Irish Life & Permanent plc (IL&P) issued a trading update today in advance of of the group's Annual General Meeting, which takes place at 11.30am in the RDS, Dublin. IL&P says that mortgage arrears under 90 days have levelled off in the three months to April and this may signal that they are nearing their peak.

IL&P said the group’s businesses are generally performing in line with expectations. The investment management business is performing strongly while demand in the life business is mixed. In the bank, loan demand has fallen further. Mortgage loan arrears in Ireland continue to rise, reflecting the higher level of unemployment, but early arrears are showing some signs of stabilising. Very significant progress has been made in the bank’s funding programme in the year to date.

The group said all five Irish banks participating in the State's toxic property loans' agency, NAMA, have prepared, or are preparing, viability plans for submission to the EU by end June. The outcomes from this process will create a number of opportunities for the it as the Irish banking sector is restructured. IL&P says it is currently engaging with advisors and with rating agencies on how best to maximise the various restructuring opportunities.

Goodbody's Eamonn Hughes commented:"IL&P has reported an IMS (Interim Management Statement) for Q1 this morning. New sales volumes look weaker in the core Life business and it is probably this point that should dominate sentiment this morning. We are likely to have to pare back our flat outturn for the year. On the banking side, net interest income looks in line and arrears appear to be stabilising.

On Life & Pensions, IL&P is indicating that Q1 new business sales were up 39% in single premiums and down 30% in recurring premiums, with most of this appearing in the corporate side. Based on H1 figures last year, this would imply APE down c7% for H1 if current trends persist. We are flat for the full year, so may pare this figure back. Guidance is for +60% of new business sales growth at ILIM, which compares to our estimate of flat. We understand that margin guidance is broadly unchanged, compared to our expectations of 13% (+150bps yoy) and 6.5% respectively. IL&P is indicating that retail persistency ytd is better yoy with Q1 lapses running at c140% of long term averages vs. 190% in Q109. Also, the corporate business has seen a marked reduction in lapses, but premium reductions due to salary reductions. We suspect this persistency performance resides within the provisions taken by the firm in 2009. Risk experience remains positive with expense experience in line. Below the operating line, short term investment fluctuations are guided at +€40m (€0m in our models). We are comfortable with the guidance on the associate.

On the banking front, IL&P is guiding net interest income in line with target. On funding, deposit growth looks better than anticipated at +7% vs. +5% expected and it has termed out 75% of its requirement for this year. ECB funding was €8bn, which compares to €9.8bn in December, so moving in the right direction. On margins, there is no specific guidance, but suspect it’s flat to down (prior to cost of government guarantee), which is where we currently reside. In relation to credit quality, IL&P is guiding that the rate of growth in arrears in Ireland looks to be stabilising and continues to trend downwards in the UK – which compares to previous guidance that arrears should level off mid-way through 2010 in Ireland. On capital, the VIF securitisation process appears still in train and it mentions that current capital resources are sufficient to meet new regulatory targets. With arrears looking like they are stabilising in Ireland, it may be that our €950m capital requirement looks too cautious and the market may feel more comfortable with the guidance from management which is circa €200m lower. However, overall, the main focus is likely to remain the life company where we are a bit disappointed on the life sales figure, though yoy declines are easing."

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