA or Section 4975 of the Code
(but may be subject to similar prohibitions under Similar Laws).
In considering the purchase, holding and, to the extent
relevant, disposition, exchange or redemption of the
Notes with a portion of the assets of a Plan, a fiduciary should
determine whether the investment is in accordance with the
documents and instruments governing the Plan and the applicable
provisions of ERISA, the Code or any Similar Law relating to a
fiduciarys duties to the Plan including, without
limitation, the prudence, diversification, delegation of control
and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.
Prohibited
Transaction Issues
Section 406 of ERISA prohibits ERISA Plans from engaging in
specified transactions involving plan assets with persons or
entities who are parties in interest, within the
meaning of Section 3(14) of ERISA, and Section 4975 of
the Code imposes an excise tax on certain disqualified
persons, within the meaning of Section 4975 of the
Code, who engage in similar transactions, in each case unless an
exemption is available. A party in interest or disqualified
person who engages in a nonexempt prohibited transaction may be
subject to excise taxes and other penalties and liabilities
under ERISA and the Code. In addition, the fiduciary of an ERISA
Plan that engages in such a nonexempt prohibited transaction may
be subject to penalties and liabilities under ERISA and the
Code. In the case of an individual retirement account, the
occurrence of a prohibited transaction could cause the
individual retirement account to lose its tax-exempt status.
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AIB (either directly or as a consequence of its interests in
other entities, such as M&T), M&T or the underwriters
may be parties in interest or disqualified persons with respect
to ERISA Plans and the purchase, holding and, to the extent
relevant, disposition, exchange or redemption of the Notes by an
ERISA Plan with respect to which AIB, M&T or the
underwriters (or certain of our or their affiliates) is
considered a party in interest or a disqualified person may
constitute or result in a direct or indirect prohibited
transaction under Section 406 of ERISA
and/or
Section 4975 of the Code, unless the investment is
acquired, held and, to the extent relevant, disposed, exchanged
or redeemed in accordance with an applicable statutory, class or
individual prohibited transaction exemption. In this regard, the
U.S. Department of Labor has issued prohibited transaction
class exemptions, or PTCEs, that may apply to the
acquisition, holding and, to the extent relevant, disposition,
exchange or redemption of the Notes. These class exemptions
include, without limitation,
PTCE 84-14
respecting transactions determined by independent qualified
professional asset managers,
PTCE 90-1
respecting insurance company pooled separate accounts,
PTCE 91-38
respecting bank collective investment funds,
PTCE 95-60
respecting life insurance company general accounts and
PTCE 96-23
respecting transactions determined by in-house asset managers.
In addition, Section 408(b)(17) of ERISA and
Section 4975(d)(20) of the Code each provides a limited
exemption, commonly referred to as the service provider
exemption, from the prohibited transaction provisions of
ERISA and Section 4975 of the Code for certain transactions
between an ERISA Plan and a person that is a party in interest
and/or a
disqualified person (other than a fiduciary or an affiliate
that, directly or indirectly, has or exercises any discretionary
authority or control or renders any investment advice with
respect to the assets of any ERISA Plan involved in the
transaction) solely by reason of providing services to the Plan
or by relationship to a service provider, provided that the
ERISA Plan pays no more, and receives no less, than adequate
consideration in connection with the transaction. There can be
no assurance that all of the conditions of any such exemptions
will be satisfied at the time that the Notes are acquired by a
purchaser, or thereafter, if the facts relied upon for utilizing
a prohibited transaction exemption change.
Because of the foregoing, the Notes should not be acquired, held
or, to the extent relevant, disposed, exchanged or redeemed by
any person investing plan assets of any Plan, unless
such acquisition, holding and, to the extent relevant,
disposition, exchange or redemption will not constitute a
non-exempt prohibited transaction under ERISA or
Section 4975 of the Code or similar violation of any
applicable Similar Laws for which there is no applicable
statutory, regulatory or administrative exemption.
Representation
Each purchaser and holder of the Notes will be deemed to have
represented and warranted that either (i) it is not a Plan,
such as an individual retirement account, and no portion of the
assets used to acquire or hold the Notes constitutes assets of
any Plan or (ii) the purchase, holding and, to the extent
relevant, disposition, exchange or redemption of a note will not
constitute a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code or similar violation
under any applicable Similar Laws for which there is no
applicable statutory, regulatory or administrative exemption.
The foregoing discussion is general in nature and is not
intended to be all-inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in nonexempt prohibited transactions, it is
particularly important that fiduciaries or other persons
considering purchasing the Notes on behalf of, or with the
assets of, any Plan, consult with their counsel regarding the
potential applicability of ERISA, Section 4975 of the Code
and any Similar Laws to such investment and whether an exemption
would be applicable to the purchase, holding and, to the extent
relevant, disposition, exchange or redemption of the Notes. Each
purchaser and holder of Notes will have exclusive responsibility
for ensuring that its purchase, holding and, to the extent
relevant, disposition, exchange or redemption of the Notes does
not violate the fiduciary or prohibited transaction rules of
ERISA, the Code or any Similar Law. The acquisition, holding
and, to the extent relevant, disposition, exchange or redemption
of Notes by or to any Plan is in no respect a representation by
us or any of our affiliates or representatives that such an
investment meets all relevant legal requirements with respect to
investments by such Plans generally or any particular Plan, or
that such an investment is appropriate for Plans generally or
any particular Plan.
S-91
UNDERWRITING
We intend to offer the Notes through the underwriters named
below for whom Citigroup Global Markets Inc. and Morgan
Stanley & Co. Incorporated are acting as
representatives. Subject to the terms and conditions contained
in the underwriting agreement, the underwriters named below have
severally agreed to purchase, and we have agreed to sell to that
underwriter, the number amount of Notes listed opposite the
underwriters name below.
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Underwriters
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Number of Notes
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Citigroup Global Markets Inc
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Morgan Stanley & Co. Incorporated
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Total
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The underwriters have agreed, subject to the terms and
conditions set forth in the underwriting agreement, to purchase
all of the Notes sold pursuant to the underwriting agreement if
any of these Notes are purchased. If an underwriter defaults,
the underwriting agreement provides that the underwriting
commitments of the non-defaulting underwriters may be increased,
or the underwriting agreement may be terminated.
The underwriters are offering the Notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, including the
validity of the Notes, and other conditions contained in the
underwriting agreement, such as the receipt by the underwriters
of officers certificates and legal opinions. The
underwriters reserve the right to withdraw, cancel or modify
offers to the public and to reject orders in whole or in part.
Prior to this offering, there has been no public market for the
Notes. Consequently, the initial public offering price for the
Notes was determined by negotiations among us and the
representatives. We cannot assure you, however, that the price
at which the shares will sell in the public market after this
offering will not be lower than the initial public offering
price or that an active trading market in our shares will
develop and continue after this offering.
We have applied to list the Notes on the New York Stock Exchange
under the symbol MTC.
The underwriters have advised us that they propose initially to
offer the Notes to the public at the public offering price set
forth on the cover page of this prospectus supplement, and to
dealers at that price less a concession not in excess of
$ per Note. The underwriters may
allow, and the dealers may re-allow, a discount not in excess of
$ per Note to other dealers. After
the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and commission and proceeds before
expenses to us.
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Price to public
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$
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Underwriting discount and commission
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$
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Advisory fee(1)
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$
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Proceeds to us
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$
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(1) |
We may elect to pay to the underwriters an advisory fee of up to
$ , payable on the fifth business
day immediately following the date of the Extraordinary General
Meeting called to approve the disposition of our shares of
M&T common stock, such fee to be payable at our sole
discretion.
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We estimate that our expenses in connection with the offering of
the Notes, not including the underwriting discount, will be
approximately $ in the aggregate.
In connection with the offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
Notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the Notes. If the underwriters
create a short position in the Notes in connection with the
offering, i.e., if they
S-92
sell more Notes than are on the cover page of this prospectus,
the underwriters may reduce that short position by purchasing
Notes in the open market. Purchases of a security to stabilize
the price or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of
such purchases.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the Notes. In addition, neither we nor any of the underwriters
makes any representation that the underwriters will engage in
these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Some of the underwriters and their affiliates have engaged with
us in, and may in the future engage with us in, investment
banking and other commercial dealings in the ordinary course of
business. They have received, and may receive, customary fees,
expenses and commissions for these transactions.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute to payments the underwriters
may be required to make in respect of those liabilities.
The underwriters expect to deliver the Notes to purchasers in
registered book-entry form only, through DTC, on
October , 2010.
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
Notes offered by this prospectus in any jurisdiction where
action for that purpose is required. The Notes offered by this
prospectus may not be offered or sold, directly or indirectly,
nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such
Notes be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the
applicable rules and regulations of that jurisdiction. Persons
into whose possession this prospectus comes are advised to
inform themselves about and to observe any restrictions relating
to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any Notes offered by this
prospectus in any jurisdiction in which such an offer or a
solicitation is unlawful.
European
Economic Area
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), an offer of the Notes that
are the subject of the offering contemplated by this prospectus
supplement to the public may not be made in that Relevant Member
State prior to the publication of a prospectus in relation to
the Notes that has been approved by the competent authority in
that Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive, except that an offer of notes to the
public in that Relevant Member State may be made at any time
under the following exceptions under the Prospectus Directive,
if they have been implemented in that Relevant Member State:
(a) to legal entities that are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity that has two or more of (1) an
average of at least 250 employees during the last financial
year; (2) a total balance sheet of more than
43,000,000; and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive)
subject to obtaining the prior consent of the other
underwriters; or
(d) in any other circumstances falling within
Article 3(2) of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of notes to the public in relation to any Notes in
any Relevant Member State means the communication to persons in
any form and by any means of sufficient information on the terms
of the offer and the Notes to be offered so as to enable an
investor to
S-93
decide to purchase or subscribe the Notes, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State, and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
United
Kingdom
This document is only being distributed to and is only directed
at (i) persons who are outside the United Kingdom or
(ii) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(iii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling with Article 49(2)(a)
to (d) of the Order (all such persons together being
referred to as relevant persons). The Notes are only
available to, and any invitation, offer or agreement to
subscribe, purchase or otherwise acquire such Notes will be
engaged in only with, relevant persons. Any person who is not a
relevant person should not act or rely on this document or any
of its contents.
France
Neither this prospectus nor any other offering material relating
to the Notes described in this prospectus has been submitted to
the clearance procedures of the Autorité des Marchés
Financiers or by the competent authority of another member state
of the European Economic Area and notified to the Autorité
des Marchés Financiers. The Notes have not been offered or
sold and will not be offered or sold, directly or indirectly, to
the public in France. Neither this prospectus nor any other
offering material relating to the Notes has been or will be
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released, issued, distributed or caused to be released, issued
or distributed to the public in France or
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used in connection with any offer for subscription or sale of
the Notes to the public in France.
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Such offers, sales and distributions will be made in France only
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with,
Article L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier or
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to investment services providers authorized to engage in
portfolio management on behalf of third parties or
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in a transaction that, in accordance with
article L.411-2-II-1°-or-2°-or
3° of the French Code monétaire et financier
and
article 211-2
of the General Regulations (Règlement
Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel public
à lépargne).
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The Notes may be resold directly or indirectly, only in
compliance with
Articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
General
This prospectus supplement or any other offering document or any
publicity or other material relating to the Notes may not be
distributed in any country or jurisdiction outside of the United
States where such action would (i) result in any violation
of applicable law or (ii) cause the issuance of the Notes
to be considered an offering to the public under applicable law.
S-94
EXPENSES
OF THE OFFERING
We estimate that the expenses in connection with the offering,
other than underwriting discounts, commissions and fees, will be
as follows:
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Expenses
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Amount
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Securities and Exchange Commission registration fee
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Printing and postage expenses
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Legal fees and expenses
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Accountants fees and expenses
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Trustee fees and expenses
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New York Stock Exchange fee
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Total
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All amounts in the table are estimated except the SEC
registration fee.
EXPERTS
The consolidated financial statements of Allied Irish Banks,
p.l.c. as of December 31, 2009 and 2008, and for each of
the years in the three-year period ended December 31, 2009,
and managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2009 have been incorporated by reference
herein in reliance on the reports of KPMG, Chartered
Accountants, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL
MATTERS
Certain legal matters will be passed upon for us by Linklaters
LLP, New York, New York, Wachtell, Lipton, Rosen &
Katz, New York, New York, and McCann FitzGerald Solicitors,
Dublin, Ireland, and for the underwriters by Davis
Polk & Wardwell LLP, New York, New York.
S-95
ALLIED
IRISH BANKS,
public limited
company
Debt Securities
Preference Shares
This prospectus describes the general terms that may apply to
these securities and the general manner in which they may be
offered. The specific terms of the securities, and the manner in
which they are offered, will be set forth and described in
supplements to this prospectus. Such supplements may also add
to, update, supplement or clarify information contained in this
prospectus. You should carefully read this prospectus and any
applicable supplement(s) before you invest in any securities.
We may offer and sell these securities to or through one or more
underwriters, dealers and agents, or directly to purchasers, on
a delayed or continuous basis. We will indicate the names of any
underwriters in the applicable supplement(s).
We may use this prospectus to offer and sell debt securities or
preference shares (as may be represented by American Depositary
Receipts) from time to time.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE
SEC) NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The securities are not deposit liabilities of Allied Irish
Banks, public limited company and are not insured by the United
States Federal Deposit Insurance Corporation or any other
governmental agency of the United States, Ireland or any other
jurisdiction and therefore are not subject to the deposit
protection scheme operated by the Irish Financial Regulator.
The date of this prospectus is June 2, 2008.
TABLE OF
CONTENTS
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1
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i
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement filed with
the SEC using a shelf registration process. Under
this shelf process, the securities covered by this prospectus
may be sold in one or more offerings.
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities, we will
provide one or more prospectus supplements that will contain
specific information about the terms of that offering. The
prospectus supplement(s), along with any applicable pricing
supplement(s), may also add to, update, supplement or clarify
information contained in this prospectus. Before you invest in
any securities, you should read both this prospectus and the
applicable supplement(s) together with the additional
information described under the headings Where You Can
Find More Information and Incorporation of Certain
Documents by Reference.
In this prospectus, references to the Bank,
AIB and AIB p.l.c. mean Allied Irish
Banks, public limited company, references to we,
our and us mean the Bank and references
to the Group or the AIB Group mean AIB
and its consolidated subsidiaries. In this prospectus, the
securities that we may offer are referred to generally as
securities. References to US dollars,
dollars, US$, cents or
¢ are to United States currency, references to
EUR, euro, or
c are to euro currency, references to
sterling or Stg£ are to British
currency, references to zloty, PLN, or
zl are to Polish currency and references to
Yen are to Japanese currency. References to the
U.S. are to the United States of America and
references to the U.K. are to the United Kingdom.
FORWARD-LOOKING
STATEMENTS
This prospectus contains or incorporates by reference
forward-looking statements within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995 with
respect to the Groups financial condition, results of
operations and businesses and certain of the Groups plans
and objectives. These forward-looking statements can be
identified by the fact that they do not relate only to
historical or current facts. Forward-looking statements
sometimes use words such as aim,
anticipate, target, expect,
estimate, intend, plan,
goal, believe, or other words of similar
meaning. Examples of forward-looking statements include, among
others, statements regarding our or the AIB Groups future
financial position, income growth, business strategy, projected
costs, estimates of capital expenditures and plans and
objectives for future operations. Because such statements are
inherently subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by such
forward-looking information.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number
of factors that could cause actual results and developments to
differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not
limited to, changes in economic conditions globally and in the
regions in which the AIB Group conducts its business (including
credit market volatility), changes in fiscal or other policies
adopted by various governments and regulatory authorities, the
effects of competition in the geographic and business areas in
which the AIB Group conducts its operations, the ability to
increase market share and control expenses, the effects of
changes in taxation or accounting standards and practices,
acquisitions, future exchange and interest rates and the success
of the AIB Group in managing these events. Any forward-looking
statements made by or on behalf of the AIB Group speak only as
of the date they are made.
We caution that the foregoing list of important factors is not
exhaustive. Investors and others should carefully consider the
foregoing factors and other uncertainties and events when making
an investment decision based on any forward-looking statement.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not
occur. The AIB Group does not undertake to release publicly any
revision to these forward-looking statements to reflect events,
circumstances or unanticipated events occurring after the date
hereof.
1
WHERE YOU
CAN FIND MORE INFORMATION
This prospectus, which constitutes parts of the registration
statement, does not contain all of the information set forth in
the registration statement. Parts of the registration statement
are omitted from this prospectus in accordance with the rules
and regulations of the SEC. The registration statement,
including the attached exhibits, contains additional relevant
information about us. We are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the Exchange Act), and in compliance with such
laws, we file annual reports and other information with the SEC.
You can read and copy any reports or other information we file
at the SEC public reference room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You can also
request copies of our documents upon payment of a duplicating
fee, by writing to the SECs public reference room. You can
obtain information regarding the public reference room by
calling the SEC on 1 800 SEC 0330. Our filings are available to
the public from commercial document retrieval services and over
the internet at
http://www.sec.gov.
(This uniform resource locator (URL) is an inactive textual
reference only and is not intended to incorporate the SEC web
site into this prospectus.) In addition, the securities may
specify that certain documents will be available for inspection
at the office of the trustee, any paying agent or the ADR
depositary, as the case may be.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with the SEC into this prospectus, which
means that the incorporated documents are considered part of
this prospectus and we can disclose important information to you
by referring you to those documents. Information we file with
the SEC will automatically update and supersede earlier
information, including information in this prospectus.
We have filed with the SEC a registration statement on
Form F-3
relating to the securities covered by this prospectus. This
prospectus is a part of the registration statement and does not
contain all the information in the registration statement.
Whenever a reference is made in this prospectus to a contract or
other document of the company, the reference is only a summary
and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or other
document. You may review a copy of the registration statement at
the SECs public reference room in Washington, D.C.,
as well as through the SECs internet site, as discussed.
We filed our Annual Report on
Form 20-F
for the fiscal year ended December 31, 2007 (the 2007
Form 20-F)
with the SEC on May 7, 2008 and a Report on
Form 6-K
with the SEC on May 16, 2008, both of which we are
incorporating by reference into this prospectus.
In addition, we are also incorporating by reference into this
prospectus all reports that we file with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and,
to the extent, if any, we designate therein, reports on
Form 6-K
we furnish to the SEC after the date of this prospectus and
prior to the termination of any offering contemplated in this
prospectus.
We will provide to you, upon your written or oral request,
without charge, a copy of any or all of the documents we
referred to above which we have incorporated in this prospectus
by reference. You should direct your requests to Allied Irish
Banks, p.l.c., Bankcentre, Ballsbridge, Dublin 4, Ireland, Attn:
Company Secretary, Tel No. +353-1-660 0311.
LIMITATION
ON ENFORCEMENT OF U.S. LAWS AGAINST US,
OUR MANAGEMENT AND OTHERS
We are an Irish company. Most of our directors and executive
officers (and certain experts named in this prospectus or in
documents incorporated herein by reference) are resident outside
the United States, and a substantial portion of our assets and
the assets of such persons are located outside the United
States. As a result, it may be difficult for you to effect
service of process within the United States upon these persons
or to enforce against them or us in U.S. courts judgments
obtained in U.S. courts predicated upon the civil liability
provisions of the federal securities laws of the United States.
We have been advised by our Irish solicitors,
2
Matheson Ormsby Prentice, that there is doubt as to
enforceability in the Irish courts, in original actions of
liabilities based solely upon the federal securities laws of the
United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may not be
enforceable in Ireland. Judgments of U.S. courts will not
be directly enforceable in Ireland, and new proceedings in
respect of any claim would need to be taken before the Irish
courts.
ALLIED
IRISH BANKS, p.l.c.
The AIB Group provides a diverse range of banking, financial and
related services, principally in Ireland, the United Kingdom,
Poland and the United States. AIB has some 274 branches, outlets
and business centers in the Republic of Ireland, where we
estimate our share of the total market for both euro loans and
deposits to be in excess of 20%. In Northern Ireland, through
its wholly-owned subsidiary AIB Group (UK) p.l.c., which trades
there as First Trust Bank, AIB Group operates from some 52
branches and outlets. In Britain, AIB Group (UK) p.l.c., which
trades there as Allied Irish Bank (GB), provides a range of
banking services through 31 branches and 7 development offices.
In Poland, the Group operates from 406 branches and 38 outlets,
primarily in Western Poland, through its 70.5% owned subsidiary
Bank Zachodni WBK S.A. AIBs principal retail and
commercial banking interest in the U.S. is its 24%
shareholding in M&T Bank Corporation
(M&T). M&T is headquartered in Buffalo,
New York and has a branch network of approximately 700 branches
in six states and the District of Columbia. AIBs direct
presence in the U.S. consists of corporate banking,
treasury and financial services for not-for-profit businesses
based in New York, with offices in a number of other principal
U.S. cities. At December 31, 2007, AIB Group had
consolidated total assets of 178 billion and employed
approximately 24,000 people on an average full-time
equivalent basis, excluding employees on career breaks and
long-term absences.
USE OF
PROCEEDS
Unless otherwise indicated in an accompanying supplement, the
net proceeds from the offering of the securities will be used to
support the development and expansion of our business and to
further strengthen our capital base. The development and
expansion may occur through the development of existing
operations, the establishment of new subsidiaries or
acquisitions if suitable opportunities should arise.
3
DESCRIPTION
OF DEBT SECURITIES
The following is a summary of the general terms of the debt
securities. It sets forth possible terms and provisions for each
series of debt securities. Each time that we offer debt
securities, we will prepare and file one or more supplement(s)
with the SEC, which you should read carefully. The applicable
supplement(s) may contain additional terms and provisions
relating to those securities. If there is any inconsistency
between the terms and provisions presented here in this
prospectus and those presented in the applicable supplement(s),
those presented in the applicable supplement(s) will apply and
will supersede those set forth in this prospectus.
The debt securities of any series will be either our senior
obligations (the Senior Debt Securities) or our
subordinated obligations (the Subordinated Debt
Securities). Neither the Senior Debt Securities nor the
Subordinated Debt Securities will be secured by any assets or
property of AIB p.l.c. or any of its subsidiaries or affiliates.
The Subordinated Debt Securities will either have a stated
maturity (the Dated Subordinated Debt Securities) or
will not have a stated maturity (the Undated Subordinated
Debt Securities). Some Undated Subordinated Debt
Securities may be entirely or partially convertible into our
preference shares, at our option.
We will issue Senior Debt Securities, Dated Subordinated Debt
Securities and Undated Subordinated Debt Securities under
indentures (respectively, the Senior Debt Indenture,
Dated Subordinated Debt Indenture and Undated
Subordinated Debt Indenture) between us and The Bank of
New York, as trustee. The terms of the debt securities include
those stated in the relevant indenture and any supplements
thereto, and those made part of the indenture by reference to
the Trust Indenture Act. The Senior Debt Indenture, the
Dated Subordinated Debt Indenture and Undated Subordinated Debt
Indenture are sometimes referred to in this prospectus
individually as an indenture and collectively as the
indentures. We have filed or incorporated by
reference a copy of, or the forms of, each indenture as exhibits
to the registration statement, of which this prospectus is a
part.
Because this section is a summary, it does not describe every
aspect of the debt securities in detail. This summary is subject
to, and qualified by reference to, all of the definitions and
provisions of the relevant indenture, any supplement to the
relevant indenture and each series of debt securities. Certain
terms, unless otherwise defined here, have the meaning given to
them in the relevant indenture.
General
The debt securities are not deposits and are not insured by any
regulatory body of the United States or Ireland.
Because we are a holding company as well as an operating
company, our rights to participate in the assets of any of our
subsidiaries upon its liquidation will be subject to the prior
claims of the subsidiaries creditors, including, in the
case of our bank subsidiaries, their respective depositors,
except, in our case, to the extent that we may ourselves be a
creditor with recognized claims against the relevant subsidiary.
The indentures do not limit the amount of debt securities that
we may issue. We may issue the debt securities in one or more
series, or as units comprised of two or more related series. The
applicable supplement(s) will indicate for each series or for
two or more related series of debt securities:
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whether the debt securities have a maturity date and if so, what
that date is;
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the specific designation and aggregate principal amount of the
debt securities;
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the prices at which we will issue the debt securities;
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if interest is payable, the interest rate or rates, or how to
calculate the interest rate or rates;
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whether we will issue the Senior Debt Securities or Dated
Subordinated Debt Securities as Discount Securities, as
explained below, and the amount of the discount;
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provisions, if any, for the discharge and defeasance of Senior
Debt Securities or Dated Subordinated Debt Securities of any
series;
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any condition applicable to payment of any principal, premium or
interest on Senior Debt Securities or Dated Subordinated Debt
Securities of any series;
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the dates and places at which any payments on the debt
securities are payable;
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the terms of any mandatory or optional redemption of the debt
securities;
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the denominations in which the debt securities will be issued;
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whether the securities are to be listed on a securities exchange;
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the amount, or how to calculate the amount, that we will pay
holders of Senior Debt Securities or holders of Dated
Subordinated Debt Securities, if the Senior Debt Securities or
Dated Subordinated Debt Securities are redeemed before their
stated maturity or accelerated, or for which the trustee shall
be entitled to file and prove a claim;
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whether and how the debt securities may or must be converted
into any other type of securities, or their cash value, or a
combination of these;
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the currency or currencies in which the debt securities are
denominated, and in which we make any payments;
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whether we will issue the debt securities wholly or partially as
one or more global debt securities;
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what additional conditions must be satisfied before we will
issue the debt securities in definitive form (definitive
debt securities);
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any reference asset we will use to determine the amount of any
payments on the debt securities;
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any other or different Senior Debt Securities Events of Default,
any other or different Subordinated Debt Securities Events of
Default, any other or different Dated Subordinated Debt
Securities Events of Default or any other or different Undated
Subordinated Debt Securities Events of Default (as such terms
are defined below) or covenants applicable to any of the debt
securities, and the relevant terms if they are different from
the terms in the applicable indenture;
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any additional restrictions applicable to the offer, sale and
delivery of the debt securities;
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if we will pay Additional Amounts, as explained below, on the
debt securities;
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the record date for any payment of principal, interest or
premium;
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any other or different terms of the debt securities;
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what we believe are any additional material U.S. federal or
Irish tax considerations; and
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the right, if any, to reopen a series of the debt
securities and issue additional debt securities of such series.
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Debt securities may bear interest at a fixed rate or a floating
rate or we may sell Senior Debt Securities or Dated Subordinated
Debt Securities that bear no interest or that bear interest at a
rate below the prevailing market interest rate or at a discount
to their stated principal amount (Discount
Securities). The applicable supplement(s) will describe
special U.S. federal income tax considerations applicable
to Discount Securities or to debt securities issued at par that
are treated for U.S. federal income tax purposes as having
been issued at a discount.
Holders of debt securities have no voting rights except as
explained below under Modification and
Waiver and Events of Default; Limitation
of Remedies.
5
Legal
Ownership; Form of Debt Securities
Street Name and Other Indirect
Holders. Investors who hold debt securities in
accounts at banks or brokers will generally not be recognized by
us as legal holders of debt securities. This is called holding
in street name.
Instead, we would recognize only the bank or broker, or the
financial institution the bank or broker uses to hold its debt
securities. These intermediary banks, brokers and other
financial institutions pass along principal, interest and other
payments on the debt securities, either because they agree to do
so in their customer agreements or because they are legally
required. An investor who holds debt securities in street name
should check with the investors own intermediary
institution to find out:
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how it handles debt securities payments and notices;
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whether it imposes fees or charges;
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how it would handle voting if it were ever required;
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whether and how the investor can instruct it to send the
investors debt securities, registered in the
investors own name so the investor can be a direct holder
as described below; and
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how it would pursue rights under the debt securities if there
were a default or other event triggering the need for holders to
act to protect their interests.
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Direct Holders. Our obligations, as well as
the obligations of the trustee and those of any third parties
employed by us or the trustee, run only to persons who are
registered as holders of debt securities. As noted above, we do
not have obligations to an investor who holds in street name or
other indirect means, either because the investor chooses to
hold debt securities in that manner or because the debt
securities are issued in the form of global securities as
described below. For example, once we make payment to the
registered holder, we have no further responsibility for the
payment even if that holder is legally required to pass the
payment along to the investor as a street name customer but does
not do so.
Global Securities. A global security is a
special type of indirectly held security, as described above
under Legal Ownership; Form of Debt
Securities Street Name and Other Indirect
Holders. If we issue debt securities in the form of global
securities, the ultimate beneficial owners can only be indirect
holders.
We require that the global security be registered in the name of
a financial institution we select. In addition, we require that
the debt securities included in the global security not be
transferred to the name of any other direct holder unless the
special circumstances described below occur. The financial
institution that acts as the sole direct holder of the global
security is called the depositary. Any person wishing to own a
security must do so indirectly by virtue of an account with a
broker, bank or other financial institution that in turn has an
account with the depositary. Unless the applicable supplement(s)
indicates otherwise, each series of debt securities will be
issued only in the form of global securities.
Special Investor Considerations for Global
Securities. As an indirect holder, an
investors rights relating to a global security will be
governed by the account rules of the investors financial
institution and of the depositary, as well as general laws
relating to securities transfers. We do not recognize this type
of investor as a holder of debt securities and instead deal only
with the depositary that holds the global security.
Investors in debt securities that are issued only in the form of
global debt securities should be aware that:
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they cannot get debt securities registered in their own name.
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they cannot receive physical certificates for their interest in
debt securities.
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they will be a street name holder and must look to their own
bank or broker for payments on the debt securities and
protection of their legal rights relating to the debt
securities, as explained earlier under Legal
Ownership; Form of Debt Securities Street Name and
Other Indirect Holders.
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they may not be able to sell interests in the debt securities to
some insurance companies and other institutions that are
required by law to own their debt securities in the form of
physical certificates.
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the depositarys policies will govern payments, transfers,
exchange and other matters relating to their interest in the
global security. We and the trustee have no responsibility for
any aspect of the depositarys actions or for its records
of ownership interests in the global security. We and the
trustee also do not supervise the depositary in any way.
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the depositary will require that interests in a global security
be purchased or sold within its system using
same-day
funds.
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Special Situations When a Global Security Will Be
Terminated. In a few special situations described
below, the global security will terminate and interests in it
will be exchanged for physical certificates representing debt
securities. After that exchange, the choice of whether to hold
debt securities directly or in street name will be up to the
investor. Investors must consult their own bank or brokers to
find out how to have their interests in debt securities
transferred to their own name so that they will be direct
holders. The rights of street name investors and direct holders
in the debt securities have been previously described in the
subsections entitled Legal Ownership; Form of
Debt Securities Street Name and Other Indirect
Holders and Legal Ownership; Form of
Debt Securities Direct Holders.
The special situations for termination of a global security are:
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when the depositary notifies us that it is unwilling, unable or
no longer qualified to continue as depositary.
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when a Senior Debt Securities Event of Default or a Subordinated
Debt Securities Event of Default has occurred and has not been
cured. Defaults are discussed below under
Events of Default; Limitation of
Remedies.
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The applicable supplement(s) may also list additional situations
for terminating a global security that would apply only to the
particular series of debt securities covered by the applicable
supplement(s). When a global security terminates, the depositary
(and not we or the trustee) is responsible for deciding the
names of the institutions that will be the initial direct
holders.
In the remainder of this description holder
means direct holders and not street name or other indirect
holders of debt securities. Indirect holders should read the
subsection entitled Legal Ownership; Form of
Debt Securities Street Name and Other Indirect
Holders.
Payment and Paying Agents. We will pay
interest to direct holders listed in the trustees records
at the close of business on a particular day in advance of each
due date for interest, even if the direct holder no longer owns
the security on the interest due date. That particular day,
usually fifteen calendar days in advance of the interest due
date, is called the regular record date and will be stated in
the applicable supplement(s).
We will pay interest, principal and any other money due on the
debt securities at the corporate trust office of the trustee in
New York City. Investors must make arrangements to have their
payments picked up at or wired from that office. We may also
choose to pay interest by mailing checks.
Street name and other indirect holders should consult
their banks or brokers for information on how they will receive
payments.
We may also arrange for additional payment offices, and may
cancel or change these offices, including our use of the
trustees corporate trust office. These offices are called
paying agents. We may also choose to act as our own paying
agent. We must notify the trustee of changes in the paying
agents for any particular series of debt securities.
Payments;
Arrears of Interest for Undated Subordinated Debt
Securities
The applicable supplement(s) will specify the date on which we
will pay interest, if any, and, in the case of Senior Debt
Securities or Dated Subordinated Debt Securities, the date for
payments of principal and any premium, on any particular
series of debt securities. The applicable supplement(s) will
also specify the interest rate or rates, if any, or how the rate
or rates will be calculated.
7
Undated
Subordinated Debt Securities
We are not required to make payments on any series of Undated
Subordinated Debt Securities on any payment date except as we
discuss in the following paragraphs. Our failure to make a
payment in respect of any Undated Subordinated Debt Securities
(unless the payment is required as we describe in the following
two paragraphs) shall not constitute a Subordinated Debt
Securities Event of Default by us for any purpose. Any payment
that we do not make in respect of any series of Undated
Subordinated Debt Securities on any applicable payment date,
together with any other unpaid payments in respect of any other
payment date, shall, so long as they remain unpaid, constitute
Arrears of Interest. Arrears of Interest will
accumulate until paid, but will not bear interest.
We may choose to pay any Arrears of Interest in whole or in part
to holders of Undated Subordinated Debt Securities as of a
record date or dates established by us at any time on not less
than seven (7) days notice to the trustee. However,
all outstanding Arrears of Interest in respect of all Undated
Subordinated Debt Securities of a particular series shall,
subject to our solvency, as explained below, become due and
payable in full on whichever is the earliest of:
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the date on which a dividend is next paid on any class of our
share capital;
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the date fixed for any redemption of the Undated Subordinated
Debt Securities; and
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the commencement of our
winding-up.
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If we give notice of our intention to pay the whole or part of
the Arrears of Interest on the Undated Subordinated Debt
Securities of any series, we shall be obliged, subject to our
being solvent, as explained below, to do so at the time
specified in our notice. When Arrears of Interest in respect of
Undated Subordinated Debt Securities of any series are paid in
part, each part payment shall be in respect of the full amount
of Arrears of Interest accrued on the payment date or
consecutive payment dates furthest from the date of payment. No
part payment shall be made in respect of an Arrears of Interest
occurring subsequent to any other Arrears of Interest.
All payments of principal, premium and interest, including any
Arrears of Interest, on or with respect to the Undated
Subordinated Debt Securities of any series will be conditional
upon our being solvent at the time of our payment, and remaining
solvent immediately after our payment. We shall be solvent if:
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we are able to pay our debts to Senior Creditors and Senior
Subordinated Creditors as they fall due; and
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our Assets exceed our Liabilities (other than Liabilities to
persons who are not Senior Creditors or Senior Subordinated
Creditors).
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Assets means our total unconsolidated gross tangible
assets and Liabilities means our total
unconsolidated gross liabilities as shown in our latest
published audited balance sheet but as adjusted for
contingencies and subsequent events, all valued in the manner as
our directors, auditors or, if we are in
winding-up
in Ireland, the liquidator, or, if we are in examinership under
Companies (Amendment) Act 1990 of Ireland, our examiner (as the
case may be) may determine to be appropriate. Senior
Creditors means all of our creditors who are depositors or
our other unsubordinated creditors. Senior Subordinated
Creditors means our creditors whose claims against us are,
or are expressed to be, subordinated (whether only in the event
of our winding up or otherwise) to the claims of our depositors
and our other unsubordinated creditors but excluding our
creditors (if any) whose claims rank, or are expressed to rank,
equal or junior to the claims of holders of Undated Subordinated
Debt Securities. For the avoidance of doubt, Senior Subordinated
Creditors includes holders of the Dated Subordinated Debt
Securities.
A report as to our solvency by (i) two of our directors or,
in certain circumstances as provided in the indenture, our
auditors, (ii) if we are in
winding-up
in Ireland, our liquidator or (iii) if we are under
examinership as described above, our examiner, shall, absent
proven error, be treated and accepted by us, the trustee and the
holders of Undated Subordinated Debt Securities as correct and
sufficient evidence of solvency or insolvency.
8
Notwithstanding the above, we shall be obligated to make a
payment of accrued interest or Arrears of Interest on any series
of Undated Subordinated Debt Securities if on the applicable
payment date a Capital Disqualification Event has occurred and
is continuing, unless we are simultaneously in breach of
Applicable Regulatory Capital Requirements, in which case we may
elect not to make payment on the Undated Subordinated Debt
Securities of such series.
For purposes of the immediately preceding paragraph, a
Capital Disqualification Event will be deemed to
have occurred if at any time the Undated Subordinated Debt
Securities would no longer be eligible to qualify for inclusion
as other items within the meaning of
Regulation 8 of the European Communities (Capital Adequacy
of Credit Institutions) Regulations 2006 of Ireland (transposing
Article 63 of Directive 2006/48/EC), or any successor
provision, in the calculation of our own funds on a solo or
consolidated basis. Applicable Regulatory Capital
Requirements means any requirements contained in the
regulations, requirements, guidelines and policies relating to
the capital adequacy requirements of the Irish Financial
Services Regulatory Authority (the Irish Financial
Regulator) then in effect from time to time applicable
either to us or to the Group taken as a whole.
Repayments in respect of Undated Subordinated Debt Securities
will, unless otherwise specified in the applicable
supplement(s), be subject to the consent of the Irish Financial
Regulator, if required.
Ranking
Status
of Senior Debt Securities
The Senior Debt Securities will constitute our direct,
unconditional, unsubordinated and unsecured obligations without
any preference among themselves and will rank at least equally
with our deposits and all our other present and future unsecured
and unsubordinated obligations, subject to such exceptions as
may be provided by applicable law. In particular, under
Section 11F of the Banking Act of 1959 of Australia, if we
(whether in or outside Australia) suspend payment or become
unable to meet our obligations, pursuant to the Banking Act of
1959 of the Commonwealth of Australia our assets in Australia
are to be available to meet our liabilities in Australia in
priority to all of our other liabilities.
Status
and Subordination of Dated Subordinated Debt
Securities
The Dated Subordinated Debt Securities will constitute our
direct, unsecured and subordinated obligations and rank equally
without any preference among themselves. The claims of holders
of Dated Subordinated Debt Securities will be subordinated, in
the event of our
winding-up
or examinership or in the event of other insolvency proceedings
being commenced with respect to us (together, insolvency
proceedings), in right of payment to the claims of our
Senior Creditors so that amounts due and payable under the Dated
Subordinated Debt Securities shall be due and payable by us in
the event of such
winding-up
or examinership or other insolvency proceedings being so
commenced if, and only to the extent that, we could make payment
on the Dated Subordinated Debt Securities rateably with the
claims of all of our other creditors ranking equally with the
Dated Subordinated Debt Securities and remain solvent
immediately after our payment. For this purpose, we shall be
considered to be solvent if we are able to pay our debts to
Senior Creditors in full.
Status
and Subordination of Undated Subordinated Debt
Securities
The Undated Subordinated Debt Securities will constitute our
direct, unsecured and subordinated obligations and rank equally
without any preference among themselves. The claims of holders
of Undated Subordinated Debt Securities will, in the event of
our
winding-up
or examinership or other insolvency proceedings being so
commenced, be subordinated in right of payment to the claims of
our Senior Creditors and our Senior Subordinated Creditors. Any
payments on any series of our Undated Subordinated Debt
Securities will be conditional upon our being solvent at the
time of payment and remaining solvent immediately after our
payment. We shall be solvent if the conditions relating to
solvency described under Payments; Arrears of
Interest for Undated Subordinated Debt Securities above
are satisfied.
9
If at any time an order is made or an effective resolution is
passed for our
winding-up
or examinership or other insolvency proceeding in Ireland
(except for a
winding-up
or other proceeding as may be permitted for the events set forth
below under Consolidation, Merger and Sale of
Assets; Assumption), amounts payable on the Undated
Subordinated Debt Securities will be the amount, if any, as
would have been payable to the holders of the Undated
Subordinated Debt Securities if, on the day prior to the
commencement of the
winding-up
or examinership and thereafter, holders of Undated Subordinated
Debt Securities were the holders of a class of our preference
shares having a preferential right to a return of assets in our
winding-up
or other insolvency proceeding over holders of all issued shares
for the time being in our capital, on the assumption that such
preference share was entitled to receive a return of assets in
any such
winding-up
or examinership an amount equal to the principal amount of the
Undated Subordinated Debt Securities together with interest
accrued and unpaid to the date of repayment and any Arrears of
Interest in relation to the Undated Subordinated Debt Securities.
For the avoidance of doubt, if we would not otherwise be solvent
as described under Payments; Arrears of
Interest for Undated Subordinated Debt Securities, the
amount of principal and other amounts that would otherwise be
payable as interest in respect of the Undated Subordinated Debt
Securities will be available to meet our losses.
Additional
Amounts
Unless any applicable supplement provides otherwise, we will pay
any amounts to be paid by us on any series of debt securities
without deduction or withholding for, or on account of, any and
all present or future taxes, duties, assessments or governmental
charges (taxes) now or hereafter imposed, levied,
collected, withheld or assessed by or on behalf of Ireland,
unless the deduction or withholding is required by law. Unless
any applicable supplement provides otherwise, at any time the
laws of Ireland require us to deduct or withhold taxes, we will
pay the additional amounts of, or in respect of, the principal
of, any premium, and any interest on the debt securities
(Additional Amounts) that are necessary so that the
net amounts paid to the holders, after the deduction or
withholding, shall equal the amounts which would have been
payable had no such deduction or withholding been required.
However, we will not pay Additional Amounts for taxes that are
payable because:
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the holder or the beneficial owner of the debt securities is a
domiciliary, national or resident of, or engages in business or
maintains a permanent establishment or is physically present in
Ireland thus requiring that deduction or withholding, or
otherwise has some connection with Ireland other than the
holding or ownership of the debt security, or the collection of
any payment of, or in respect of, principal of, any premium, or
any interest on, any debt securities of the relevant series;
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except in the case of our
winding-up
in Ireland, the relevant debt security is presented for payment
in Ireland;
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the relevant debt security is presented for payment more than
30 days after the date payment became due or was provided
for, whichever is later, except to the extent that the holder
would have been entitled to the Additional Amounts on presenting
the debt security for payment at the close of such
30-day
period;
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the holder or the beneficial owner of the relevant debt
securities or the beneficial owner of any payment of, or in
respect of, principal of, any premium, or any interest on the
debt securities failed to make any necessary claim or to comply
with any certification, identification or other requirements
concerning the nationality, residence, identity or connection
with the taxing jurisdiction of the holder or beneficial owner,
if that claim or compliance is required by statute, treaty,
regulation or administrative practice of Ireland as a condition
to relief or exemption from the taxes;
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such deduction or withholding is imposed on a payment to an
individual and is made pursuant to the Directive on the Taxation
of Savings 2003/48/EC (the Directive) adopted by the
Council of the European Union (the Council) on
June 3, 2003 or any law implementing or complying with, or
introduced in order to conform to, such Directive;
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the relevant debt security is presented for payment by or on
behalf of a holder who would have been able to avoid such
deduction or withholding by presenting the relevant debt
security to another paying agent in a member state of the
European Union (the EU) or elsewhere; or
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if the taxes would not have been imposed or would have been
excluded under one of the preceding points if the beneficial
owner of, or person ultimately entitled to obtain an interest
in, the debt securities had been the holder of the debt
securities.
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Whenever we refer in this prospectus and any applicable
supplement to the payment of the principal of, any premium, or
any interest, if any, on, or in respect of, any debt securities
of any series, we mean to include the payment of Additional
Amounts to the extent that, in context, Additional Amounts are,
were or would be payable.
Redemption
Redemption for tax reasons. Unless any
applicable supplement provides otherwise, and, in the case of
Undated Subordinated Debt Securities, we satisfy the conditions
for solvency described under Payments; Arrears
of Interest for Undated Subordinated Debt Securities, we
will have the option to redeem the debt securities of any series
upon not less than 30 nor more than 45 days notice on
any dates as are specified in the applicable supplement, if:
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we are required to issue definitive debt securities (see
Legal Ownership; Form of Debt
Securities Special Situations When a Global Security
Will Be Terminated) and, as a result, we are or would be
required to pay Additional Amounts with respect to the debt
securities;
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we determine that as a result of a change in or amendment to the
laws or regulations of a taxing jurisdiction, including any
treaty to which the taxing jurisdiction is a party, or a change
in an official application or interpretation of those laws or
regulations, including a decision of any court or tribunal,
which becomes effective on or after the date of any applicable
supplement (and, in the case of a successor entity, which
becomes effective on or after the date of that entitys
assumption of our obligations), we (or any successor entity)
will or would be required to pay holders Additional
Amounts; or
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we (or any successor entity) would not be entitled to claim a
deduction in respect of any payments in computing our (or its)
taxation liabilities.
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In each case, before we give a notice of redemption, we shall be
required to deliver to the trustee a written legal opinion of
independent counsel of recognized standing, chosen by us, in a
form satisfactory to the trustee confirming that we are entitled
to exercise our right of redemption. The redemption must be made
in respect of all, but not some, of the debt securities of the
relevant series. The redemption price will be equal to 100% of
the principal amount of debt securities being redeemed together
with any accrued but unpaid interest and Arrears of Interest, if
any, in respect of such debt securities to the date fixed for
redemption or, in the case of Discount Securities, such portion
of the principal amount of such Discount Securities as may be
specified by their terms.
Optional Redemption. The applicable supplement
will specify whether we may redeem the debt securities of any
series, in whole or in part, at our option, in any other
circumstances. The applicable supplement will also specify the
notice we will be required to give, what prices and any premium
we will pay, and the dates on which we may redeem the debt
securities. Any notice of redemption of debt securities will
state:
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the date fixed for redemption;
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the amount of debt securities to be redeemed if we are only
redeeming a part of the series;
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the redemption price;
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that on the date fixed for redemption the redemption price will
become due and payable on each debt security to be redeemed and,
if applicable, that any interest will cease to accrue on or
after the redemption date;
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the place or places at which each holder may obtain payment of
the redemption price; and
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the CUSIP number or numbers, if any, with respect to the debt
securities.
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In the case of a partial redemption, the trustee shall select
the debt securities that we will redeem in any manner it deems
fair and appropriate.
We or any of our subsidiaries may at any time purchase debt
securities of any series in the open market or by tender
(available alike to each holder of debt securities of the
relevant series) or by private agreement, if applicable law
allows, and, in the case of Undated Subordinated Debt
Securities, if we satisfy the conditions for solvency described
under Payments; Arrears of Interest for
Undated Subordinated Debt Securities. We will treat as
cancelled and no longer issued and outstanding any debt
securities of any series that we purchase beneficially for our
own account, other than a purchase in the ordinary course of a
business dealing in securities.
In addition, we may not redeem or repurchase any Subordinated
Debt Securities (except in the case of the Dated Subordinated
Debt Securities, at their stated maturity or in the event of a
winding-up)
without obtaining the prior written consent of the Irish
Financial Regulator, if required.
Convertible
or Exchangeable Securities
Unless the applicable supplement specifies otherwise, optionally
convertible or exchangeable securities will entitle the holder,
during a period, or at specific times, to convert or exchange
optionally convertible or exchangeable securities into or for
the underlying security, basket or baskets of securities, index
or indices of securities, or combination of these, at a
specified rate of exchange. Optionally convertible or
exchangeable securities will be redeemable at our option prior
to maturity, if the applicable supplement so states. If a holder
does not elect to convert or exchange the optionally convertible
or exchangeable securities before maturity or any applicable
redemption date, the holder will receive the principal amount of
the optionally convertible or exchangeable securities.
Unless the applicable supplement specifies otherwise, the holder
is not entitled to convert or exchange mandatorily convertible
or exchangeable securities before maturity. At maturity, the
holder must convert or exchange the mandatorily convertible or
exchangeable securities for the underlying security, basket or
baskets of securities or index or indices of securities, or a
combination of these, at a specified rate of exchange, and,
therefore, the holder may receive less than the principal amount
of the mandatorily convertible or exchangeable security. If the
applicable supplement so indicates, the specified rate at which
a mandatorily convertible or exchangeable security will be
converted or exchanged may vary depending on the value of the
underlying securities, basket or baskets of securities, index or
indices of securities, or combination of these so that, upon
conversion or exchange, the holder participates in a percentage,
which may be other than 100%, of the change in value of the
underlying securities, basket or baskets, index or indices of
securities, or combination of these.
Upon conversion or exchange, at maturity or otherwise, the
holder of a convertible or exchangeable security may receive, at
the specified exchange rate, either the underlying security or
the securities constituting the relevant basket or baskets,
index or indices, or combination of these, or the cash value
thereof, as the applicable supplement may specify.
In addition, subject to certain conditions specified in the
applicable supplement and unless it specifies otherwise, we may
choose to convert all but not part of the Undated Subordinated
Debt Securities into preference shares, on any payment date or
as a result of certain tax events specified in the applicable
supplement. You should refer to the applicable supplement for a
description of the terms and conditions of this conversion and
any effect this conversion may have on the terms and conditions
of the Undated Subordinated Debt Securities, including our
obligation to pay Additional Amounts.
12
Modification
and Waiver
We and the trustee may make certain modifications and amendments
to the indenture applicable to each series of debt securities
without the consent of the holders of the debt securities. We
may make other modifications and amendments with the consent of
the holder(s) of not less than, in the case of the Senior Debt
Securities, a majority of or, in the case of the Subordinated
Debt Securities,
662/3%
in aggregate principal amount of the debt securities of the
series outstanding under the applicable indenture that are
affected by the modification or amendment. However, we may not
make any modification or amendment without the consent of the
holder of each affected debt security that would:
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change the terms of any debt security to include, in the case of
an Undated Subordinated Debt Security, a maturity date for its
principal amount, or in the case of any other debt security,
change the stated maturity date of its principal amount;
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reduce the principal amount of, or any premium, or interest with
respect to any debt security;
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reduce the amount of principal on a Discount Security that would
be due and payable upon an acceleration of the maturity date of
any series of Senior Debt Securities or Dated Subordinated Debt
Securities;
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change our obligation, or any successors, to pay
Additional Amounts;
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change the places at which payments are payable or the currency
of payment;
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impair the right to sue for the enforcement of any payment due
and payable;
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reduce the percentage in aggregate principal amount of
outstanding debt securities of the series necessary to modify or
amend the indenture or to waive compliance with certain
provisions of the indenture and any past Senior Debt Securities
Event of Default or Subordinated Debt Securities Event of
Default;
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change our obligation to maintain an office or agency in the
place and for the purposes specified in the indenture;
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change the terms and conditions of the preference shares or
other securities into which the Undated Subordinated Debt
Securities may be converted;
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modify the subordination provisions, if any, or the terms and
conditions of our obligations in respect of the due and punctual
payment of the amounts due and payable on the debt securities,
in either case in a manner adverse to the holders; or
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modify the foregoing requirements or the provisions of the
indenture relating to the waiver of any past Senior Debt
Securities Event of Default or Subordinated Debt Securities
Event of Default or covenants, except as otherwise specified.
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Events of
Default; Limitation of Remedies
Senior
Debt Securities Events of Default
Unless the applicable supplement provides otherwise, a
Senior Debt Securities Event of Default with respect
to any series of Senior Debt Securities shall result if:
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we fail to pay the principal (other than installment payments),
when due and payable, with respect to such series of Senior Debt
Securities and continuance of such failure for a period of seven
(7) days;
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we fail to pay any interest, premium, if applicable, installment
payments, if applicable, or any other amounts, when due and
payable, with respect to such series of Senior Debt Securities
and continuance of such failure for a period of fifteen
(15) days;
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we fail to observe or perform in any material respect any
covenant or warranty contained in the Senior Debt Indenture
(other than those listed in the first, second and, if
applicable, seventh bullet points
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herein and other than a covenant which has expressly been
created solely for the benefit of any series of Senior Debt
Securities other than that series) for such series of Senior
Debt Securities for a period of sixty (60) days after the
date on which the trustee provides us written notice by
registered or certified mail, return receipt requested,
specifying such failure, or the holder(s) of at least 25% in
aggregate principal amount of the applicable series of Senior
Debt Securities provide us and the trustee written notice in the
same manner, specifying such failure and, in each case,
requiring such failure to be remedied and stating that it is a
notice of default;
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an order is made or an effective resolution passed for our
winding-up
or dissolution except in connection with any transaction
permitted under Consolidation, Merger or Sale
of Assets or in the applicable supplement;
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we are deemed by law or a court to be insolvent or unable or
deemed to be unable to pay our debts (within the meaning of
section 214 of the Companies Act 1963 of Ireland or
Section 2(3) of the Companies (Amendment) Act 1990 of
Ireland; or we are deemed to be unable to meet our obligations
to creditors under section 21 or 28 of the Central Bank
Act, 1971 of Ireland, as the same may be amended, modified or
re-enacted, or we admit in writing our inability to pay our
debts as they mature;
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a receiver, examiner or other similar official is appointed in
relation to AIB or in relation to the whole or a material part
of the assets of AIB, or the protection of the court is granted
to AIB, or an encumbrancer takes possession of the whole or a
material part of the assets of AIB, or a distress or execution
or other process is levied or enforced upon or sued out against
the whole or a material part of the assets of AIB, in respect of
a debt of more than 10,000,000 (or its equivalent in
another currency) and, in any of the foregoing cases, is not
discharged within thirty (30) days; or
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any other Senior Debt Securities Event of Default provided in
this prospectus or the applicable supplement(s).
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If a Senior Debt Securities Event of Default occurs and is
continuing, the trustee or the holders of at least 25% in
outstanding principal amount of the Senior Debt Securities of
that series may at their discretion declare the Senior Debt
Securities of that series to be due and repayable immediately
(and the Senior Debt Securities of that series shall thereby
become due and repayable) at their outstanding principal amount
(or at such other repayment amount as may be specified in or
determined in accordance with the applicable supplement(s))
together with accrued interest, if any, as provided in the
applicable supplement(s). The trustee may, at its discretion and
without further notice, institute such proceedings as it may
think suitable, against us to enforce payment. Subject to the
indenture provisions for the indemnification of the trustee, the
holder(s) of a majority in aggregate principal amount of the
outstanding Senior Debt Securities of any series shall have the
right to direct the time, method and place of conducting any
proceeding in the name of and on the behalf of the trustee for
any remedy available to the trustee or exercising any trust or
power conferred on the trustee with respect to the series.
However, this direction must not be in conflict with any rule of
law or the Senior Debt Indenture, and must not be unjustly
prejudicial to the holder(s) of any Senior Debt Securities of
that series not taking part in the direction, as determined by
the trustee. The trustee may also take any other action,
consistent with the direction, that it deems proper.
If lawful, amounts otherwise payable to holders of Senior Debt
Securities (other than amounts withheld as taxes as described
under Additional Amounts) withheld or
refused (i) in order to comply with any law or regulation
or with the order of any court of competent jurisdiction or
(ii) in case of doubt as to the validity or applicability
of any law, regulation or order, in accordance with advice of
counsel given as to such validity or applicability at any time
prior to the expiry of the periods specified in the Senior Debt
Indenture (a Withheld Amount) or a sum equal to
Withheld Amounts shall be placed promptly on interest bearing
deposit as described in the Senior Debt Indenture. We will give
notice if at any time it is lawful to pay any Withheld Amount to
holders of Senior Debt Securities or if such payment is possible
as soon as any doubt as to the validity or applicability of the
law, regulation or order is resolved. The notice will give the
date on which the Withheld Amount and the interest accrued on it
will be paid. This date will be the earliest day after the day
on which it is decided Withheld Amounts can be paid on which the
interest bearing deposit falls due for repayment or may be
repaid without penalty. On such date, we shall be bound to pay
the Withheld
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Amount together with interest accrued on it. For the purposes of
this subsection this date will be the due date for those sums.
Our obligations under this paragraph are in lieu of any other
remedy against us in respect of Withheld Amounts. Payment will
be subject to applicable laws, regulations or court orders, but
in the case of payment of any Withheld Amount, without prejudice
to the provisions described under Additional
Amounts. Interest accrued on any Withheld Amount will be
paid net of any taxes required by applicable law to be withheld
or deducted and we shall not be obliged to pay any Additional
Amount in respect of any such withholding or deduction.
The holder(s) of a majority of the aggregate principal amount of
the outstanding Senior Debt Securities of any affected series
may waive any past Senior Debt Securities Event of Default with
respect to the series, except any default in respect of either:
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the payment of principal of, or any premium, or interest, on any
Senior Debt Securities; or
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a covenant or provision of the relevant indenture which cannot
be modified or amended without the consent of each holder of
Senior Debt Securities of the series.
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Subject to exceptions, the trustee may, without the consent of
the holders, waive or authorize a Senior Debt Securities Event
of Default if, in the opinion of the trustee, that Senior Debt
Securities Event of Default would not be materially prejudicial
to the interests of the holders.
The trustee will, within 90 days of a default with respect
to the Senior Debt Securities of any series, give to each
affected holder of the Senior Debt Securities of the affected
series notice of any default it knows about, unless the default
has been cured or waived. However, except in the case of a
default in the payment of the principal of, or premium, if any,
or interest, if any, on the Senior Debt Securities, the trustee
will be entitled to withhold notice if the board of directors,
the executive committee or a trust committee of directors or
responsible officers of the trustee determine in good faith that
withholding of notice is in the interest of the holder(s).
We are required to furnish to the trustee annually a statement
as to our compliance with all conditions and covenants under the
Senior Debt Indenture.
Notwithstanding any contrary provisions, nothing shall impair
the right of a holder, absent the holders consent, to sue
for any payments due but unpaid with respect to the Senior Debt
Securities.
Street name and other indirect holders should consult
their banks or brokers for information on how to give notice or
direction to or make a request of the trustee and how to waive a
Senior Debt Securities Event of Default.
Subordinated
Debt Securities Events of Default
Unless the applicable supplement provides otherwise, a
Subordinated Debt Securities Event of Default with
respect to any series of Subordinated Debt Securities shall
result if (i) either a court of competent jurisdiction
issues an order which is not successfully appealed within
30 days, or an effective shareholders resolution is
validly adopted, for our
winding-up,
other than under or in connection with a scheme of amalgamation,
merger or reconstruction not involving a bankruptcy or
insolvency; or (ii) we do not pay any installment of
interest upon, or any part of the principal of, and any premium
on, any Subordinated Debt Securities of that series on the date
on which the payment is due and payable, whether upon redemption
or otherwise, and the failure continues for fourteen
(14) days in the case of interest or seven (7) days in
the case of principal.
If a Subordinated Debt Securities Event of Default occurs and is
continuing, the trustee or the holder(s) of at least 25% in
aggregate principal amount of the outstanding Subordinated Debt
Securities of each series of Dated Subordinated Debt Securities
or Undated Subordinated Debt Securities, as applicable, may
declare any accrued but unpaid payments, or, in the case of
Discount Securities, the portion of principal amount specified
in its terms, on the Subordinated Debt Securities of such series
to be due and payable immediately. In the case of a Subordinated
Debt Securities Event of Default of the type referred to in
clause (ii) of the immediately preceding paragraph, the
trustee or a majority of the holders of outstanding Subordinated
Debt
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Securities of such series may then also institute proceedings,
but may take no other action in respect of such default, for our
winding-up
in Ireland (but not elsewhere) and prove a claim in such
winding-up
(or any other winding up otherwise instigated) to enforce our
obligations in respect of the Subordinated Debt Securities of
such series. In such case, no repayment in respect of the
Subordinated Debt Securities may be made otherwise than during
or after our
winding-up
or on the stated maturity of the Subordinated Debt Security,
except with the prior written consent of the Irish Financial
Regulator, if required.
After any such declaration of acceleration but before a judgment
or decree has been rendered by a competent court, the holders of
a majority in aggregate principal amount of the outstanding
Subordinated Debt Securities of such series may rescind the
declaration of acceleration and its consequences, but only if
the Subordinated Debt Securities Event of Default has been cured
or waived and all payments due, other than those due as a result
of acceleration, have been made as described below under
Waiver, Trustees Duties
Subordinated Debt Securities.
For the avoidance of doubt, we are not required to make payments
on any series of Undated Subordinated Debt Securities, except in
the limited circumstances described under
Payments, Arrears of Interest for Undated
Subordinated Debt Securities. Furthermore, for the
purposes of determining whether a Subordinated Debt Securities
Event of Default has occurred with respect to any Undated
Subordinated Debt Securities, a payment will not be deemed to be
due on any date on which we do not satisfy the conditions for
solvency described under that heading. Conversely, a payment on
the Dated Subordinated Debt Securities will be deemed to be due
even if we do not satisfy the conditions for solvency described
under that heading.
Waiver;
Trustees Duties Subordinated Debt
Securities
The holder(s) of not less than a majority in aggregate principal
amount of the debt securities of any affected series may waive
any past Subordinated Debt Securities Event of Default with
respect to the series, except any default in respect of either:
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the payment of principal of, or any premium, or interest or
Arrears of Interest on any Subordinated Debt Securities; or
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a covenant or provision of the relevant indenture which cannot
be modified or amended without the consent of each holder of
Subordinated Debt Securities of the series.
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Subject to the applicable indenture provisions regarding the
trustees duties, in case a Subordinated Debt Securities
Event of Default occurs and is continuing with respect to the
debt securities of any series, the trustee will have no
obligation to any holder(s) of the Subordinated Debt Securities
of that series, unless they have offered the trustee reasonable
indemnity. Subject to the indenture provisions for the
indemnification of the trustee, the holder(s) of a majority in
aggregate principal amount of the outstanding Subordinated Debt
Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding in the name
of and on the behalf of the trustee for any remedy available to
the trustee or exercising any trust or power conferred on the
trustee with respect to the series. However, this direction must
not be in conflict with any rule of law or the applicable
indenture, and must not be unjustly prejudicial to the holder(s)
of any Subordinated Debt Securities of that series not taking
part in the direction, as determined by the trustee. The trustee
may also take any other action, consistent with the direction,
that it deems proper.
The trustee will, within 90 days of a default with respect
to the Subordinated Debt Securities of any series, give to each
affected holder of the Subordinated Debt Securities of the
affected series notice of any default it knows about, unless the
default has been cured or waived. However, except in the case of
a default in the payment of the principal of, or premium, if
any, or interest, if any, on any Subordinated Debt Securities,
the trustee will be entitled to withhold notice if the board of
directors, the executive committee or a trust committee of
directors or responsible officers of the trustee determine in
good faith that withholding of notice is in the interest of the
holder(s).
We are required to furnish to the trustee annually a statement
as to our compliance with all conditions and covenants under
each Subordinated Debt Indenture.
16
Limitations on suits. Before a holder may
bypass the trustee and bring its own lawsuit or other formal
legal action or take other steps to enforce its rights or
protect its interests relating to the debt securities, the
following must occur:
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The holder must give the trustee written notice that an event of
default has occurred and remains uncured.
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The holders of 25% in principal amount of all outstanding debt
securities of the relevant series must make a written request
that the trustee take action because of the default, and the
holder must offer reasonable indemnity to the trustee against
the cost and other liabilities of taking that action.
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The trustee must not have taken action for 60 days after
receipt of the above notice and offer of indemnity, and the
trustee must not have received an inconsistent direction from
the majority in principal amount of all outstanding debt
securities of the relevant series during that period.
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In the case of our
winding-up
in Ireland, such legal action or proceeding is in the name and
on behalf of the trustee to the same extent, but no further, as
the trustee would have been entitled to do.
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Notwithstanding any contrary provisions, nothing shall impair
the right of a holder, absent the holders consent, to sue
for any payments due but unpaid with respect to the Subordinated
Debt Securities.
Street name and other indirect holders should consult
their banks or brokers for information on how to give notice or
direction to or make a request of the trustee and how to waive
any past Subordinated Debt Securities Event of Default.
Consolidation,
Merger and Sale of Assets; Assumption
We may, without the consent of the holders of any of the debt
securities, consolidate with, merge into or convey or transfer
or lease our assets substantially as an entirety to, any person
of the persons specified in the applicable indenture, provided
that:
(1) if we are not the survivor in such consolidation or
amalgamation, the person formed by such consolidation or
amalgamation or into which we are merged or the person which
acquires by conveyance or transfer or which leases our
properties and assets substantially as an entirety shall be an
entity entitled to carry on the business of a bank, and shall
expressly assume by supplemental indenture, executed and
delivered to the trustee, in form reasonably satisfactory to the
trustee, the due and punctual payment of the principal of (and
premium, if any) and interest, if any, on all the debt
securities in accordance with the provisions of such
supplemental indenture and the performance or observance of
every covenant of the indenture to be performed or observed by
us;
(2) immediately after giving effect to such transaction,
and treating any indebtedness which becomes an obligation of
ours or any of our subsidiaries as a result of that transaction
as having been incurred by us or our subsidiary at the time of
the transaction, no Senior Debt Securities Event of Default or
Subordinated Debt Securities Event of Default and no event
which, after notice or lapse of time or both, would become a
Senior Debt Securities Event of Default or Subordinated Debt
Securities Event of Default shall have occurred and be
continuing; and
(3) we have delivered to the trustee an officers
certificate and an opinion of counsel, each stating that such
consolidation, amalgamation, merger, conveyance or transfer and
such supplemental indenture comply with the terms of the
indenture and that all conditions precedent provided for in the
indenture relating to such transaction have been complied with.
Subject to applicable law and regulation, any of our
wholly-owned subsidiaries may assume our obligations under the
debt securities of any series without the consent of any holder.
We, however, must irrevocably guarantee (in the case of
Subordinated Debt Securities, on a subordinated basis in
substantially the manner described under
Ranking above) the obligations of the
subsidiary under the debt securities of that series. If we do,
all of our direct obligations under the debt securities of the
series and the applicable indenture shall immediately be
discharged. Unless the applicable supplement provides otherwise,
any
17
Additional Amounts under the debt securities of the series will
be payable in respect of taxes imposed by the jurisdiction in
which the successor entity is organized, rather than taxes
imposed by a taxing jurisdiction of Ireland, subject to
exceptions equivalent to those that apply to any obligation to
pay Additional Amounts in respect of taxes imposed by a taxing
jurisdiction of Ireland. However, if we make payment under this
guarantee, we shall also be required to pay Additional Amounts
related to taxes (subject to the exceptions set forth in
Additional Amounts above) imposed by a
taxing jurisdiction of Ireland due to this guarantee payment. A
subsidiary that assumes our obligations will also be entitled to
redeem the debt securities of the relevant series in the
circumstances described in Redemption
above with respect to any change or amendment to, or change in
the application or interpretation of the laws or regulations
(including any treaty) of the assuming corporations
jurisdiction of incorporation as long as the change or amendment
occurs after the date of the subsidiarys assumption of our
obligations. However, the determination of whether we are
solvent shall continue to be made with reference to us, unless
applicable law requires otherwise.
The U.S. Internal Revenue Service might deem an assumption
of our obligations as described above to be an exchange of the
existing debt securities for new debt securities, resulting in a
recognition of taxable gain or loss and possibly other adverse
tax consequences. Investors should consult their tax advisors
regarding the tax consequences of such an assumption.
Governing
Law
The debt securities and indentures will be governed by and
construed in accordance with the laws of the State of New York,
except that, as specified in the relevant Subordinated Debt
Indenture, the subordination provisions of each series of
Subordinated Debt Securities and the related indenture will be
governed by and construed in accordance with the laws of Ireland.
Notices
Notices regarding the debt securities will be valid:
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with respect to global debt securities, if in writing and
delivered or mailed to each direct holder; or
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if registered debt securities are affected, if given in writing
and mailed to each direct holder as provided in the applicable
indenture.
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Any notice shall be deemed to have been given on the date of
such publication or, if published more than once, on the date of
the first publication. If publication is not practicable, notice
will be valid if given in any other manner, and deemed to have
been given on the date, as we shall determine.
The
Trustee
The Bank of New York will be the trustee under the indentures.
The trustee has two principal functions:
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First, it can enforce an investors rights against us if we
default on debt securities issued under the indenture. There are
some limitations on the extent to which the trustee acts on an
investors behalf, described under Events
of Default; Limitation of Remedies; and
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Second, the trustee performs administrative duties for us, such
as sending the investors interest payments, transferring
debt securities to a new buyer and sending investors notices.
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We and some of our subsidiaries maintain deposit accounts and
conduct other banking transactions with the trustee in the
ordinary course of our respective businesses.
Consent
to Service
The indentures provide that we irrevocably designate Allied
Irish Banks, public limited company, 405 Park Avenue, New
York, NY 10022 (Attn: Head of Treasury) as our authorized agent
for service of process in any proceeding arising out of or
relating to the indentures or debt securities brought in any
federal
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or state court in the Borough of Manhattan in the City of New
York and we irrevocably submit to the jurisdiction of these
courts.
Clearance
and Settlement
Debt securities we issue may be held through one or more
international and domestic clearing systems. The principal
clearing systems we will use are the book-entry systems operated
by The Depository Trust Company, or DTC, in the United
States, Clearstream Banking, société anonyme, or
Clearstream, Luxembourg, in Luxembourg and Euroclear Bank
S.A./N.V., or Euroclear, in Brussels, Belgium. These systems
have established electronic securities and payment transfer,
processing, depositary and custodial links among themselves and
others, either directly or through custodians and depositories.
These links allow securities to be issued, held and transferred
among the clearing systems without the physical transfer of
certificates.
Special procedures to facilitate clearance and settlement have
been established among these clearing systems to trade
securities across borders in the secondary market. Where
payments for debt securities we issue in global form will be
made in U.S. dollars, these procedures can be used for
cross-market transfers and the securities will be cleared and
settled on a delivery against payment basis.
Global securities will be registered in the name of a nominee
for, and accepted for settlement and clearance by, one or more
of Euroclear, Clearstream, Luxembourg, DTC and any other
clearing system identified in the applicable supplement.
Cross-market transfers of debt securities that are not in global
form may be cleared and settled in accordance with other
procedures that may be established among the clearing systems
for these securities.
Euroclear and Clearstream, Luxembourg hold interests on behalf
of their participants through customers securities
accounts in the names of Euroclear and Clearstream, Luxembourg
on the books of their respective depositories, which, in the
case of securities for which a global security in registered
form is deposited with the DTC, in turn hold such interests in
customers securities accounts in the depositories
names on the books of the DTC.
The policies of DTC, Clearstream, Luxembourg and Euroclear will
govern payments, transfers, exchange and other matters relating
to the investors interest in securities held by them. This
is also true for any other clearance system that may be named in
an applicable supplement.
We have no responsibility for any aspect of the actions of DTC,
Clearstream, Luxembourg or Euroclear or any of their direct or
indirect participants. We have no responsibility for any aspect
of the records kept by DTC, Clearstream, Luxembourg or Euroclear
or any of their direct or indirect participants. We also do not
supervise these systems in any way. This is also true for any
other clearing system indicated in an applicable supplement.
DTC, Clearstream, Luxembourg, Euroclear and their participants
perform these clearance and settlement functions under
agreements they have made with one another or with their
customers. Investors should be aware that they are not obligated
to perform these procedures and may modify them or discontinue
them at any time.
The description of the clearing systems in this section reflects
our understanding of the rules and procedures of DTC,
Clearstream, Luxembourg and Euroclear as they are currently in
effect. Those systems could change their rules and procedures at
any time.
The
Clearing Systems
DTC. DTC has advised us as follows:
(1) a limited purpose trust company organized under the
laws of the State of New York;
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(2) a banking organization within the meaning
of New York Banking Law;
(3) a member of the Federal Reserve System;
(4) a clearing corporation within the meaning
of the New York Uniform Commercial Code; and
(5) a clearing agency registered pursuant to
the provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to accounts of its participants. This eliminates the
need for physical movement of securities.
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Participants in DTC include securities brokers and dealers,
banks, trust companies and clearing corporations and may include
certain other organizations. DTC is partially owned by some of
these participants or their representatives.
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Indirect access to the DTC system is also available to banks,
brokers and dealers and trust companies that have custodial
relationships with participants.
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The rules applicable to DTC and DTC participants are on file
with the SEC.
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Clearstream, Luxembourg. Clearstream,
Luxembourg has advised us as follows:
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Clearstream, Luxembourg is a duly licensed bank organized as a
société anonyme incorporated under the laws of
Luxembourg and is subject to regulation by the Luxembourg
Commission for the Supervision of the Financial Sector
(Commission de Surveillance du Secteur Financier).
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Clearstream, Luxembourg holds securities for its customers and
facilitates the clearance and settlement of securities
transactions among them. It does so through electronic
book-entry transfers between the accounts of its customers. This
eliminates the need for physical movement of securities.
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Clearstream, Luxembourg provides other services to its
customers, including safekeeping, administration, clearance and
settlement of internationally traded securities and lending and
borrowing of securities.
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Clearstream, Luxembourgs customers include worldwide
securities brokers and dealers, banks, trust companies and
clearing corporations and may include professional financial
intermediaries. Its U.S. customers are limited to
securities brokers and dealers and banks.
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Indirect access to the Clearstream, Luxembourg system is also
available to others that clear through Clearstream, Luxembourg
customers or that have custodial relationships with its
customers, such as banks, brokers, dealers and trust companies.
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Euroclear. Euroclear has advised us as follows:
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Euroclear is incorporated under the laws of Belgium as a bank
and is subject to regulation by the Belgian Banking and Finance
Commission (Commission Bancaire et Financière) and the
National Bank of Belgium (Banque Nationale de Belgique).
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Euroclear holds securities for its customers and facilitates the
clearance and settlement of securities transactions among them.
It does so through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical
movement of certificates.
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Euroclear provides other services to its customers, including
credit, custody, lending and borrowing of securities and
tri-party collateral management. It interfaces with the domestic
markets of several countries.
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Euroclear customers include banks, including central banks,
securities brokers and dealers, banks, trust companies and
clearing corporations and certain other professional financial
intermediaries.
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Indirect access to the Euroclear system is also available to
others that clear through Euroclear customers or that have
custodial relationships with Euroclear customers.
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All securities in Euroclear are held on a fungible basis. This
means that specific certificates are not matched to specific
securities clearance accounts.
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Other Clearing Systems. We may choose any
other clearing system for a particular series of debt
securities. The clearance and settlement procedures for the
clearing system we choose will be described in the applicable
supplement.
Primary
Distribution
The distribution of the debt securities will be cleared through
one or more of the clearing systems that we have described above
or any other clearing system that is specified in the applicable
supplement. Payment for securities will be made on a delivery
versus payment or free delivery basis. These payment procedures
will be more fully described in the applicable supplement.
Clearance and settlement procedures may vary from one series of
debt securities to another according to the currency that is
chosen for the specific series of securities. Customary
clearance and settlement procedures are described below.
We will submit applications to the relevant system or systems
for the securities to be accepted for clearance. The clearance
numbers that are applicable to each clearance system will be
specified in the applicable supplement.
Clearance and Settlement Procedures
DTC. DTC participants that hold debt
securities through DTC on behalf of investors will follow the
settlement practices applicable to U.S. corporate debt
obligations in DTCs
Same-Day
Funds Settlement System.
Debt securities will be credited to the securities custody
accounts of these DTC participants against payment in
same-day
funds, for payments in U.S. dollars, on the settlement
date. For payments in a currency other than U.S. dollars,
securities will be credited free of payment on the settlement
date.
Clearance and Settlement Procedures
Euroclear and Clearstream, Luxembourg. We
understand that investors that hold their debt securities
through Euroclear or Clearstream, Luxembourg accounts will
follow the settlement procedures that are applicable to
conventional Eurobonds in registered form.
Debt securities will be credited to the securities custody
accounts of Euroclear and Clearstream, Luxembourg participants
on the business day following the settlement date, for value on
the settlement date. They will be credited either free of
payment or against payment for value on the settlement date.
Secondary
Market Trading
Trading Between DTC Participants. Secondary
market trading between DTC participants will occur in the
ordinary way in accordance with DTCs rules. Secondary
market trading will be settled using procedures applicable to
U.S. corporate debt obligations in DTCs
Same-Day
Funds Settlement System.
If payment is made in U.S. dollars, settlement will be in
same-day
funds. If payment is made in a currency other than
U.S. dollars, settlement will be free of payment. If
payment is made other than in U.S. Dollars, separate
payment arrangements outside of the DTC system must be made
between the DTC participants involved.
Trading Between Euroclear
and/or
Clearstream, Luxembourg Participants. We
understand that secondary market trading between Euroclear
and/or
Clearstream, Luxembourg participants will occur in the ordinary
way following the applicable rules and operating procedures of
Euroclear and Clearstream, Luxembourg. Secondary market trading
will be settled using procedures applicable to conventional
Eurobonds in registered form.
Trading Between a DTC Seller and a Euroclear or Clearstream,
Luxembourg Purchaser. A purchaser of debt
securities that are held in the account of a DTC participant
must send instructions to Euroclear or Clearstream, Luxembourg
at least one business day prior to settlement. The instructions
will provide for the transfer of the securities from the selling
DTC participants account to the account of the purchasing
Euroclear
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or Clearstream, Luxembourg participant. Euroclear or
Clearstream, Luxembourg, as the case may be, will then instruct
the common depositary for Euroclear and Clearstream, Luxembourg
to receive the securities either against payment or free of
payment.
The interests in the securities will be credited to the
respective clearing system. The clearing system will then credit
the account of the participant, following its usual procedures.
Credit for the securities will appear on the next day, European
time. Cash debit will be back-valued to, and the interest on the
securities will accrue from, the value date, which would be the
preceding day, when settlement occurs in New York. If the trade
fails and settlement is not completed on the intended date, the
Euroclear or Clearstream, Luxembourg cash debit will be valued
as of the actual settlement date instead.
Euroclear participants or Clearstream, Luxembourg participants
will need the funds necessary to process
same-day
funds settlement. The most direct means of doing this is to
preposition funds for settlement, either from cash or from
existing lines of credit, as for any settlement occurring within
Euroclear or Clearstream, Luxembourg. Under this approach,
participants may take on credit exposure to Euroclear or
Clearstream, Luxembourg until the securities are credited to
their accounts one business day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has
extended a line of credit to them, participants can choose not
to pre-position funds and will instead allow that credit line to
be drawn upon to finance settlement. Under this procedure,
Euroclear participants or Clearstream, Luxembourg participants
purchasing securities would incur overdraft charges for one
business day (assuming they cleared the overdraft as soon as the
securities were credited to their accounts). However, interest
on the securities would accrue from the value date. Therefore,
in many cases, the investment income on securities that is
earned during that one-business day period may substantially
reduce or offset the amount of the overdraft charges. This
result will, however, depend on each participants
particular cost of funds.
Because the settlement will take place during New York business
hours, DTC participants will use their usual procedures to
deliver securities to the depositary on behalf of Euroclear
participants or Clearstream, Luxembourg participants. The sale
proceeds will be available to the DTC seller on the settlement
date. For the DTC participants, then, a cross-market transaction
will settle no differently than a trade between two DTC
participants.
Special
Timing Considerations
Investors should be aware that they will only be able to make
and receive deliveries, payments and other communications
involving the debt securities through Clearstream, Luxembourg
and Euroclear on days when those systems are open for business.
Those systems may not be open for business on days when banks,
brokers and other institutions are open for business in the
United States.
In addition, because of time-zone differences, there may be
problems with completing transactions involving Clearstream,
Luxembourg and Euroclear on the same business day as in the
United States. U.S. investors who wish to transfer their
interests in the debt securities, or to receive or make a
payment or delivery of the debt securities, on a particular day,
may find that the transactions will not be performed until the
next business day in Luxembourg or Brussels, depending on
whether Clearstream, Luxembourg or Euroclear is used.
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DESCRIPTION
OF PREFERENCE SHARES
The following is a summary of the general terms of the
preference shares of any series we may issue under the
registration statement to which this prospectus relates. Each
time we issue preference shares we will prepare a supplement,
which you should read carefully. The supplement relating to a
series of preference shares or to a series of debt securities
that are convertible into or exchangeable for the preference
shares will summarize the terms of the preference shares of the
particular series. Those terms will be set out in the
resolutions establishing the series that our Board of Directors
or an authorized committee adopt, and may be different from
those summarized below. If so, the supplement will state that,
and the description of the preference shares of that series
contained in the supplement will apply. In addition, our
Memorandum and Articles of Association contain certain rights
attaching to the preference shares which are summarized
below.
This summary does not purport to be complete and is subject
to, and qualified by, our Memorandum and Articles of Association
and the resolutions of the Board of Directors or an authorized
committee. You should read our Memorandum and Articles of
Association as well as those resolutions, which we have filed or
we will file with the SEC as an exhibit to the registration
statement, of which this prospectus is a part. You should also
read the summary of the general terms of the deposit agreement
under which American Depositary Receipts (ADRs)
evidencing American Depositary Shares (ADSs) that
may represent preference shares may be issued, under the heading
Description of American Depositary Receipts.
General
Under our Memorandum and Articles of Association, our Board of
Directors or an authorized committee of the Board is empowered
to provide for the issuance of U.S. dollar-denominated
preference shares, having a par value of $25, in one or more
series.
Our Memorandum and Articles of Association and any resolutions
establishing the relevant preference shares will set forth the
dividend rights, liquidation value per share, redemption
provisions, voting rights, other rights, preferences,
privileges, limitations and restrictions of the preference
shares. As of the date of this prospectus, we have issued
250,000 dollar-denominated preference shares, though we have
issued a call notice with respect to those dollar-denominated
preference shares, and they are scheduled to be redeemed by us
on July 15, 2008.
The preference shares of any series will be
U.S. dollar-denominated in terms of nominal value, dividend
rights and liquidation value per share. They will, when issued,
be fully paid and non-assessable. For each preference share
issued, an amount equal to its nominal value will be credited to
our issued share capital account and an amount equal to the
difference between its issue price (net of costs) and its
nominal value will be credited to our share premium account. The
applicable supplement will specify the nominal value of the
preference shares. The preference shares of a series deposited
under the deposit agreement referred to in the section
Description of American Depositary Receipts will be
represented by ADSs of a corresponding series, evidenced by ADRs
of such series. The preference shares of such series may only be
withdrawn from deposit in registered form. See Description
of American Depositary Receipts.
Our Board of Directors or the relevant authorized committee may
only provide for the issuance of preference shares of any series
if there is in place, prior to the proposed issuance, sufficient
allotment authority. Under our Articles of Association, our
shareholders have the power to grant our Board of Directors the
authority to allot preference shares. This power is usually
granted by our shareholders for periods of five years.
The preference shares of any series will have the dividend
rights, rights upon liquidation, redemption provisions and
voting rights described below, unless the applicable supplement
provides otherwise. You should read the applicable supplement
for the specific terms of any series, including:
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the number of shares offered, the number of shares offered in
the form of ADSs and the number of preference shares represented
by each ADS;
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the public offering price of the series;
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the liquidation value per share of that series;
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the dividend rate, or the method of calculating it;
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the place where we will pay dividends;
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the dates on which dividends will be payable;
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voting rights of that series of preference shares, if any;
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restrictions applicable to the sale and delivery of the
preference shares;
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whether and under what circumstances we will pay additional
amounts on the preference shares in the event of certain
developments with respect to withholding tax or information
reporting laws;
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any redemption, conversion or exchange provisions;
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any listing of the preference shares on a securities
exchange; and
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any other rights, preferences, privileges, limitations and
restrictions relating to the series.
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The applicable supplement will also describe material
U.S. and Irish tax considerations that apply to any
particular series of preference shares.
Title to preference shares of a series in registered form will
pass by transfer and registration on the register that the
registrar shall keep at its office in Ireland. For more
information on such registration, you should read
Registrar and Paying Agent. The
registrar will not charge for the registration of transfer, but
the purchaser will be liable for any taxes, stamp duties or
other governmental charges.
The characteristics of the preference shares of any two or more
series may differ in the following respects:
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the aggregate amount of dividends,
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the aggregate amounts which may be payable upon redemption,
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the redemption dates,
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the rights of holders to deposit the preference shares under the
deposit agreement, and
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the voting rights of holders.
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You should read the applicable supplement for the
characteristics relating to any series of preference shares.
Unless the applicable supplement specifies otherwise, the
preference shares of each series will rank equally as to
participation in our profits and assets with the preference
shares of each other series.
Dividend
Rights
The holders of the preference shares will be entitled to receive
cash dividends on the dates and at the rates as described in the
applicable supplement out of our distributable
profits and distributable reserves. Except as
provided in this prospectus and in the applicable supplement,
holders of preference shares will have no right to participate
in our profits. The discretion of our Board of Directors to
resolve that a dividend should not be paid to holders of the
preference shares is unfettered. In addition, even if we have
sufficient distributable profits and
distributable reserves, we will not pay a dividend
to holders of the preference shares if doing so would result in
a breach of Applicable Regulatory Capital Requirements.
For information concerning the declaration of dividends out of
our distributable profits, see Description of Share
Capital Ordinary Shares Dividend
Rights.
We will pay the dividends on the preference shares of a series
to the record holders as they appear on the register for such
preference shares on the record dates. A record date will be
fixed by our Board of Directors or an authorized committee.
Subject to applicable fiscal or other laws and regulations, each
payment will be
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made by dollar check drawn on a bank in Dublin or in New York
City and mailed to the record holder at the holders
address as it appears on the register for the preference shares.
If any date on which dividends are payable on the preference
shares is not a business day, which is a day on
which banks are open for business and on which foreign exchange
dealings may be conducted in Dublin and in New York City, then
payment of the dividend payable on that date will be made on the
next business day. There will be no additional interest or other
payment due to this type of delay.
Dividends on the preference shares of any series will be
non-cumulative. If our Board of Directors or the relevant
authorized committee fails to declare a dividend payable, or a
dividend is paid only in part, the holders of preference shares
of the relevant series will have no claim in respect of such
unpaid amount. We will have no obligation to pay the dividend
accrued for the relevant dividend period or to pay any interest
on the dividend, whether or not dividends on the preference
shares of that series or any other series or class of our shares
are paid for any subsequent dividend period.
No full dividends will be paid or set apart for payment on any
of our preference shares ranking, as to dividends, equally with
or below the preference shares of any series for any period
unless full dividends have been, or at the same time are, paid,
or set aside for payment, on the preference shares of that
series for the then-current dividend period. When dividends are
not paid in full upon the preference shares of a series and any
other of our preference shares ranking equally as to dividends,
all dividends upon the preference shares of that series and the
other preference shares will be paid pro rata so that dividends
paid upon the preference shares of each series are in proportion
to dividends accrued on the preference shares of the series.
Except as provided in the preceding sentence, unless full
dividends on all outstanding preference shares of a series have
been paid for the most recently completed dividend period, no
dividends, will be declared or paid or set apart for payment, or
other distribution made, upon our ordinary shares or other
shares ranking, as to dividends or upon liquidation, equally
with or below the preference shares of the series. In addition,
we will not redeem, repurchase or otherwise acquire for
consideration, or pay any money or make any money available for
a sinking fund for the redemption of, any of our ordinary shares
or other shares ranking equally with or below the preference
shares of the series as to dividends or upon liquidation, except
by conversion into or exchange for shares ranking below the
preference shares of the series as to dividends and upon
liquidation, until we have resumed or set aside for the payment
of full dividends for a period of twelve (12) consecutive
months on all outstanding preference shares of the series and
those ranking equally as to dividends with the preference shares
of the series.
We will compute the amount of dividends payable on the
preference shares of any series for each dividend period based
upon the liquidation value per share of the preference shares of
the series by annualizing the applicable dividend rate and
dividing by the number of dividend periods in a year. However,
we will compute the amount of dividends payable for any dividend
period shorter than a full dividend period on the basis of a
360-day year
divided into twelve months of 30 days each and, in the case
of an incomplete month, on the basis of the actual number of
days elapsed.
Rights
Upon Liquidation
If there is a return of capital in respect of our voluntary or
involuntary liquidation, dissolution,
winding-up
or otherwise, other than in respect of any redemption or
repurchase of the preference shares of a series in whole or in
part permitted by our Memorandum and Articles of Association and
under applicable law, the holders of the outstanding preference
shares of a series will be entitled to receive liquidating
distributions. Liquidating distributions will:
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come from the surplus assets we have available for distribution
to shareholders, before any distribution of assets is made to
holders of our ordinary shares or any other class of shares
ranking below the preference shares as regards distribution of
assets; and
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be in an amount equal to the liquidation value per share of the
preference shares (being the amount paid up or credited as paid
up on the preference shares including any premium paid in
respect thereof), plus an amount equal to accrued and unpaid
dividends, whether or not declared or earned, for the then-
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current dividend period up to and including the date of
commencement of our
winding-up
or the date of any other return of capital, as the case may be.
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If, upon a return of capital, the assets available for
distribution are insufficient to pay in full the amounts payable
on the preference shares and any other of our shares ranking as
to any distribution equally with the preference shares, the
holders of the preference shares and of the other shares will
share pro rata in any distribution of our surplus assets in
proportion to the full respective liquidating distributions to
which they are entitled. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders
of the preference shares of that series will have no right or
claim on any of our remaining assets and will not be entitled to
any further participation in the return of capital. If there is
a sale of all or substantially all of our assets, the
distribution to our shareholders of all or substantially all of
the consideration for the sale, unless the consideration, apart
from assumption of liabilities, or the net proceeds consists
entirely of cash, will not be deemed a return of capital in
respect of our liquidation, dissolution or
winding-up.
To the extent that holders of the preference shares are entitled
to any recovery upon a return of capital, those holders might
not be entitled in such proceedings to a recovery in US dollars
and might be entitled only to a recovery in euro.
Redemption
Unless the applicable supplement specifies otherwise, we may
redeem the preference shares of each series, at our option, in
whole or in part, at any time and from time to time on the dates
and at the redemption prices and on all other terms and
conditions as set forth in the applicable supplement.
If fewer than all of the outstanding preference shares of a
series are to be redeemed, we will select by lot, in the
presence of our independent auditors, which particular
preference shares will be redeemed.
If we redeem preference shares of a series, we will mail a
redemption notice to each record holder of preference shares to
be redeemed between 30 and 60 days before the redemption
date. Each redemption notice will specify:
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the redemption date;
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the particular preference shares of the series to be redeemed;
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the redemption price, specifying the included amount of accrued
and unpaid dividends;
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that any dividends will cease to accrue upon the redemption of
the preference shares; and
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the place or places where holders may surrender documents of
title and obtain payment of the redemption price.
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No defect in the redemption notice or in the giving of notice
will affect the validity of the redemption proceedings.
If we give notice of redemption in respect of the preference
shares of a series, then, by 12:00 noon, Dublin time, on the
redemption date, we will irrevocably deposit with the relevant
paying agent funds sufficient to pay the applicable redemption
price, including the amount of accrued and unpaid dividends (if
any) for the then-current quarterly dividend period to the date
fixed for redemption. We will also give the relevant paying
agent irrevocable instructions and authority to pay the
redemption price to the holders of those preference shares
called for redemption.
If we give notice of redemption, then, when we make the deposit
with the paying agent, all rights of holders of the preference
shares of the series called for redemption will cease, except
the holders right to receive the redemption price, but
without interest, and these preference shares will no longer be
outstanding. Subject to any applicable fiscal or other laws and
regulations, payments in respect of the redemption of preference
shares of a series will be made by dollar check drawn on a bank
in Dublin or in New York City against presentation and surrender
of the relevant share certificates at the office of the paying
agent located in Ireland.
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In the event that any date on which a redemption payment on the
preference shares is to be made is not a business day, then
payment of the redemption price payable on that date will be
made on the next business day. There will be no interest or
other payment due to the delay. If payment of the redemption
price is improperly withheld or refused, dividends on the
preference shares will continue to accrue at the then applicable
rate, from the redemption date to the date of payment of the
redemption price.
Subject to applicable law, including U.S. securities laws,
and the consent of, or prior notification to, the Irish
Financial Regulator, as applicable, we may purchase outstanding
preference shares of any series by tender, in the open market or
by private agreement. Unless we tell you otherwise in the
applicable supplement, any preference shares of any series that
we purchase for our own account, other than in the ordinary
course of a business of dealing in securities, will be treated
as cancelled and will no longer be issued and outstanding.
We may not redeem or repurchase any preference shares without
obtaining the prior written consent of the Irish Financial
Regulator, if required.
Voting
Rights
The holders of the preference shares of any series are entitled
to receive notice of, and to attend, general meetings of
shareholders, but, except as provided below or in the applicable
supplement, will not be entitled to speak or vote at such
meetings.
Variation
of Rights
If applicable law permits, the rights, preferences, limitations,
and privileges attached to any series of preference shares may
be varied, altered or abrogated only with the written consent of
the holders of at least three-fourths of the outstanding
preference shares of the series or with the sanction of a
special resolution passed at a separate general meeting of the
holders of the outstanding preference shares of the series
provided that at least three-fourths of those holders vote in
person or by proxy in favor of the resolution at the meeting.
In addition to the voting rights referred to above, if any
resolution is proposed for our liquidation, dissolution or
winding-up,
then the holders of the outstanding preference shares of each
series, other than any series of preference shares which do not
have voting rights, will be entitled to receive notice of and to
attend the general meeting of shareholders called for the
purpose of adopting the resolution and will be entitled to vote
on that resolution, but no other. When entitled to vote, each
holder of preference shares of a series present in person or by
proxy has one vote for each preference share held.
On the allotment of a series of preference shares, the Directors
may provide that the consent, either written or by resolution
passed at a separate general meeting of the holders of the
outstanding preference shares of the series, of the holders of
at least two-thirds of the outstanding preference shares of the
series is required if we propose to authorize or create, or
increase the amount of, any shares of any class or any security
convertible into the shares of any class ranking as regards the
right to receive dividends or the rights on a return on capital
in respect of our voluntary or involuntary liquidation,
dissolution,
winding-up
or otherwise, other than in respect of any redemption or
repurchase of the preference shares of a series in whole or in
part permitted by our Memorandum and Articles of Association and
under applicable law in priority to the preference shares of the
series.
In the event that the most recent dividend payable on a series
of preference shares has been paid in cash, the rights attached
to the preference shares of that series are not to be deemed to
be varied:
(a) by the creation or issue of further preference shares
ranking equally with the preference shares, whether or not
carrying different rights as to dividend, premium on a return of
capital, redemption or conversion; or
(b) by the reduction or redemption by us of share capital
ranking as regards participation in our profits and assets
equally with or after the preference shares.
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In the event that the most recent dividend payable on a series
of preference shares has not been paid in cash at the date of a
general meeting of shareholders, holders of preference shares
will be entitled to speak and vote at that meeting.
Notices
of Meetings
A notice of any meeting at which holders of preference shares of
a particular series are entitled to vote will be mailed to each
record holder of preference shares of that series. Each notice
will state:
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the date of the meeting;
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a description of any resolution to be proposed for adoption at
the meeting on which those holders are entitled to vote; and
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instructions for the delivery of proxies.
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A holder of preference shares of any series in registered form
who is not registered with an address in Ireland and who has not
supplied an address within Ireland to us for the purpose of
notices is not entitled to receive notices of meetings from us.
For a description of notices that we will give to the ADR
depositary and that the ADR depositary will give to ADR holders,
you should read Description of American Depositary
Receipts Reports and Notices and Where
You Can Find More Information.
Governing
Law
The creation and issuance of any series of preference shares and
the rights associated with those preference shares shall be
governed by and construed in accordance with the laws of Ireland.
Registrar
and Paying Agent
AIB p.l.c., presently located at Bankcentre, Ballsbridge, Dublin
4, Ireland will act as registrar and paying agent for the
preference shares of each series.
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DESCRIPTION
OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of the general terms and
provisions of the deposit agreement under which the ADR
depositary will issue the ADRs. The deposit agreement is among
us, The Bank of New York, as ADR depositary, and all holders
from time to time of ADRs issued under the deposit agreement.
This summary does not purport to be complete. We may amend or
supersede all or part of this summary to the extent we tell you
in the applicable supplement. You should read the deposit
agreement, which is filed with the SEC as an exhibit to the
registration statement, of which this prospectus is a part. You
may also read the deposit agreement at the corporate trust
office of The Bank of New York in New York City and the office
of Allied Irish Banks, p.l.c. Securities Services in Dublin.
Depositary
The Bank of New York will act as the ADR depositary. The Bank of
New York, London office will act as custodian. The ADR
depositarys principal office in New York City is presently
located at 101 Barclay Street, Floor 21 West, New York, New
York 10286, and the custodians office is presently located
at One Canada Square, Canary Wharf, London E14 5AL.
American
Depositary Receipts
An ADR is a certificate evidencing a specific number of ADSs of
a specific series, each of which will represent preference
shares of a corresponding series. Unless the applicable
supplement specifies otherwise, each ADS will represent one
preference share, or evidence of rights to receive one
preference share, deposited with The Bank of New York, London
office as custodian. An ADR may evidence any number of ADSs in
the corresponding series.
Deposit
and Issuance of ADRs
When the custodian has received preference shares of a
particular series, or evidence of rights to receive preference
shares, and applicable fees, charges and taxes, subject to the
deposit agreements terms, the ADR depositary will execute
and deliver at its corporate trust office in New York City to
the person(s) specified by us in writing, an ADR or ADRs
registered in the name of such person(s) evidencing the number
of ADSs of that series corresponding to the preference shares of
that series.
When the ADR depositary has received preference shares of a
particular series, or evidence of rights to receive preference
shares, and applicable fees, charges and taxes, subject to the
deposit agreements terms, the ADR depositary will execute
and deliver at its principal office to the person(s) specified
by us in writing, an ADR or ADRs registered in the name of that
person(s) evidencing the number of ADSs of that series
corresponding to the preference shares of that series.
Preference shares may be deposited under the deposit agreement
as units comprising a preference share of a series and a
preference share of a related series. The ADR depositarys
principal office is presently located at 101 Barclay Street,
Floor 22 West, New York, New York 10286.
Withdrawal
of Deposited Securities
Upon surrender of ADRs at the ADR depositarys corporate
trust office in New York City and upon payment of the taxes,
charges and fees provided in the deposit agreement and subject
to its terms, an ADR holder is entitled to delivery, to or upon
its order, at the ADR depositarys corporate trust office
in New York City or the custodians office in Dublin, of
the amount of preference shares of the relevant series
represented by the ADSs evidenced by the surrendered ADRs. The
ADR holder will bear the risk and expense for the forwarding of
share certificates and other documents of title to the corporate
trust office of the ADR depositary.
Holders of preference shares that have been withdrawn from
deposit under the deposit agreement will not have the right to
redeposit the preference shares.
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Dividends
and Other Distributions
The ADR depositary will distribute all cash dividends or other
cash distributions that it receives in respect of deposited
preference shares of a particular series to ADR holders, after
payment of any charges and fees provided for in the deposit
agreement, in proportion to their holdings of ADSs of the series
representing the preference shares. The cash amount distributed
will be reduced by any amounts that we or the ADR depositary
must withhold on account of taxes.
If we make a non-cash distribution in respect of any deposited
preference shares of a particular series, the ADR depositary
will distribute the property it receives to ADR holders, after
deduction or upon payment of any taxes, charges and fees
provided for in the deposit agreement, in proportion to their
holdings of ADSs of the series representing the preference
shares. If a distribution that we make in respect of deposited
preference shares of a particular series consists of a dividend
in, or free distribution of, preference shares of that series,
the ADR depositary may, if we approve, and will, if we request,
distribute to ADR holders, in proportion to their holdings of
ADSs of the relevant series, additional ADRs evidencing an
aggregate number of ADSs of that series representing the amount
of preference shares received as such dividend or free
distribution. If the ADR depositary does not distribute
additional ADRs, each ADS of that series will from then forward
also represent the additional preference shares of the
corresponding series distributed in respect of the deposited
preference shares before the dividend or free distribution.
If the ADR depositary determines that any distribution of
property, other than cash or preference shares of a particular
series, cannot be made proportionately among ADR holders or if
for any other reason, including any requirement that we or the
ADR depositary withhold an amount on account of taxes or other
governmental charges, the ADR depositary deems that such a
distribution is not feasible, the ADR depositary may dispose of
all or part of the property in any manner, including by public
or private sale, that it deems equitable and practicable. The
ADR depositary will then distribute the net proceeds of any such
sale (net of any fees and expenses of the ADR depositary
provided for in the deposit agreement) to ADR holders as in the
case of a distribution received in cash.
Redemption
of ADSs
If we redeem any preference shares of a particular series that
are represented by ADSs, the ADR depositary will redeem, from
the amounts that it receives from the redemption of deposited
preference shares of that series, a number of ADSs of the series
representing those preference shares which corresponds to the
number of deposited preference shares of that series. The ADS
redemption price will correspond to the redemption price per
preference share payable with respect to the redeemed preference
shares. If we do not redeem all of the outstanding preference
shares of a particular series, the ADR depositary will select
the ADSs of the corresponding series to be redeemed, either by
lot or pro rata to the number of preference shares represented.
We must give notice of redemption in respect of the preference
shares of a particular series that are represented by ADSs to
the ADR depositary not less than 30 days before the
redemption date. The ADR depositary will promptly deliver the
notice to all holders of ADRs of the corresponding series.
Record
Date
Whenever any dividend or other distribution becomes payable or
shall be made in respect of preference shares of a particular
series, or any preference shares of a particular series are to
be redeemed, or the ADR depositary receives notice of any
meeting at which holders of preference shares of a particular
series are entitled to vote, the ADR depositary will fix a
record date for the determination of the ADR holders who are
entitled to receive the dividend, distribution, amount in
respect of redemption of ADSs of the corresponding series, or
the net proceeds of their sale, or to give instructions for the
exercise of voting rights at the meeting, subject to the
provisions of the deposit agreement. This record date will be as
near as practicable to the corresponding record date for the
underlying preference share.
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Voting of
the Underlying Deposited Securities
When the ADR depositary receives notice of any meeting or
solicitation of consents or proxies of holders of preference
shares of a particular series, it will, at our written request
and as soon as practicable thereafter, mail to the record
holders of ADRs a notice including:
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the information contained in the notice of meeting;
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a statement that the record holders of ADRs at the close of
business on a specified record date will be entitled, subject to
any applicable provision of Irish law, to instruct the ADR
depositary as to the exercise of any voting rights pertaining to
the preference shares of the series represented by their
ADSs; and
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a brief explanation of how they may give instructions, including
an express indication that they may instruct the ADR depositary
to give a discretionary proxy to designated member or members of
our board of directors if no such instruction is received.
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The ADR depositary has agreed that it will endeavor, in so far
as practical, to vote or cause to be voted the preference shares
in accordance with any written non-discretionary instructions of
record holders of ADRs that it receives on or before the record
date set by the ADR depositary. The ADR depositary will not vote
the preference shares except in accordance with such
instructions or deemed instructions.
If the ADR depositary does not receive instructions from any ADR
holder on or before the date the ADR depositary establishes for
this purpose, the ADR depositary will deem such holder to have
directed the ADR depositary to give a discretionary proxy to a
designated member or members of our board of directors. However,
the ADR depositary will not give a discretionary proxy to a
designated member or members of our board of directors with
respect to any matter as to which we inform the ADR depositary
that:
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we do not wish the proxy to be given;
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substantial opposition exists; or
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the rights of holders of the preference shares may be materially
affected.
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Holders of ADRs evidencing ADSs will not be entitled to vote
shares of the corresponding series of preference shares directly.
Inspection
of Transfer Books
The ADR depositary will, at its corporate trust office in New
York City, keep books for the registration and transfer of ADRs.
These books will be open for inspection by ADR holders at all
reasonable times. However, this inspection may not be for the
purpose of communicating with ADR holders in the interest of a
business or object other than our business or a matter related
to the deposit agreement or the ADRs.
Reports
and Notices
We will furnish the ADR depositary with our annual reports as
described under Where You Can Find More Information.
The ADR depositary will make available at its corporate trust
office in New York City, for any ADR holder to inspect, any
reports and communications received from us that are both
received by the ADR depositary as holder of preference shares
and made generally available by us to the holders of those
preference shares. This includes our annual report and accounts.
Upon written request, the ADR depositary will mail copies of
those reports to ADR holders as provided in the deposit
agreement.
On or before the first date on which we give notice, by
publication or otherwise, of:
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any meeting of holders of preference shares of a particular
series;
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any adjourned meeting of holders of preference shares of a
particular series; or
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the taking of any action in respect of any cash or other
distributions or the offering of any rights in respect of,
preference shares of a particular series
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we have agreed to transmit to the ADR depositary and the
custodian a copy of the notice in the form given or to be given
to holders of the preference shares. If requested in writing by
us, the ADR depositary will, at our expense, arrange for the
prompt transmittal or mailing of such notices, and any other
reports or communications made generally available to holders of
the preference shares, to all holders of ADRs evidencing ADSs of
the corresponding series.
Amendment
and Termination of the Deposit Agreement
The form of the ADRs evidencing ADSs of a particular series and
any provisions of the deposit agreement relating to those ADRs
may at any time and from time to time be amended by agreement
between us and the ADR depositary, without the consent of
holders of ADRs, in any respect which we may deem necessary or
advisable. Any amendment that imposes or increases any fees or
charges, other than taxes and other governmental charges,
registration fees, transmission costs, delivery costs or other
such expenses, or that otherwise prejudices any substantial
existing right of holders of outstanding ADRs evidencing ADSs of
a particular series, will not take effect as to any ADRs until
30 days after notice of the amendment has been given to the
record holders of those ADRs. Every holder of any ADR at the
time an amendment becomes effective, if it has been given
notice, will be deemed by continuing to hold the ADR to consent
and agree to the amendment and to be bound by the deposit
agreement or the ADR as amended. No amendment may impair the
right of any holder of ADRs to surrender ADRs and receive in
return the preference shares of the corresponding series
represented by the ADSs.
Whenever we direct, the ADR depositary has agreed to terminate
the deposit agreement as to ADRs evidencing ADSs of a particular
series by mailing a termination notice to the record holders of
all ADRs then outstanding at least 30 days before the date
fixed in the notice of termination. The ADR depositary may
likewise terminate the deposit agreement as to ADRs evidencing
ADSs of a particular series by mailing a termination notice to
us and the record holders of all ADRs then outstanding if at any
time 90 days shall have expired since the ADR depositary
delivered a written notice to us of its election to resign and a
successor ADR depositary shall not have been appointed and
accepted its appointment.
If any ADRs evidencing ADSs of a particular series remain
outstanding after the date of any termination, the ADR
depositary will then:
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discontinue the registration of transfers of those ADRs;
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suspend the distribution of dividends to holders of those
ADRs; and
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not give any further notices or perform any further acts under
the deposit agreement, except those listed below, with respect
to those ADRs.
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The ADR depositary will, however, continue to collect dividends
and other distributions pertaining to the preference shares of
the corresponding series. It will also continue to sell rights
and other property as provided in the deposit agreement and
deliver preference shares of the corresponding series, together
with any dividends or other distributions received with respect
to them and the net proceeds of the sale of any rights or other
property, in exchange for ADRs surrendered to it.
At any time after the expiration of six months from the date of
termination of the deposit agreement as to ADRs evidencing ADSs
of a particular series, the ADR depositary may sell the
preference shares of the corresponding series then held. The ADR
depositary will then hold uninvested the net proceeds of any
such sales, together with any other cash then held by it under
the deposit agreement in respect of those ADRs, unsegregated and
without liability for interest, for the pro rata benefit of the
holders of ADRs that have not previously been surrendered.
Charges
of ADR Depositary
Unless the applicable supplement specifies otherwise, the ADR
depositary will charge the party to whom it delivers ADRs
against deposits, and the party surrendering ADRs for delivery
of preference shares of a particular series or other deposited
securities, property and cash, $5.00 for each 100, or fraction
of 100, ADSs
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evidenced by the ADRs issued or surrendered. We will pay all
other charges of the ADR depositary and those of any registrar,
co-transfer agent and co-registrar under the deposit agreement,
but unless the applicable supplement specifies otherwise, we
will not pay:
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taxes, including issue or transfer taxes, Irish stamp duty or
Irish stamp duty reserve tax other than that payable on the
issue of preference shares to the custodian, and other
governmental charges;
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any applicable share transfer or registration fees on deposits
or withdrawals of preference shares;
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cable, telex, facsimile transmission and delivery charges which
the deposit agreement provides are at the expense of the holders
of ADRs or persons depositing or withdrawing preference shares
of any series; or
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expenses incurred or paid by the ADR depositary in conversion of
foreign currency into U.S. dollars.
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You will be responsible for any taxes or other governmental
charges payable on your ADRs or on the preference shares
underlying your ADRs. The ADR depositary may refuse to transfer
your ADRs or allow you to withdraw the preference shares
underlying your ADRs until such taxes or other charges are paid.
It may apply payments owed to you or sell deposited preference
shares underlying your ADRs to pay any taxes owed and you will
remain liable for any deficiency. If the ADR depositary sells
deposited preference shares, it will, if appropriate, reduce the
number of ADSs to reflect the sale and pay to you any proceeds,
or send to you any property, remaining after it has paid the
taxes.
General
Neither the ADR depositary nor we will be liable to ADR holders
if prevented or forbidden or delayed by any present or future
law of any country or by any governmental authority, any present
or future provision of our memorandum and articles of
association or of the preference shares, or any act of God or
war or other circumstances beyond our control in performing our
obligations under the deposit agreement. The obligations of us
both under the deposit agreement are expressly limited to
performing our duties without negligence or bad faith.
If any ADSs of a particular series are listed on one or more
stock exchanges in the U.S., the ADR depositary will act as
registrar or, at our request or with our approval, appoint a
registrar or one or more co-registrars for registration of the
ADRs evidencing the ADSs in accordance with any exchange
requirements. The ADR depositary may remove the registrars or
co-registrars and appoint a substitute(s) if we request it or
with our approval.
The ADRs evidencing ADSs of any series are transferable on the
books of the ADR depositary or its agent. However, the ADR
depositary may close the transfer books as to ADRs evidencing
ADSs of a particular series at any time when it deems it
expedient to do so in connection with the performance of its
duties or at our request. As a condition precedent to the
execution and delivery, registration of transfer,
split-up,
combination or surrender of any ADR or withdrawal of any
preference shares of the corresponding series, the ADR
depositary or the custodian may require the person presenting
the ADR or depositing the preference shares to pay a sum
sufficient to reimburse it for any related tax or other
governmental charge and any share transfer or registration fee
and any applicable fees payable as provided in the deposit
agreement. The ADR depositary may withhold any dividends or
other distributions, or may sell for the account of the holder
any part or all of the preference shares evidenced by the ADR,
and may apply those dividends or other distributions or the
proceeds of any sale in payment of the tax or other governmental
charge. The ADR holder will remain liable for any deficiency.
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Any ADR holder may be required from time to time to furnish the
ADR depositary or the custodian with proof satisfactory to the
ADR depositary of citizenship or residence, exchange control
approval, information relating to the registration on our books
or those that the registrar maintains for us for the preference
shares in registered form of that series, or other information,
to execute certificates and to make representations and
warranties that the ADR depositary deems necessary or proper.
Until those requirements have been satisfied, the ADR depositary
may withhold the delivery or registration of transfer of any ADR
or the distribution or sale of any dividend or other
distribution or proceeds of any sale or distribution or the
delivery of any deposited preference shares or other property
related to the ADR. The delivery, transfer and surrender of ADRs
of any series may be suspended during any period when the
transfer books of the ADR depositary are closed or if we or the
ADR depositary deem it necessary or advisable.
The deposit agreement and the ADRs are governed by and construed
in accordance with the laws of the State of New York.
34
TAX
CONSIDERATIONS
U.S.
Taxation
This section describes the material U.S. federal income tax
consequences of owning preference shares, ADSs or debt
securities. It applies to you only if you are an original
purchaser of preference shares, ADSs or debt securities in an
offering and you hold your preference shares, ADSs or debt
securities as capital assets for tax purposes. This section does
not purport to deal with persons in special tax situations,
including dealers in securities, financial institutions,
regulated investment companies, real estate investment trusts,
entities classified as partnerships for U.S. federal income
tax purposes, traders in securities that elect to use a
mark-to-market method of accounting for securities holdings,
tax-exempt organizations, insurance companies, persons holding
preference shares, ADSs or debt securities as part of a straddle
or a hedging or conversion transaction, persons whose functional
currency is not the U.S. dollar, persons liable for
alternative minimum tax, or persons that actually or
constructively own 10% or more of our voting stock.
This section is based on the Internal Revenue Code of 1986, as
amended, (the Code) its legislative history,
existing and proposed regulations, published rulings and court
decisions, as well as on the income tax convention between the
United States of America and Ireland (the Treaty).
These laws are subject to change, possibly on a retroactive
basis. In addition, assuming that each obligation in the deposit
agreement and any related agreement will be performed in
accordance with its terms, for U.S. federal income tax
purposes, if you hold ADRs evidencing ADSs, you will in general
be treated as the owner of the preference shares represented by
those ADSs. Exchanges of preference shares for ADSs or ADSs for
preference shares generally will not be subject to
U.S. federal income tax.
If a partnership holds the preference shares, ADSs or debt
securities, the U.S. federal income tax treatment of a
partner will generally depend on the status of the partner and
the tax treatment of the partnership. A partner in a partnership
holding the preference shares, ADSs or debt securities should
consult its tax advisor with regard to the U.S. federal
income tax treatment of an investment in the preference shares,
ADSs or debt securities.
You should consult your own tax advisor regarding the
U.S. federal, state and local and other tax consequences of
owning and disposing of preference shares, ADSs or debt
securities in your particular circumstances.
U.S.
Holders
This subsection describes the material U.S. federal income
tax consequences to a U.S. holder of preference shares,
ADSs or debt securities. A U.S. holder is a beneficial
owner of a preference share, ADS or debt security that is, for
U.S. federal income tax purposes:
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a citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized
under the laws of the United States, any state thereof, or the
District of Columbia;
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an estate whose income is subject to U.S. federal income
tax regardless of its source; or
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a trust if (1) a U.S. court can exercise primary
supervision over the trusts administration and one or more
U.S. persons are authorized to control all substantial
decisions of the trust or (2) it has a valid election in
effect under applicable Treasury regulations to be treated as a
U.S. person.
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Taxation
of Debt Securities
This subsection deals only with debt securities that are due to
mature 30 years or less from the date on which they are
issued. The U.S. federal income tax consequences of owning
debt securities that are due to mature more than 30 years
from their date of issue, debt securities that have no maturity
date, convertible debt securities, and exchangeable debt
securities will be discussed in an applicable supplement. Any
unique U.S. federal income tax consequences of acquiring,
holding and disposing of certain debt securities with
35
specific features, such as debt securities with respect to which
we have the option to reset the interest rate, spread, spread
multiplier, or method of calculation, renewable debt securities,
currency indexed debt securities (including currency linked debt
securities, reverse currency linked debt securities, and
multicurrency currency linked debt securities) debt securities
linked to commodity prices, equity indices, or other factors, or
debt securities with respect to which we have the option to
extend the stated maturity of the debt securities, will be
discussed in the applicable supplement. Undated Subordinated
Debt Securities generally will not be treated as debt for
U.S. federal income tax purposes and some Dated
Subordinated Debt Securities may not be treated as debt for
U.S. federal income tax purposes. The U.S. federal
income tax consequences of owning and disposing Undated
Subordinated Debt Securities and any Dated Subordinated Debt
Securities not treated as debt for U.S. federal income tax
purposes will be discussed in an applicable supplement.
Payments
of Interest
Payments of interest on a debt security generally will be
taxable to a U.S. holder as ordinary interest income at the
time such payments are accrued or are received (in accordance
with the U.S. holders regular method of tax
accounting), provided that the interest is qualified
stated interest, as defined below under
Original Issue Discount
General.
Original
Issue Discount
The following summary is a general discussion of the
U.S. federal income tax consequences to U.S. holders
of the purchase, ownership and disposition of debt securities
issued with original issue discount for U.S. federal income
tax purposes. The following summary is based upon final Treasury
regulations released by the Internal Revenue Service under the
original issue discount provisions of the Code.
General. For U.S. federal income tax
purposes, original issue discount is (other than on short-term
debt securities, which are discussed below under
Short Term Debt Securities) the excess
of the stated redemption price at maturity of a debt security
over its issue price, if such excess equals or exceeds a de
minimis amount (generally
1/4
of 1% of the debt securitys stated redemption price at
maturity multiplied by the number of complete years to its
maturity from its issue date or, in the case of a debt security
providing for the payment of any amount other than qualified
stated interest (as defined below) prior to maturity, multiplied
by the weighted average maturity of such debt security). A debt
securitys weighted average maturity is the sum of the
following amounts determined for each payment on a debt security
(other than a payment of qualified stated interest):
(i) the number of complete years from the issue date until
the payment is made, multiplied by (ii) a fraction, the
numerator of which is the amount of the payment and the
denominator of which is the debt securitys stated
redemption price at maturity. The issue price of each debt
security in an issue of debt securities equals the first price
at which a substantial amount of such debt securities has been
sold (ignoring sales to bond houses, brokers, or similar persons
or organizations acting in the capacity of underwriters,
dealers, or wholesalers). The stated redemption price at
maturity of a debt security is the sum of all payments provided
by the debt security other than qualified stated interest
payments. Qualified stated interest is generally stated interest
that is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually, over the
entire term of the debt, at a single fixed rate or, subject to
certain conditions, based on one or more indices. In addition,
if a debt security bears interest for one or more accrual
periods at a rate below the rate applicable for the remaining
term of such debt security (e.g., debt securities with teaser
rates or interest holidays), and if the greater of either the
resulting foregone interest on such debt security or any
true discount on such debt security (i.e., the
excess of the debt securitys stated principal amount over
its issue price) equals or exceeds a specified de minimis
amount, then the stated interest on the debt security would
be treated as original issue discount rather than qualified
stated interest. Notice will be given in the applicable
supplement if a particular debt security will bear interest that
is not qualified stated interest.
In the case of a debt security issued with de minimis
original issue discount, a U.S. holder generally must
include such de minimis original issue discount in income
as stated principal payments on the debt security are made in
proportion to the stated principal amount of the debt security.
Any amount of de minimis original
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issue discount that has been included in income will be treated
as capital gain upon the sale, exchange, or retirement of the
debt security.
Payments of qualified stated interest on a debt security are
taxable to a U.S. holder as ordinary interest income at the
time such payments are accrued or are received (in accordance
with the U.S. holders regular method of tax
accounting). A U.S. holder of an debt security issued with
original issue discount, or a discount debt security, must
include original issue discount in income as ordinary interest
income for U.S. federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash
payments attributable to such income, regardless of such
U.S. holders regular method of tax accounting.
However, a U.S. holder will generally not be required to
include separately in income cash payments received on the
discount debt security to the extent those payments do not
constitute qualified stated interest. In general, the amount of
original issue discount included in income by the initial
U.S. holder of an discount debt security is the sum of the
daily portions of original issue discount with respect to such
discount debt security for each day during the taxable year (or
portion of the taxable year) in which such U.S. holder held
such discount debt security. The daily portion of original issue
discount on any discount debt security is determined by
allocating to each day in any accrual period a ratable portion
of the original issue discount allocable to that accrual period.
An accrual period may be of any length and may vary in length
over the term of the discount debt security, provided that each
accrual period is no longer than one year and each scheduled
payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period.
The amount of original issue discount allocable to each accrual
period is generally equal to the difference between (i) the
product of the discount debt securitys adjusted issue
price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of
each accrual period and appropriately adjusted to take into
account the length of the particular accrual period) and
(ii) the amount of any qualified stated interest payments
allocable to such accrual period. Original issue discount
allocable to a final accrual period is the difference between
the amount payable at maturity (other than a payment of
qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. Special rules apply for
calculating original issue discount for an initial short accrual
period. The adjusted issue price of an discount debt security at
the beginning of any accrual period is the issue price of the
discount debt security plus the amount of original issue
discount allocable to all prior accrual periods minus the amount
of any prior payments on the discount debt security that were
not qualified stated interest payments. Under these rules,
U.S. holders generally will have to include in income
increasingly greater amounts of original issue discount in
successive accrual periods.
Acquisition Premium. A U.S. holder that
purchases a discount debt security for an amount that is greater
than its adjusted issue price as of the purchase date, and less
than or equal to the sum of all amounts payable on the discount
debt security after the purchase date other than payments of
qualified stated interest, will be considered to have purchased
the discount debt security at an acquisition premium. Under the
acquisition premium rules, the amount of original issue discount
which such U.S. holder must include in its gross income
with respect to such discount debt security for any taxable year
(or portion thereof in which the U.S. holder holds the
discount debt security) will be reduced (but not below zero) by
the portion of the acquisition premium properly allocable to the
period.
Variable Rate Debt Securities. Under the
Treasury regulations, a debt security will generally qualify as
a variable rate debt instrument if (a) its
issue price does not exceed the total noncontingent principal
payments due under the debt security by more than a specified
de minimis amount and (b) it provides for stated
interest, paid or compounded at least annually, at current
values of (i) one or more qualified floating rates,
(ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single
fixed rate and a single objective rate that is a qualified
inverse floating rate.
A qualified floating rate is any variable rate where variations
in the value of such rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds
in the currency in which the debt security is denominated.
Although a multiple of a qualified floating rate will generally
not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed
multiple that is greater than .65 but not more than 1.35 will
constitute a qualified floating rate. A variable rate equal to
the product of a qualified floating rate and a fixed multiple
that is greater than .65 but not more than
37
1.35, increased or decreased by a fixed rate, will also
constitute a qualified floating rate. In addition, under the
Treasury regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values
throughout the term of the debt security (e.g., two or more
qualified floating rates with values within 25 basis points
of each other as determined on the debt securitys issue
date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would
otherwise constitute a qualified floating rate but which is
subject to one or more restrictions such as a maximum numerical
limitation (i.e., a cap) or a minimum numerical limitation
(i.e., a floor) may, under certain circumstances, fail to be
treated as a qualified floating rate under the Treasury
regulations unless such cap or floor is fixed throughout the
term of the debt security.
An objective rate is a rate that is not itself a qualified
floating rate but which is determined using a single fixed
formula and that is based on objective financial or economic
information. A rate will not qualify as an objective rate if it
is based on information that is within the control of the issuer
(or a related party) or that is unique to the circumstances of
the issuer (or a related party), such as dividends, profits, or
the value of the issuers stock (although a rate does not
fail to be an objective rate merely because it is based on the
credit quality of the issuer). Other variable interest rates may
be treated as objective rates if so designated by the Internal
Revenue Service in the future. Despite the foregoing, a variable
rate of interest on a debt security will not constitute an
objective rate if it is reasonably expected that the average
value of the rate during the first half of the debt
securitys term will be either significantly less than or
significantly greater than the average value of the rate during
the final half of the debt securitys term.
A qualified inverse floating rate is any objective rate where
such rate is equal to a fixed rate minus a qualified floating
rate, as long as variations in the rate can reasonably be
expected to inversely reflect contemporaneous variations in the
qualified floating rate.
The Treasury regulations also provide that if a debt security
provides for stated interest at a fixed rate for an initial
period of one year or less followed by a variable rate that is
either a qualified floating rate or an objective rate and if the
variable rate on the debt securitys issue date is intended
to approximate the fixed rate (e.g., the value of the variable
rate on the issue date does not differ from the value of the
fixed rate by more than 25 basis points), then the fixed
rate and the variable rate together will constitute either a
single qualified floating rate or objective rate, as the case
may be.
A qualified floating rate or objective rate in effect at any
time during the term of the debt security must be set at a
current value of that rate. A current value of a rate is the
value of the rate on any day that is no earlier than
3 months prior to the first day on which that value is in
effect and no later than 1 year following that first day.
If a debt security that provides for stated interest at either a
single qualified floating rate or a single objective rate
throughout the term thereof qualifies as a variable rate debt
instrument under the Treasury regulations and if the interest on
such debt security is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least
annually, then all stated interest on the debt security will
constitute qualified stated interest and will be taxed
accordingly. Thus, a debt security that provides for stated
interest at either a single qualified floating rate or a single
objective rate throughout the term thereof and that qualifies as
a variable rate debt instrument under the Treasury
regulations will generally not be treated as having been issued
with original issue discount unless the debt security is issued
at a true discount (i.e., at a price below the debt
securitys stated principal amount) in excess of a
specified de minimis amount.
The amount of qualified stated interest and the amount of
original issue discount, if any, that accrues during an accrual
period on such a debt security is determined under the rules
applicable to fixed rate debt instruments by assuming that the
variable rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the
value, as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an
objective rate (other than a qualified inverse floating rate), a
fixed rate that reflects the yield that is reasonably expected
for the debt security. The qualified stated interest allocable
to an accrual period is increased (or decreased) if the interest
actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid during the accrual period
pursuant to the foregoing rules.
38
In general, any other debt security that qualifies as a variable
rate debt instrument will be converted into an equivalent fixed
rate debt instrument for purposes of determining the amount and
accrual of original issue discount and qualified stated interest
on the debt security. The Treasury regulations generally require
that such a debt security be converted into an equivalent fixed
rate debt instrument by substituting any qualified floating rate
or qualified inverse floating rate provided for under the terms
of the debt security with a fixed rate equal to the value of the
qualified floating rate or qualified inverse floating rate, as
the case may be, as of the debt securitys issue date. Any
objective rate (other than a qualified inverse floating rate)
provided for under the terms of the debt security is converted
into a fixed rate that reflects the yield that is reasonably
expected for the debt security. In the case of a debt security
that qualifies as a variable rate debt instrument and provides
for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the debt
security provides for a qualified inverse floating rate). Under
such circumstances, the qualified floating rate or qualified
inverse floating rate that replaces the fixed rate must be such
that the fair market value of the debt security as of the debt
securitys issue date is approximately the same as the fair
market value of an otherwise identical debt instrument that
provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate
or a qualified inverse floating rate, the debt security is then
converted into an equivalent fixed rate debt instrument in the
manner described above.
Once the debt security is converted into an equivalent fixed
rate debt instrument pursuant to the foregoing rules, the amount
of original issue discount and qualified stated interest, if
any, are determined for the equivalent fixed rate debt
instrument by applying the general original issue discount rules
to the equivalent fixed rate debt instrument and a
U.S. holder of the debt security will account for such
original issue discount and qualified stated interest as if the
U.S. holder held the equivalent fixed rate debt instrument.
In each accrual period, appropriate adjustments will be made to
the amount of qualified stated interest or original issue
discount assumed to have been accrued or paid with respect to
the equivalent fixed rate debt instrument in the event that such
amounts differ from the actual amount of interest accrued or
paid on the debt security during the accrual period.
Other Debt Securities. If a debt security does
not qualify as a variable rate debt instrument under the
Treasury regulations, then the debt security would be treated as
a contingent payment debt instrument. The Treasury Department
has issued final regulations (the CPDI Regulations)
concerning the proper U.S. federal income tax treatment of
contingent payment debt instruments. In general, the CPDI
Regulations would cause the timing and character of income, gain
or loss reported on a contingent payment debt instrument to
substantially differ from the timing and character of income,
gain or loss reported on a conventional noncontingent payment
debt instrument under current U.S. federal income tax law.
Specifically, the CPDI Regulations generally require a
U.S. holder of such an instrument to include future
contingent and noncontingent interest payments in income as such
interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain
recognized by a U.S. holder on the sale, exchange, or
retirement of a contingent payment debt instrument will be
treated as ordinary income and all or a portion of any loss
realized could be treated as ordinary loss as opposed to capital
loss (depending upon the circumstances). The proper
U.S. federal income tax treatment of debt securities that
are treated as contingent payment debt instruments will be more
fully described in the applicable supplement.
Certain of the debt securities (i) may be redeemable at our
option prior to their stated maturity (a call option)
and/or
(ii) may be repayable by us at the option of the holder
prior to their stated maturity (a put option). Debt securities
containing such features may be subject to rules that differ
from the general rules discussed above. The special rules
applicable to such debt securities, if relevant, will be
discussed in the applicable supplement.
Furthermore, any other special U.S. federal income tax
considerations, not otherwise discussed herein, which are
applicable to any particular issue of debt securities will be
discussed in the applicable supplement.
Election to Treat All Interest as Original Issue
Discount. U.S. holders may generally, upon
election, include in income all interest (including stated
interest, acquisition discount, original issue discount,
39
de minimis original issue discount, market discount
(as defined below), de minimis market discount, and
unstated interest, as adjusted by any amortizable bond premium
(as defined below) or acquisition premium) that accrues on a
debt instrument by using the constant yield method applicable to
original issue discount, subject to certain limitations and
exceptions. This election will generally apply only to the debt
instrument with respect to which it is made and may be revoked
only with the consent of the Internal Revenue Service.
Short-Term Debt Securities. Debt securities
that have a fixed maturity of one year or less, or short-term
debt securities, will be treated as having been issued with
original issue discount. Under the Treasury regulations, all
payments (including all stated interest) will be included in the
stated redemption price at maturity, and thus, U.S. holders
will generally be taxable on the original issue discount in lieu
of stated interest. The original issue discount will be equal to
the excess of the stated redemption price at maturity over the
issue price of a short-term debt security, unless the
U.S. holder elects to compute this discount using tax basis
instead of issue price. In general, an individual or other cash
method U.S. holder is not required to accrue such original
issue discount unless the U.S. holder elects to do so. If
such an election is not made, any gain recognized by the
U.S. holder on the sale, exchange or maturity of the
short-term debt instrument will be ordinary income to the extent
of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily
compounding), through the date of sale or maturity. In addition,
a U.S. holder that does not elect to include currently
accrued discount in income may be required to defer deductions
for a portion of the U.S. holders interest expense
with respect to any indebtedness incurred or continued to
purchase or carry such debt securities. U.S. holders who
report income for U.S. federal income tax purposes under
the accrual method, and certain other holders, are required to
accrue original issue discount on a short-term debt security on
a straight-line basis unless an election is made to accrue the
discount under a constant yield method (based on daily
compounding).
Market
Discount
If a U.S. holder purchases a debt security, other than an
discount debt security or a short-term debt security, for an
amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity)
or, in the case of an discount debt security, for an amount that
is less than its revised issue price as of the purchase date,
such U.S. holder will be treated as having purchased such
debt security at a market discount, unless such market discount
is less than a specified de minimis amount. For this purpose,
the revised issue price of a Debt security generally equals its
issue price, increased by the amount of any original issue
discount that has accrued on the debt security and decreased by
the amount of any payments previously made on the debt security
that were not qualified stated interest payments.
Under the market discount rules, a U.S. holder will be
required to treat any principal payment (or, in the case of an
discount debt security, any payment that does not constitute
qualified stated interest) on, or any gain realized on the sale,
exchange, retirement or other disposition of, a debt security as
ordinary income to the extent of the lesser of (i) the
amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is
treated as having accrued on such debt security at the time of
such payment or disposition. Market discount will be considered
to accrue ratably during the period from the date of acquisition
to the maturity date of the debt security, unless the
U.S. holder elects to accrue market discount under a
constant yield method.
A U.S. holder may be required to defer the deduction of all
or a portion of the interest paid or accrued on any indebtedness
incurred or maintained to purchase or carry a debt security with
market discount until the maturity of the debt security or
certain earlier dispositions, because a current deduction is
only allowed to the extent the interest expense exceeds an
allocable portion of market discount. A U.S. holder may
elect to include market discount in income currently as it
accrues (under either a ratable or a constant yield method), in
which case the rules described above regarding the treatment as
ordinary income of gain upon the disposition of the debt
security and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as
ordinary interest income for U.S. federal income tax
purposes. Such an election will apply to all debt instruments
acquired by the U.S. holder at a market discount on or
after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the
Internal Revenue Service.
40
Premium
If a U.S. holder purchases a debt security for an amount
that is greater than the sum of all amounts payable on the debt
security after the purchase date other than payments of
qualified stated interest, such U.S. holder will be
considered to have purchased the debt security with amortizable
bond premium equal in amount to such excess and will not be
required to include any original issue discount in income. In
the case of instruments that provide for alternative payment
schedules, bond premium is calculated by assuming that
(i) the holder will exercise or not exercise options in a
manner that maximizes the holders yield and (ii) the
issuer will exercise or not exercise options in a manner that
minimizes the holders yield, except with respect to call
options for which the issuer is assumed to exercise such call
options in a manner that maximizes the holders yield. A
U.S. holder may elect to amortize such premium using a
constant yield method over the remaining term of the debt
security and may offset interest otherwise required to be
included in respect of the debt security during any taxable year
by the amortized amount of such excess for the taxable year.
Bond premium on a debt security held by a U.S. holder that
does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the
debt security. However, if the debt security may be optionally
redeemed after the U.S. holder acquires it at a price in
excess of its stated redemption price at maturity, special rules
would apply which could result in a deferral of the amortization
of some bond premium until later in the term of the debt
security. Any election to amortize bond premium applies to all
taxable debt instruments held by the U.S. holder on or
after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the
Internal Revenue Service.
Disposition
of a Debt Security
Except as discussed above, upon the sale, exchange or retirement
of a debt security, a U.S. holder generally will recognize
taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts
representing accrued and unpaid qualified stated interest, which
will be taxable as such) and such U.S. holders
adjusted tax basis in the debt security. A
U.S. holders adjusted tax basis in a debt security
generally will equal such U.S. holders initial
investment in the debt security increased by any original issue
discount included in income (and accrued market discount, if
any, if the U.S. holder has included such market discount
in income) and decreased by the amount of any payments, other
than qualified stated interest payments, received and
amortizable bond premium taken with respect to such debt
security. Except with respect to short-term debt securities or
debt securities subject to the CPDI Regulations as described
above, with respect to gain or loss attributable to changes in
exchange rates as described below, or with respect to market
discount described above, such gain or loss will be capital gain
or loss, will be U.S. source and will be long-term capital
gain or loss if the debt security was held for more than one
year by the U.S. holder at the time of such sale, exchange
or retirement. Non-corporate U.S. holders are subject to
reduced maximum rates of taxation on long-term capital gain and
are generally subject to tax at ordinary income rates on
short-term capital gain. The deductibility of capital losses is
subject to certain limitations. Prospective investors should
consult their own tax advisors concerning these tax law
provisions.
Debt
Securities Denominated or on which Interest is Payable in a
Foreign Currency
As used herein, Foreign Currency means a currency
other than U.S. dollars.
Payments of Interest in a Foreign Currency Cash
Method. A U.S. holder who uses the cash
method of accounting for U.S. federal income tax purposes
and who receives a payment of interest on a debt security (other
than original issue discount or market discount) will be
required to include in income the U.S. dollar value of the
Foreign Currency payment (determined at the spot rate on the
date such payment is received) regardless of whether the payment
is in fact converted to U.S. dollars at that time, and such
U.S. dollar value will be the U.S. holders tax
basis in such Foreign Currency. No exchange gain or loss will be
recognized with respect to the receipt of such payment.
Payments of Interest in a Foreign Currency
Accrual Method. A U.S. holder who uses the
accrual method of accounting for U.S. federal income tax
purposes, or who otherwise is required to accrue interest prior
to receipt, will be required to include in income the
U.S. dollar value of the amount of interest income
41
(including original issue discount or market discount and
reduced by amortizable bond premium to the extent applicable)
that has accrued and is otherwise required to be taken into
account with respect to a debt security during an accrual
period. The U.S. dollar value of such accrued income will
be determined by translating such income at the average rate of
exchange for the accrual period or, with respect to an accrual
period that spans two taxable years, at the average rate for the
partial period within the taxable year. A U.S. holder may
elect, however, to translate such accrued interest income using
the rate of exchange on the last day of the accrual period or,
with respect to an accrual period that spans two taxable years,
using the spot rate on the last day of the taxable year. If the
last day of an accrual period is within five business days of
the date of receipt of the accrued interest, a U.S. holder
may translate such interest using the spot rate on the date of
receipt. The above election will apply to all debt obligations
held by the U.S. holder and may not be changed without the
consent of the Internal Revenue Service. A U.S. holder
should consult a tax advisor before making the above election. A
U.S. holder will recognize exchange gain or loss (which
will be treated as ordinary income or loss) with respect to
accrued interest income on the date such income is received. The
amount of ordinary income or loss recognized will equal the
difference, if any, between the U.S. dollar value of the
Foreign Currency payment received (determined at the spot rate
on the date such payment is received) in respect of such accrual
period and the U.S. dollar value of interest income that
has accrued during such accrual period (as determined above).
Purchase, Sale and Retirement of Debt
Securities. A U.S. holder who purchases a
debt security with previously owned Foreign Currency will
recognize ordinary income or loss in an amount equal to the
difference, if any, between such U.S. holders tax
basis in the Foreign Currency and the U.S. dollar fair
market value of the Foreign Currency used to purchase the debt
security, determined on the date of purchase.
For purposes of determining the amount of any gain or loss
recognized by a U.S. holder on the sale, exchange,
retirement or other disposition of a debt security that is
denominated in a Foreign Currency, the amount realized will be
based on the U.S. dollar value of the Foreign Currency on
the date the payment is received or the debt security is
disposed of. Subject to the discussion below, such gain or loss
will generally be capital gain or loss as discussed in
U.S. holders Disposition of a Debt
Security. To the extent the amount realized upon the
disposition of a debt security represents accrued but unpaid
interest, however, such amounts must be taken into account as
interest income, with exchange gain or loss computed as
described in Payments of Interest in a Foreign
Currency above. In the case of a debt security that is
denominated in Foreign Currency and is traded on an established
securities market as defined in applicable Treasury regulations,
a cash basis U.S. holder (or an accrual basis
U.S. holder that so elects) will determine the
U.S. dollar value of the amount realized by translating the
Foreign Currency payment at the spot rate of exchange on the
settlement date of the sale. Such an election by an accrual
basis U.S. holder must be applied consistently from year to
year and cannot be revoked without the consent of the Internal
Revenue Service. A U.S. holders adjusted tax basis in
a debt security will equal the cost of the debt security to such
holder, increased by the amounts of any market discount or
original issue discount previously included in income by the
holder with respect to such debt security and reduced by any
amortized premium and any payments other than qualified stated
interest received by the holder. A U.S. holders tax
basis in a debt security, and the amount of any subsequent
adjustments to such holders tax basis, will be the
U.S. dollar value of the Foreign Currency amount paid for
such debt security, or of the Foreign Currency amount of the
adjustment, determined on the date of such purchase or
adjustment.
Gain or loss realized upon the sale, exchange or retirement of a
debt security that is attributable to fluctuations in currency
exchange rates will be ordinary income or loss which will not be
treated as interest income or expense. Such gain or loss
generally will be U.S. source gain or loss. Gain or loss
attributable to fluctuations in exchange rates will equal the
difference between the U.S. dollar value of the Foreign
Currency principal amount of the debt security, generally
determined on the date such payment is received or the debt
security is disposed of, and the U.S. dollar value of the
Foreign Currency principal amount of the debt security,
determined on the date the U.S. holder acquired the debt
security. Such Foreign Currency exchange gain or loss will be
recognized only to the extent of the total gain or loss realized
by the U.S. holder on the sale, exchange or retirement of
the debt security.
42
Original Issue Discount. In the case of an
discount debt security or short-term debt security,
(i) original issue discount is computed in the Foreign
Currency, (ii) accrued original issue discount is
translated into U.S. dollars as described in
Payments of Interest in a Foreign Currency -
Accrual Method above and (iii) the amount of Foreign
Currency exchange gain or loss on the accrued original issue
discount is determined by comparing the amount of income
received attributable to the discount (either upon payment,
maturity or an earlier disposition), as translated into
U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as
translated above. For these purposes, all receipts on a debt
security will be viewed first, as the receipt of any qualified
stated interest payments called for under the terms of the debt
security; second, as receipts of previously accrued original
issue discount (to the extent thereof), with payments considered
made for the earliest accrual periods first; and third, as the
receipt of principal.
Market Discount and Premium. In the case of a
debt security with market discount, (i) market discount is
computed in the Foreign Currency, (ii) accrued market
discount taken into account upon the receipt of any partial
principal payment or upon the sale, exchange, retirement or
other disposition of the debt security (other than accrued
market discount required to be taken into account currently) is
translated into U.S. dollars at the spot rate on the date
of such partial principal payment or disposition date (and no
part of such accrued market discount is treated as exchange gain
or loss) and (iii) accrued market discount currently
includible in income by a U.S. holder for any accrual
period is translated into U.S. dollars on the basis of the
average exchange rate in effect during such accrual period, and
the exchange gain or loss is determined upon the receipt of any
partial principal payment or upon the sale, exchange, retirement
or other disposition of the debt security in the manner
described in Payments of Interest in a Foreign
Currency Accrual Method above with respect to
computation of exchange gain or loss on accrued interest.
With respect to a debt security acquired with amortizable bond
premium, if an election is made to amortize the premium, such
premium is computed in the relevant Foreign Currency and reduces
interest income in units of the Foreign Currency. A
U.S. holder should recognize exchange gain or loss equal to
the difference between the U.S. dollar value of the bond
premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and
the U.S. dollar value of the bond premium determined on the
date of the acquisition of the debt security. A U.S. holder
that does not elect to amortize bond premium will translate the
bond premium, computed in the applicable Foreign Currency, into
U.S. dollars at the spot rate on the maturity date and such
bond premium will constitute a capital loss which may be offset
or eliminated by exchange gain.
Exchange of Foreign Currencies. A
U.S. holder will have a tax basis in any Foreign Currency
received as interest or on the sale, exchange or retirement of a
debt security equal to the U.S. dollar value of such
Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. As
discussed above, if the debt securities are traded on an
established securities market, a cash basis U.S. holder (or
an accrual basis U.S. holder that so elects) will determine
the U.S. dollar value of the Foreign Currency by
translating the Foreign Currency received at the spot rate of
exchange on the settlement date of the sale, exchange or
retirement. Such an election by an accrual basis
U.S. holder must be applied consistently from year to year
and cannot be revoked without the consent of the Internal
Revenue Service. Accordingly, a U.S. holders basis in
the Foreign Currency received would be equal to the
U.S. dollar value of the Foreign Currency at the spot rate
of exchange on the settlement date. Any gain or loss realized by
a U.S. holder on a sale or other disposition of Foreign
Currency (including its exchange for U.S. dollars or its
use to purchase debt securities) will be ordinary income or loss
and will generally be U.S. source income or loss.
Tax
Return Disclosure Regulations
Pursuant to Treasury regulations, any taxpayer that has
participated in a reportable transaction and that is required to
file a U.S. federal income tax return must generally attach
a disclosure statement disclosing such taxpayers
participation in the reportable transaction to the
taxpayers tax return for each taxable year for which the
taxpayer participates in the reportable transaction. A penalty
in the amount of $10,000 in the case of a natural person and
$50,000 in any other case is imposed on any taxpayer that fails
to file a reportable
43
transaction disclosure statement. The Treasury regulations
provide that, in addition to certain other transactions, a loss
transaction constitutes a reportable transaction. A loss
transaction is any transaction resulting in the taxpayer
claiming a loss under Section 165 of the Code in an amount
equal to or in excess of certain threshold amounts. The Treasury
regulations specifically provide that a loss resulting from a
Section 988 transaction (as defined in
Section 988(c)(l) of the Code relating to foreign currency
transactions) will constitute a Section 165 loss. In the
case of individuals or trusts, whether or not the loss flows
through from an S corporation or partnership, if the loss
arises with respect to a Section 988 transaction, the
applicable threshold amount is $50,000 in any single taxable
year. Higher threshold amounts apply depending upon the
taxpayers status as a corporation, partnership, or
S corporation, as well as certain other factors. It is
important to note, however, that the Treasury regulations
provide that the fact that a transaction is a reportable
transaction shall not affect the legal determination of whether
the taxpayers treatment of the transaction is proper.
Holders should consult their own tax advisors concerning the
potential application of theses Treasury regulations to the debt
securities.
Taxation
of Preference Shares and ADSs
Dividends. Under the U.S. federal income
tax laws, if you are a U.S. holder, the gross amount of any
dividend paid by us out of our current or accumulated earnings
and profits (as determined for U.S. federal income tax
purposes) is subject to U.S. federal income taxation.
Subject to the discussion below under the heading Passive
Foreign Investment Company Considerations, if you are a
noncorporate U.S. holder, dividends paid to you in taxable
years beginning before January 1, 2011 that constitute
qualified dividend income will be taxable to you at a maximum
tax rate of 15% provided that you hold the shares or ADSs for
more than 60 days during the
121-day
period beginning 60 days before the ex-dividend date (or,
if the dividend is attributable to a period or periods
aggregating over 366 days, provided that you hold the
preference shares or ADSs for more than 90 days during the
181-day
period beginning 90 days before the ex-dividend date) and
meet certain other holding period requirements. Dividends we pay
with respect to the shares or ADSs generally will be qualified
dividend income. The dividend is ordinary income that you must
include in income when you, in the case of preference shares, or
the ADR depositary, in the case of ADSs, receive the dividend,
actually or constructively. The dividend will not be eligible
for the dividends-received deduction generally allowed to
U.S. corporations in respect of dividends received from
other U.S. corporations. Distributions in excess of current
and accumulated earnings and profits, as determined for
U.S. federal income tax purposes, will be treated as a
non-taxable return of capital to the extent of your basis in the
preference shares or ADSs and thereafter as capital gain.
Capital Gains. Subject to the discussion below
under the heading Passive Foreign Investment Company
Considerations, if you are a U.S. holder and you sell
or otherwise dispose of your preference shares or ADSs, you will
recognize capital gain or loss for U.S. federal income tax
purposes equal to the difference between the amount that you
realize and your tax basis in your preference shares or ADSs.
Capital gain of a noncorporate U.S. holder that is
recognized before January 1, 2011 will generally be long
term capital gain taxed at a maximum rate of 15% if the holder
has held the preference shares or ADSs for more than one year.
The gain or loss will generally be income or loss from sources
within the United States for foreign tax credit limitation
purposes.
Passive
Foreign Investment Company Considerations
Based upon certain look-through rules applicable to related
parties and proposed Treasury regulations which are not yet in
effect but are proposed to become effective for taxable years
beginning after December 31, 1994, we believe that we were
not a passive foreign investment company (a PFIC)
for U.S. federal income tax purposes in our most recent
taxable year and do not expect to be considered a PFIC in the
foreseeable future.
However, because PFIC status depends upon the composition of a
companys income and assets and the market value of its
assets from time to time, there can be no assurance that we will
not be considered a PFIC for any taxable year. If we were
treated as a PFIC for any taxable year during which a
U.S. holder held
44
preference shares or ADSs, certain materially adverse
U.S. tax consequences could apply to the U.S. holder
which may be mitigated if the holder makes certain
U.S. federal income tax elections.
If a U.S. holder owns preference securities or ADSs during
any year in which we are a PFIC, the holder must file an IRS
Form 8621. In addition, if we were a PFIC for a taxable
year in which we pay a dividend or for the prior taxable year,
the favorable tax rates discussed above with respect to
dividends paid to certain noncorporate U.S. holders would
not apply.
Non U.S.
Holders
This subsection describes the tax consequences to a non
U.S. holder of owning and disposing of debt securities,
preference shares or ADSs. Undated Subordinated Debt Securities
generally will not be treated as debt for U.S. federal
income tax purposes and some Dated Subordinated Debt Securities
may not be treated as debt for U.S. federal income tax
purposes. The U.S. federal income tax consequences of
owning and disposing Undated Subordinated Debt Securities and
any Dated Subordinated Debt Securities not treated as debt for
U.S. federal income tax purposes will be discussed in an
applicable supplement. You are a non U.S. holder if you are
a beneficial owner of a debt security, preference share or ADS
and you are not a U.S. holder for federal income tax
purposes as defined above.
If you are a U.S. holder, this subsection does not apply to
you.
Subject to the discussion of backup withholding below and
provided that interest is not effectively connected with a
non-U.S. holders
conduct of a trade or business (and, if an income tax treaty
applies, is not attributable to such
non-U.S. holders
permanent establishment or fixed base in the United
States), interest on a debt security is currently exempt from
U.S. federal income taxes, including withholding taxes, if
paid to a
non-U.S. holder.
Subject to the discussion of backup withholding below, and
provided that dividends paid in respect of preference shares or
ADSs are not effectively connected with a
non-U.S. holders
conduct of a trade or business (and, if an income tax treaty
applies, are not attributable to such
non-U.S. holders
permanent establishment or fixed base in the United
States), such dividends on a preference shares or ADSs are
currently exempt from U.S. federal income taxes, including
withholding taxes, if paid to a
non-U.S. holder.
In addition, subject to the discussion of backup withholding
below, a
non-U.S. holder
will not be subject to U.S. federal income tax on any gain
recognized on the sale or exchange of a debt security,
preference share or ADS, provided that such gain is not
effectively connected with the conduct by the
non-U.S. holder
of a U.S. trade or business (and, if an income tax treaty
applies, is not attributable to such
non-U.S. holders
permanent establishment or fixed base in the United
States) and, in the case of a
non-U.S. holder
who is an individual, such holder is not present in the United
States for a total of 183 days or more during the taxable
year in which such gain is realized and certain other conditions
are met.
Interest or dividends received and any gain recognized by a
non-U.S. holder
on the sale or exchange of a debt security, preference share or
ADS that is effectively connected with such
non-U.S. holders
conduct of a trade or business in the United States (and, if an
income tax treaty applies, is attributable to such
non-U.S. holders
permanent establishment or fixed base in the United
States), generally will be subject to U.S. federal income
tax on a net income basis in the same manner as if the
non-U.S. holder
were a U.S. holder. A corporate
non-U.S. holder
also may be subject to a 30% branch profits tax,
unless it qualifies for a lower rate under an applicable income
tax treaty.
Information
Reporting and Backup Withholding
Backup withholding and certain information reporting
requirements may apply to payments of principal and interest on
a debt security and payments of dividends or other taxable
distributions with respect to a preference share or ADS made to
certain non-corporate holders if such payments are made or are
considered made in the United States (including payments on debt
securities, preference shares or ADSs made by wire transfer from
outside the United States to an account maintained by the holder
with the paying agent in the United States). If such payments
are considered to have been made in the United States,
non-U.S. holders
are
45
generally exempt from these withholding and reporting
requirements (assuming that the gain or income is otherwise
exempt from U.S. federal income tax) but may be required to
comply with certification and identification procedures in order
to prove their exemption from these requirements. Similar rules
requiring reporting through a U.S. branch of a broker and
information reporting (but not backup withholding) will apply to
a
non-U.S. holder
who sells a debt security through (a) a
non-U.S. branch
of a U.S. broker, or (b) a
non-U.S. office
of a broker that is (i) a controlled foreign corporation
for U.S. tax purposes, (ii) a person 50% or more of
whose income is effectively connected with a U.S. trade or
business for a specified period, or (iii) a foreign
partnership in which one or more of its partners are
U.S. Persons, as defined in Treasury
regulations, who in the aggregate hold more than 50% of the
income or capital interest in the partnership or a foreign
partnership engaged in a U.S. trade or business, in either
case unless the holder proves an exemption from the requirement.
Irish
Taxation
The following discussion is a summary of certain material Irish
tax considerations relating to the acquisition, holding and
disposition of debt securities or ADRs issued by the Bank. The
discussion is based on Irish law and revenue practice in effect
on the date of this prospectus, relates only to the position of
persons who are the absolute beneficial owners of their debt
securities or ADRs and is for general information only. It does
not constitute taxation or legal advice.
In particular the discussion does not address the tax
consequences for certain classes of person such as dealers and
does not necessarily apply where the income is deemed for tax
purposes to be the income of any other person. The discussion
does not deal with convertible securities. As preference shares
will only be issued directly to investors in unusual
circumstances, the tax consequences of acquiring, holding and
disposing of preference shares or converting preference shares
into ADRs (and vice versa) are not dealt with in this
discussion. The discussion does not deal with the Irish tax
consequences for any Irish tax resident persons (or any persons
carry on a trade in Ireland through a branch or agency) of
acquiring, holding and disposing of debt securities or ADRs. The
discussion assumes that debt securities will not be quoted or
listed on a stock exchange.
Prospective investors in debt securities, preference shares or
ADRs are urged to consult their tax advisers regarding the
applicable tax consequences of acquiring, holding and disposing
of debt securities, preference shares or ADRs based on their
particular circumstances.
Debt
Securities
Withholding
tax on interest
Subject to the Deposit Interest Retention Tax (DIRT)
rules (set out in Deposit interest retention
tax below), all payments of principal and interest on the
debt securities may be paid by the Bank without withholding or
deduction for or on account of Irish income tax in circumstances
where:
(a) the debt securities carry a right to interest which is
not yearly interest; or
(b) interest on the debt securities is paid by the Bank in
the ordinary course of the Bank carrying on its bona fide
banking business in Ireland; or
(c) other specific exemptions (such as the commercial paper
exemption or the certificate of deposit exemption outlined under
Debt Securities Deposit interest
retention tax below) from interest withholding tax apply.
The Bank intends that interest on any debt securities will be
paid by the Bank in the ordinary course of the Bank carrying on
its bona fide banking business in Ireland and hence will be
exempt from Irish interest withholding tax.
If no exemption from interest withholding tax applies then
yearly interest will be paid under deduction of income tax at
the standard rate (currently 20%) subject to any direction to
the contrary from the Irish Revenue
46
Commissioners in respect of such relief as may be available
pursuant to the provisions of any applicable double taxation
treaty.
Deposit
interest retention tax
DIRT is a form of withholding tax that applies to interest paid
by financial institutions such as the Bank. The rate of DIRT
corresponds in most cases to the standard rate of income tax
(currently 20%). However, an additional 3% (currently 23%) can
apply where interest is not payable annually or at more frequent
intervals.
Where the exemptions referred to in paragraphs (A) and
(B) immediately below do not apply then interest/discount
or premium on debt securities will be liable to DIRT unless the
beneficial owner is a non resident and the appropriate
declaration of non residence in the required format has been
completed and provided to the Bank in advance of each payment.
(A) Commercial paper exemption and certificate of deposit
exemption from DIRT
DIRT will not apply to interest, discount or premium on debt
securities which qualify for the commercial paper exemption or
the certificate of deposit exemption as outlined below.
For the purpose of the commercial paper exemption,
commercial paper is a debt security denominated in
an amount of not less than 500,000 or US$500,000 (or
another currency equivalent to 500,000 as defined in
Section 246A Taxes Consolidation Act 1997 (as amended)
(TCA)) in physical or electronic form which
recognises an obligation to pay a stated amount, carries a right
to interest or is issued at a premium or discount, and matures
within 2 years.
For the purpose of the certificate of deposit exemption,
certificate of deposit is a debt security
denominated in an amount of not less than 500,000 or
US$500,000 (or another currency equivalent to 500,000 as
defined in Section 246A TCA) in physical or electronic form
which recognises an obligation to pay a stated amount to bearer
or to order, with or without interest and;
(a) in the case of debt securities held in physical form,
by the delivery of which, with or without endorsement, the right
to receive the stated amount is transferable, or
(b) in the case of debt securities held in electronic form,
in respect of which the right to receive the stated amount is
transferable.
Conditions
for exemption
So long as any debt security constitutes commercial paper or a
certificate of deposit (as outlined above) it shall be exempt
from DIRT in the following circumstances:
(a) if the person by whom or through whom the payment is
made is not an Irish resident person and the payment is not made
by or through an Irish branch or agency of a non-Irish resident
company through which it carries on a trade or business in
Ireland and the debt security is held in a recognised
clearing system (within the meaning of Section 246A
TCA), which includes DTC, Euroclear, Clearstream Banking SA and
Clearstream Banking AG; or
(b) if the person by whom or through whom the payment is
made is an Irish resident person or if the payment is made by or
through an Irish branch or agency of a non-Irish resident
company through which it carries a trade or business in Ireland
and either:
(i) the debt security is held in a recognised
clearing system (see above); or
(ii) the person who is beneficially entitled to the
interest is Irish resident and has provided their Irish tax
registration number to the Bank or paying agent in advance of
the payment; or
(iii) the person who is the beneficial owner of the debt
security and who is beneficially entitled to the interest is not
Irish resident and has provided the Bank or paying agent with a
completed non resident declaration in the approved format in
advance of the payment.
47
(B) Revenue practice regarding a medium term debt
securities exemption from DIRT
By virtue of Irish Revenue Commissioners practice, interest,
discount or premium paid on debt securities can also qualify for
exemption from DIRT in circumstances where:
(a) the Bank does not sell the debt securities to Irish
residents and does not offer the debt securities for sale in
Ireland;
(b) Dealers as a matter of contract undertake to the Bank
that their action in any jurisdiction will comply with
applicable laws and regulations and that they will not knowingly
make primary sales (or knowingly offer to do so, or distribute
any material in that connection in Ireland) to any Irish
residents or persons;
(c) the prospectus includes wording to the effect that each
Dealer has confirmed that, with respect to the debt securities,
it will not knowingly offer to sell the debt securities to an
Irish resident, or to persons whose usual place of abode is
Ireland and that it will not knowingly distribute or cause to be
distributed in Ireland any offering material in connection with
such debt securities;
(d) the debt securities are cleared through a
recognised clearing system; and
(e) the debt securities are denominated in amounts of not
less than £300,000 sterling or its equivalent.
Provisions ensuring compliance with the Irish Revenue
Commissioners practice outlined above have been included in the
relevant documentation in order to ensure that no DIRT will
apply to payments of interest, discount or premium on medium
term debt securities issued by the Bank.
Income
tax
Interest, discount or premium on debt securities may have an
Irish source and consequently may be chargeable to Irish income
tax or corporation tax, as the case may be. However, under Irish
domestic law, such income will not be chargeable to Irish income
or corporation tax in the hands of a company that (i) is
resident for tax purposes in an EU Member State other than
Ireland and is not resident in Ireland or (ii) is resident
for the purposes of the relevant double tax treaty in a
territory with which Ireland has a double taxation treaty and
that is not resident in Ireland, and in either case the interest
is paid by the Bank in the ordinary course of its trade or
business. This exemption will not apply if that person is
chargeable to Irish corporation tax on the income of an Irish
branch or agency to which the interest is attributable.
A liability to Irish income tax may also be reduced or
eliminated under the terms of Irelands double taxation
agreements.
In addition, the Irish Revenue Commissioners generally do not
seek to assess such interest, discount or premium on debt
securities to Irish tax in the hands of persons who are neither
resident nor ordinarily resident in Ireland, except where such
persons:
(a) are chargeable in the name of a person (including a
trustee) or in the name of an agent or a branch in Ireland which
has the management or control of the interest, discount or
premium; or
(b) seek to claim relief
and/or
repayment of tax deducted at source in respect of taxed income
from Irish sources; or
(c) are chargeable to Irish corporation tax on the income
of an Irish branch or agency or to Irish income tax on the
profits of a trade or business carried on in Ireland to which
the interest, discount or premium is attributable.
The Bank is not aware of any change or intended change in this
practice of the Irish Revenue Commissioners. However, there can
be no assurance that this practice will continue to apply.
48
Capital
Gains Tax
A holder of debt securities will not be subject to Irish taxes
on capital gains provided that such holder of debt securities is
neither resident nor ordinarily resident in Ireland and such
holder of debt securities does not have an enterprise, or an
interest in an enterprise, which carries on business in Ireland
through a branch or agency or a permanent representative to
which or to whom the debt securities are or were attributable.
Capital
Acquisitions Tax
Where a gift or inheritance is taken under a disposition and the
date of the disposition is on or after December 1, 1999,
gifts or bequests of debt securities may be liable to Irish
capital acquisitions tax if the disponer or the beneficiary is
resident or ordinarily resident in Ireland for Irish tax
purposes or if the debt securities which are the subject of the
disposition are regarded as property situate in Ireland.
Different rules apply where the gift or inheritance is taken
under a disposition where the date of the disposition is before
December 1, 1999.
Stamp
Duty
The issue of debt securities will not give rise to a charge to
Irish stamp duty.
The transfer of debt securities will not give rise to a charge
to Irish stamp duty where the debt securities meet all of the
following conditions:
(a) they do not carry a right of conversion into stocks or
marketable securities (other than loan capital) of a company
having a register in Ireland or into loan capital having such a
right,
(b) they do not carry rights of the same kind as shares in
the capital of a company, including rights such as voting
rights, a share in the profits or a share in the surplus on
liquidation,
(c) they are issued for a price which is not less than
ninety per cent of their nominal value, and
(d) they do not carry a right to a sum in respect of
repayment or interest which is related to certain movements in
an index or indices (based wholly or partly and directly or
indirectly on stocks or marketable securities) specified in any
instrument or other document relating to the debt securities.
The transfer of debt securities will not give rise to a charge
to Irish stamp duty where the debt securities are transferred
solely by delivery.
Where no exemption applies, the transfer of debt securities will
give rise to a charge to Irish stamp duty at the rate of one per
cent. of the higher of the market value or the consideration
paid.
The Revenue Commissioners have confirmed to the Bank that
transfers of debt securities effected by means of a transfer of
an equitable interest in the debt securities through the
electronic trading system run by DTC in the United States will,
as a concession, be treated as being exempt from a charge to
Irish stamp duty.
Reporting
Persons in Ireland paying interest to or receiving interest on
behalf of another person may be required to provide certain
information to the Irish Revenue regarding the identity of the
payee or person entitled to the interest and, in certain
circumstances, such information may be exchanged with tax
authorities in other countries.
ADRs
Withholding
tax on dividends
As explained above, an ADR is a certificate evidencing a
specific number of ADSs of a specific series, each of which will
represent preference shares of a corresponding series.
49
Distributions paid by the Bank in respect of preference shares
(and hence ADRs) are generally subject to Irish dividend
withholding tax (DWT), which currently applies at
the rate of 20%.
However, certain investors who invest in ADRs can avail of a
simplified procedure to allow for the receipt of dividend income
without the deduction of DWT. The procedure is that a Qualifying
Intermediary (QI) with appropriate provisions in its QI
agreement with the Irish Revenue Commissioners, such as The Bank
of New York, is allowed to receive and pass on the dividend from
the Bank gross to any person on whose behalf it is to receive
such distributions, or on whose behalf it is to receive from
another QI payments representing such distributions, provided
the address of the person beneficially entitled to the
distributions is recorded on the QI register of depositary
receipts as being located in the United States.
Where the ADRs are in turn held through one or more specified
intermediaries (as defined in Section 172F TCA), dividends
may still be paid without DWT provided the address of the
beneficial owner of the ADRs, as shown in the register of the
ultimate specified intermediary, is located in the United States.
This means that in the case of ADRs, exemption from DWT can be
granted on the basis that the share register address of the
person beneficially entitled to the distributions is in the
United States. No specific declarations of exemption have to be
completed by the ADR holder in these cases.
This simplified procedure for exemption from DWT may cease to
apply, for example, where an SI ceases to be recognized as an SI
by the Revenue Commissioners, The Bank of New York ceases to be
authorized to act as a QI or investors cease to hold their
preference shares in the form of ADRs.
Where the QI exemption explained above does not apply, then a
charge to Irish DWT may apply. However, there are various other
exemptions which may be available to non-Irish resident
beneficial owners of ADRs who meet the conditions set out in
Section 172D TCA (which are similar to the conditions
summarized in paragraphs (a) to (f) of
Income tax on dividends below) who
provide a certified non-resident declaration in a format
approved by the Irish Revenue Commissioners. Certain ADR holders
may be entitled to apply for a refund of DWT under a relevant
double tax treaty with Ireland.
Income
tax on dividends
Dividends paid by the Bank in respect of ADRs to a qualifying
non-resident person (within the meaning of Section 153 TCA)
will not be liable to Irish income tax. Otherwise a liability to
Irish tax (currently at the rate of 20%) could arise unless
reduced under the terms of a double taxation agreement.
The term qualifying non-resident person can be
summarized as meaning-
(a) a person other than a company who is neither resident
nor ordinarily resident in Ireland and is, by virtue of the law
of a relevant territory (a relevant territory being an EU member
state (other than Ireland) or not being an EU member state, a
territory with which Ireland has a double taxation agreement),
resident for the purposes of tax in the relevant territory;
(b) a company which is not resident in Ireland and is, by
virtue of the law of a relevant territory, resident for the
purposes of tax in the relevant territory but is not under the
direct or indirect control of a person or persons who is or are
resident in Ireland;
(c) a company which is not resident in Ireland and is under
the direct or indirect control of a person or persons who, by
virtue of the law of a relevant territory, is or are resident
for the purposes of tax in a relevant territory and who is or
are not under the direct or indirect control of a person or
persons who are not so resident;
(d) a company which is not resident in Ireland, the
principal class of shares of which is substantially and
regularly traded on one or more recognized stock exchanges in a
relevant territory or territories or on such other stock
exchange as may be approved by the Irish Minister for Finance;
(e) a company which is a 75% subsidiary (as defined in
TCA) of another company and that other company meets the
conditions set out in (d) above; or
50
(f) a company which is wholly-owned by two or more
companies, and each of those companies meets the conditions set
out in (d) above.
For the purpose of paragraphs (a) to (f), tax
means a tax imposed in the relevant territory which corresponds
to Irish income or corporation tax, generally speaking, being a
tax on income or profits.
Capital
Gains Tax
A holder of ADRs will not be subject to Irish taxes on capital
gains provided that such holder of ADRs is neither resident nor
ordinarily resident in Ireland and such holder of ADRs does not
have an enterprise, or an interest in an enterprise, which
carries on business in Ireland through a branch or agency or a
permanent representative to which or to whom the ADRs are or
were attributable.
Capital
Acquisitions Tax
Where a gift or inheritance is taken under a disposition and the
date of the disposition is on or after December 1, 1999,
gifts or bequests of ADRs may be liable to Irish capital
acquisitions tax if the disponer or the beneficiary is resident
or ordinarily resident in Ireland for Irish tax purposes or if
the ADRs which are the subject of the disposition are regarded
as property situate in Ireland. Different rules apply where the
gift or inheritance is taken under a disposition where the date
of the disposition is before December 1, 1999.
Stamp
Duty
No Irish stamp duty is payable on transfers of or agreements to
transfer ADRs, where the ADRs (or the underlying securities
which they represent) are dealt in on a recognized stock
exchange in the United States.
PLAN OF
DISTRIBUTION
Initial
Offering and Issue of Securities
We may issue all or part of the securities from time to time, on
terms determined at that time, through underwriters, dealers
and/or
agents, directly to purchasers or through a combination of any
of these methods. We will set forth in the applicable supplement:
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the terms of the offering of the securities;
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the names of any underwriters, dealers or agents involved in the
sale of the securities;
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the principal amounts of securities any underwriters will
subscribe for;
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any applicable underwriting commissions or discounts; and
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our net proceeds.
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If we use underwriters in the issue, they will acquire the
securities for their own account and they may effect
distribution of the securities from time to time in one or more
transactions. These transactions may be at a fixed price or
prices, which they may change, or at prevailing market prices,
or related to prevailing market prices, or at negotiated prices.
The securities may be offered to the public either through
underwriting syndicates represented by managing underwriters or
underwriters without a syndicate. Unless the applicable
supplement specifies otherwise, the underwriters
obligations to subscribe for the securities will depend on
certain conditions being satisfied. If the conditions are
satisfied the underwriters will be obligated to subscribe for
all of the securities of the series, if they subscribe for any
of them. The initial public offering price of any securities and
any discounts or concessions allowed or reallowed or paid to
dealers may change from time to time.
If we use dealers in the issue, unless the applicable supplement
specifies otherwise, we will issue the securities to the dealers
as principals. The dealers may then sell the securities to the
public at varying prices that the dealers will determine at the
time of sale.
51
We may also issue securities through agents we designate from
time to time, or we may issue securities directly. The
applicable supplement will name any agent involved in the
offering and issue of the securities, and will also set forth
any commissions that we will pay. Unless the applicable
supplement indicates otherwise, any agent will be acting on a
best efforts basis for the period of its appointment. Agents
through whom we issue securities may enter into arrangements
with other institutions with respect to the distribution of the
securities, and those institutions may share in the commissions,
discounts or other compensation received by our agents, may be
compensated separately and may also receive commissions from the
purchasers for whom they may act as agents.
In connection with the issue of securities, underwriters may
receive compensation from us or from subscribers of securities
for whom they may act as agents. Compensation may be in the form
of discounts, concessions or commissions. Underwriters may sell
securities to or through dealers, and these dealers may receive
compensation in the form of discounts, concessions or
commissions from the underwriters. Dealers may also receive
commissions from the subscribers for whom they may act as
agents. Underwriters, dealers and agents that participate in the
distribution of securities may be deemed to be underwriters, and
any discounts or commissions received by them from us and any
profit on the sale of securities by them may be deemed to be
underwriting discounts and commissions under the Securities Act.
The applicable supplement will identify any underwriter or
agent, and describe any compensation that we provide.
If the applicable supplement so indicates, we will authorize
underwriters, dealers or agents to solicit offers to subscribe
the securities from institutional investors. In this case, the
applicable supplement will also indicate on what date payment
and delivery will be made. There may be a minimum amount which
an institutional investor may subscribe, or a minimum portion of
the aggregate principal amount of the securities which may be
issued by this type of arrangement. Institutional investors may
include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable
institutions and any other institutions we may approve. The
subscribers obligations under delayed delivery and payment
arrangements will not be subject to any conditions; however, the
institutional investors subscription of particular
securities must not at the time of delivery be prohibited under
the laws of any relevant jurisdiction in respect, either of the
validity of the arrangements, or the performance by us or the
institutional investors under the arrangements.
Some of the underwriters, dealers and agents and their
affiliates have engaged in, and may in the future engage in,
investment banking and other commercial dealings in the ordinary
course of business with us. They have received customary fees
and commissions for these transactions.
Selling
Restrictions
Irish
Selling Restrictions
Any underwriter, dealer
and/or agent
in connection with an offering of debt securities has confirmed
that it will not knowingly offer, sell or offer to sell debt
securities to a resident of Ireland, or a person whose usual
place of abode is in Ireland and it will not knowingly
distribute or cause to be distributed in Ireland any offering
material in connection with any debt securities. Any
underwriter, dealer
and/or agent
in relation to the distribution of the debt securities will
undertake that its actions as underwriter, dealer
and/or agent
in any jurisdiction will comply with all applicable laws and
regulations.
Without prejudice to and in addition to the foregoing
restrictions, each underwriter, dealer
and/or agent
in relation to the distribution of the securities or any
investments representing securities, including ADSs or ADRs, of
any series will also represent, warrant and undertake that it
has not offered, sold, placed or underwritten and will not
offer, sell, place or underwrite the issue of any securities or
investments representing securities, including ADSs or ADRs, of
any series in Ireland:
(a) except in circumstances which do not require the
publication of a prospectus pursuant to Article 3(2) of
Directive 2003/71/EC, the Investment Funds, Companies and
Miscellaneous Provisions Act 2005, the Prospectus (Directive
2003\71\EC) Regulations 2005 or the Prospectus Rules issued by
the Irish Financial Regulator in March 2006;
52
(b) otherwise than in compliance with the provisions of the
Irish Companies Acts
1963-2006;
(c) otherwise than in compliance with the provisions of the
European Communities (Markets in Financial Instruments)
Regulations 2007 (S.I. No. 60 of 2007) (as amended), and
they will conduct themselves in accordance with any codes or
rules of conduct and any conditions or requirements, or any
other enactment, imposed or approved by the Irish Financial
Regulator with respect to anything done by them in relation to
the securities or any investments representing securities,
including ADSs or ADRs, of any series;
(d) otherwise than in compliance with the provisions of the
Irish Market Abuse (Directive
2003/6/EC)
Regulations 2005 and any rules issued by the Irish Financial
Regulator pursuant thereto; and
(e) otherwise than in compliance with the provisions of the
Irish Central Bank Acts 1942-2004 (as amended) and any codes of
conduct rules made under Section 117(1) thereof.
United
Kingdom Selling Restriction
Unless otherwise specified in any agreement between us and the
underwriters, dealers
and/or
agents in relation to the distribution of the securities or any
investments representing securities, including ADSs or ADRs, of
any series and subject to the terms specified in the agreement,
any underwriter, dealer or agent in connection with an offering
of securities or any investments representing securities,
including ADSs or ADRs, of any series will have represented and
agreed, that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 (the FSMA)) received by
it in connection with the issue or sale of any securities in
circumstances in which Section 21(1) of the FSMA would not,
if the AIB were not an authorized person, apply to AIB; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to any securities in, from or otherwise involving the
United Kingdom.
European
Economic Area Selling Restriction
Unless otherwise specified in any agreement between us and the
underwriters, dealers
and/or
agents in relation to the distribution of the securities or any
investments representing securities, including ADSs or ADRs, of
any series and subject to the terms specified in the agreement,
in relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
relevant member state), any underwriter, dealer or
agent in connection with an offering of securities or any
investments representing securities, including ADSs or ADRs, of
any series will have confirmed and agreed that with effect from
and including the date on which the Prospectus Directive is
implemented in that relevant member state (the relevant
implementation date) it has not made and will not make an
offer of any securities or any investments representing
securities which are the subject of the offering contemplated by
the prospectus as completed by the applicable supplement in
relation thereto to the public in that relevant member state
except that it may, at any time, with effect from and including
the relevant implementation date, make an offer of the
securities to the public in that relevant member state:
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to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity which has two or more of (i) an average
of at least 250 employees during the last financial year;
(ii) a total balance sheet of more than 43,000,000
and (iii) an annual net turnover of more than
50,000,000, as shown in its last annual or consolidated
accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the relevant dealer or dealers
nominated by us for any such offer;
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53
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if the denomination per security being offered amounts to at
least 50,000 (or the equivalent thereof in another
currency); or
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive,
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provided that no such offering of securities referred to in the
second to fifth bullet points above shall result in a
requirement for the publication by us or any dealer of a
prospectus pursuant to Article 3 of the Prospectus
Directive or supplement a prospectus pursuant to Article 16
of the Prospectus Directive.
The expression an offer of any securities or any
investments representing securities to the public in
relation to such securities or investments in any relevant
member state means the communication in any form and by any
means of sufficient information on the terms of the offer and
the securities or investments to be offered so as to enable an
investor to decide to purchase the securities or investments, as
the same may be varied in that member state by any measure
implementing the Prospectus Directive in that member state and
the expression Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measures in
each relevant member state.
FURTHER
INFORMATION
We have filed with the SEC a registration statement on
Form F-3
with respect to the securities offered with this prospectus.
This prospectus is a part of that registration statement and it
omits some information that is contained in the registration
statement. You can access the registration statement together
with exhibits on the internet site maintained by the SEC at
http://www.sec.gov
or inspect these documents at the offices of the SEC in
order to obtain that additional information about us and about
the securities offered with this prospectus.
VALIDITY
OF SECURITIES
If stated in the supplement applicable to a specific issuance of
debt securities, the validity of the securities under New York
law may be passed upon for us by our U.S. counsel, Sidley
Austin LLP. If stated in the supplement applicable to a specific
issuance of debt securities, the validity of the securities
under Irish law may be passed upon by our Irish solicitors,
Matheson Ormsby Prentice. Sidley Austin LLP may rely on the
opinion of Matheson Ormsby Prentice as to all matters of Irish
law and Matheson Ormsby Prentice may rely on the opinion of
Sidley Austin LLP as to all matters of New York law. If this
prospectus is delivered in connection with an underwritten
offering, unless otherwise specified in the applicable
supplement, the validity of the debt securities will be passed
upon for the underwriters by Sullivan & Cromwell LLP,
and any Irish counsel for the underwriters specified in the
applicable supplement. If no Irish counsel is specified,
Sullivan & Cromwell LLP may also rely on the opinion
of Matheson Ormsby Prentice as to certain matters of Irish law.
EXPERTS
The consolidated financial statements of Allied Irish Banks,
p.l.c. as of December 31, 2007 and 2006, and for each of
the years in the three-year period ended December 31, 2007,
and managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2007 have been incorporated by reference
herein in reliance on the reports of KPMG, Chartered
Accountants, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
54
EXPENSES
OF ISSUANCE AND DISTRIBUTION
The following is a statement of the expenses (all of which are
estimated), other than any underwriting discounts and commission
and expenses reimbursed by us, to be incurred in connection with
a distribution of the securities registered under this
registration statement:
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Securities and Exchange Commission registration fee
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$
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*
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Printing expenses
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5,000
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Legal fees and expenses
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500,000
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Accountants fees and expenses
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50,000
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Trustee fees and expenses
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10,000
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ADR Depositarys fees and expenses
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5,000
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Miscellaneous
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30,000
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Total
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600,000
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* |
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Deferred in accordance with Rule 456(b) and 457(r) |
55
ALLIED
IRISH BANKS,
public limited
company
26,700,000
Contingent Mandatorily Exchangeable Notes due
November , 2010
Mandatorily Exchangeable
for
Shares of Common Stock
of
M&T BANK
CORPORATION
October , 2010