Allied Irish Banks (AIB)

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Allied Irish Banks, p.l.c. (or AIB), with 159 billion in assets (US$209 billion) at yearend 2006, is a retail-focused bank with its main operations in Ireland, Britain, Poland, and the United States. It employs more than 23,000 people worldwide in more than 750 offices. The company operates through four main divisions: AIB Bank ROI (Republic of Ireland), contributing 47% of 2006 net revenues Capital Markets, generating 22% of 2006 net revenues AIB Bank UK, accounting for 18% of 2006 net revenues and Poland, contributing 13% of net revenues.

In addition to retail banking, AIB Bank ROI includes businesses offering credit cards, car finance and leasing products, home mortgages and other services. About 9,100 staff work for AIB Bank (ROI), operating out of 275 outlets in the Republic of Ireland. In Ireland, AIB's strategy is to strengthen its positioning in this high-growth economy. Specifically, AIB expects to reposition its direct banking operations for the mass consumer market, to achieve substantially greater market penetration. AIB Bank UK employs almost 3,000 people in 57 outlets in Northern Ireland, where AIB Bank trades as First Trust Bank, and in 40 locations in Britain under the name Allied Irish Bank (GB). In Great Britain, AIB s strategy is to deepen and strengthen its presence through market share gains in the mid-corporate market, and in Northern Ireland, through customer acquisition and greater product penetration across business and retail banking. AIB Capital Markets division comprises the AIB Corporate Banking, Global Treasury, and Investment Banking (including asset management and stockbroking operations) activities of the group, as well as the Allied Irish America (AIA) network. From a base in the International Financial Services Centre, Dublin, about 2,400 staff provide international and financial services to Irish and multinational institutions. The AIA offices are in New York and other cities in the U.S. Poland division refers to AIB s 70.5% shareholding in Bank Zachodni WBK (BZWBK), the bank formed from the merger of Wielkopolski Bank Kredytowy based in Poznan and Wroclaw-based Bank Zachodni. BZWBK is a multi-regional retail and commercial bank with a network of more than 384 branches employing about 7,900 people. In Poland, AIB seeks to develop a formidable retail and commercial banking franchise to deliver profitable market share growth. AIB also has a significant presence in US regional banking with a 22.5% shareholding in M&T Bank Corporation, one of the top 20 banks in the US.

On a geographical basis, 59% of AIB's 2006 net revenues were derived from Ireland, 23% from the UK, 14% from Poland. 3% from the US, and 1% other. AIB s strategy includes: (1) organically led growth in its strong core markets (2) proactively exploring nonorganic growth opportunities in selected markets (3) consistent double-digit earnings per share (EPS) growth and (4) tangible return on equity (ROE) consistently in excess of 20%. AIB enjoys long-term credit ratings of Aa2 by Moody s (upgraded from Aa3 in March 2007 due to a change in rating methodology), A (recently raised from A) by Standard & Poor's, and AA- by Fitch.

AIB is clearly benefiting from an upturn in the Irish economy. The pickup in the economy (real GDP up 6% in 2006, 4.9% in each of 2005 and 2004, and 3.7% in 2003) has led to strong lending and deposit growth. As a result, AIB's profit in Ireland rose 11% in 2004, 21% in 2005, and 24% in 2006. Moreover, economic growth in Ireland is expected to continue strong, with the Irish economy estimated to grow by 5% (real GDP growth) in 2007 and an additional 3% in 2008 due to gains in domestic demand and net exports. This should support robust loan growth over the near term.

Furthermore, following the sale of Allfirst Financial to M&T Bank Corporation, AIB should be able to focus greater attention on the recovering Irish market and other growth opportunities in Europe. This includes the company's controlling interest in the fifth largest bank in Poland, where operating profit gained 135% in 2004, was up 49% in 2005, and advanced 56% in 2006. Further, although it will no longer directly manage operations in the U.S., AIB should continue to participate in the U.S. market given its equity ownership interest in M&T Bank where operating profit grew by a healthy 43% in 2004, 16% in 2005, and 6% in 2006.

We are also encouraged by the company's improving overall financial position. For the 2004 year, the company's tangible cost/income ratio improved by 2 points, fell 250 basis points in 2005 to 55.2%, and declined 250 basis points in 2006 50.1%. Credit quality metrics of AIB also continue on an improving trend, with nonperforming loans and net charge-offs below levels experienced a year ago. Finally, we view positively the recent 10% increase in the AIB's 2007 interim dividend to 27.8 cents per share (US$0.80 per ADS).

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