GROUP CHIEF EXECUTIVE'S REVIEW

2007 has been another year of outstanding achievement for Anglo Irish Bank with record earnings, strong lending growth, excellent asset quality and continued development of our franchises in Ireland, the UK and North America.

The enduring strength of the Bank's business model is evidenced by a 44% increase in underlying profits to €1,221 million, marking 22 years of uninterrupted profit growth. The Bank continues to effectively execute its traditional client centric and asset quality focused strategy.

The Bank has a resilient funding platform, excellent liquidity and a strong capital base. Customer deposits consistently represent some two thirds of total funding. Prudent liquidity management and our approach of raising market funding ahead of requirements has served the Bank very well during the recent dislocation in capital markets.

Business Lending - well managed high quality growth

The Bank has again delivered strong growth in business lending across its three chosen markets - Ireland, the UK and North America. Net loan growth of €18.0 billion¹, an increase of 37%, brings total customer lending balances to €67.1 billion (including lending associated with our assurance company).

Total average lending margin increased by 6 basis points to 2.42% during 2007, in part reflecting upward movement following the market-wide repricing of credit risk. This is continuing into the current year with margins on new business trending upwards.

Asset quality - underpinning the Bank's success

Asset quality remains excellent. The Bank's specific impairment charge, at 9 basis points of average customer advances, remains unchanged on 2006. The quality of the book is further evidenced by the low level of impaired loans of €335 million, representing an improvement on 2006 at just 0.50% of closing loan balances and significantly below that of peers. Total lending balance sheet provisions at year end amounted to €295 million, covering almost 90% of impaired loans before taking the Bank's collateral security into account.

The Bank operates a strict underwriting model. We lend to experienced business people and professional investors, providing senior term debt on a secured basis. Cash flows from proposed transactions or a client's existing asset portfolio must provide sufficient debt service coverage, typically a minimum of 1.25 times - the Bank does not engage in speculative development lending. The cornerstone of our consistent record on asset quality is strong underlying client cash flows, normally based on long-term contractual rental incomes derived from diverse sectors of the service economy. These sectors continue to perform strongly.

The Bank's low loss outcome in the event of a default is further underpinned by personal guarantees and by the fact that close to 100% of the loan book is secured by a first legal charge on tangible assets, typically on a cross-collateralised basis.

Loans must be individually approved at central credit committee in Dublin, chaired independently by Group Risk Management. This approach ensures adherence to our stringent underwriting criteria and consistent decision making and client service. In addition, Group Risk Management undertakes a complete on-site review of all loans at least twice a year, stress testing the impact of increased interest rates and reduced cash flows. The most recent review, completed in mid-November, confirmed the excellent condition of the Bank's loan book and showed that we are not experiencing increased stress in any area.

We are confident that our focused underwriting model will sustain the ongoing high quality of our asset base. Nevertheless, we remain as vigilant as ever.

Lending - Ireland

At the end of September 2007 loans to Irish customers stood at €37.8 billion, up €9.3 billion¹ in the year. This performance, at the upper end of expectations, was achieved through selective asset growth in our traditional areas.

We saw some indications of a moderation in lending activity in the second half of the year and expect this to continue into 2008, broadly reflecting a return to more sustainable long-term growth rates in the Irish economy. Economic fundamentals remain firm - demographics, job creation, income growth and the government's fiscal position all remain positive while the interest rate outlook is now more supportive.

These fundamentals support ongoing demand for housing, although below the exceptional levels seen in recent years. Buyer and seller expectations are realigning and prices are likely to settle with a measured reduction in supply. This will support a more stable house price environment, important to the long-term growth and competitiveness of the Irish economy.

The commercial sector remains sound, supported by strong occupier demand and restricted supply. Notwithstanding this, we expect to see a reduction from the very strong levels of recent activity.

We believe that the Irish market continues to offer us significant medium to longer term opportunity to build on our established positions, deepening and broadening the Bank's franchise.

Lending - UK

The Bank's UK lending business enjoyed another strong year in 2007, increasing loan balances by 30%¹ to €21.7 billion. This performance reflects high quality asset growth in both London and regional markets, where we continue to invest in developing the business.

After a sustained period of compression, commercial property yields have widened recently. Investment property fundamentals however remain sound, with low vacancy rates, a restricted supply pipeline and a potentially more benign interest rate environment. Larger loan transactions have slowed, reflecting the impact of the capital markets dislocation, in particular on conduit based lenders. We envisage some of the larger borrowers returning to more traditional relationship-based banking as market conditions settle.

While the UK economy is expected to slow, it will remain in our view one of the better performing large economies in Europe and a key market for the Bank. We see considerable opportunity in the UK given the Bank's modest market share and its proven ability over two decades to build enduring customer relationships.

Lending - North America

2007 has been another outstanding year for our North American lending division with net loan growth of €3.7 billion¹. The Bank is established in three key prime markets - Boston, New York and, most recently, Chicago. The performance of this business demonstrates the Bank's ability to transport its model and generate shareholder value. We have taken our team in North America to over 100 people during 2007, continuing our investment in the franchise.

Recent events in capital markets have undoubtedly resulted in increased uncertainty across the broader US economy. The impact of this has been less pronounced in the commercial property sectors of the stronger regional economies in which the Bank operates. These three markets are particularly resilient and robust, with rentals trending upwards and occupational demand remaining strong.

With experienced, well capitalised borrowers, the Bank has a strong base from which to exploit potential opportunities including, as in the UK, the return of some borrowers to more traditional relationship-based banking. Looking to the medium to longer term, we see significant opportunity to increase our share of this very large market.

Treasury - delivering on key objectives

The performance of our Treasury Division in 2007 has been most impressive, with success in each of its key business objectives - providing a robust and diversified funding and capital platform for the Bank, maintaining prudent balance sheet liquidity and managing the Bank's interest rate and foreign currency risks together with supporting delivery to our Treasury client base.

Funding and liquidity - a platform of financial strength

The Bank's total funding and capital stood at €93.2 billion at year end, reflecting record growth of €25.5 billion¹.

Our customer deposit business delivered an outstanding performance, growing by 46% or €16.7 billion¹. This brings total balances to €52.7 billion. Customer balances today account for 63% of the Bank's senior funding, consistent with the levels of the past five years. This strong growth in customer deposits alone almost fully funded the increase in customer lending during the year.

The Bank's customer deposit franchise dates back over three decades in Ireland and two decades in the UK, with a successful expansion into the retail savings market in the 1990's and across mainland Europe in more recent years. Deposit growth during 2007 was well spread throughout all target markets. The continuing success of the Bank's customer funding activities, both retail and non-retail, is premised on outstanding customer service and consistent pricing. The single goal of our customer deposit business is to enhance and diversify the Bank's funding base - not seeking to generate profit. This is a critical advantage as others in the marketplace are typically unable to provide such a consistently competitive offering. Our efficient and unique cost to income structure underpins the long-term sustainability of this strategy.

Retail customer balances now stand at €19.4 billion, adding over 7,000 new customers per month through the Bank's phone and postal platform. Market-leading customer retention ratios, at close to 98%, reflect the strength of our franchise. The quality and consistency of our product offering was recognised by Moneyfacts, the UK consumer finance advocate. In 2006, and again in 2007, we were awarded 'Best Product' in our key categories. This business, which continues to grow apace, will form a key pillar of the Bank's diverse funding over the coming years.

In 2007 the Bank's non-retail customer deposit business grew strongly to €33.3 billion, an increase of 29%¹. This strong, relationship focused business provides a deep vein of core funding across a diverse customer base, comprising small and medium sized corporates, charities, investment managers, local authorities, credit unions and other long-term holders of cash in Ireland, the UK, the Isle of Man, Jersey and across Europe. We continued to develop this business in 2007, adding significant numbers of new clients in all markets and ending the year with in excess of 10,000 customers. This deposit base is highly granular with an average balance of under €4.0 million. The Bank has recently expanded this business into the United States with deposit products to US corporations. This represents a key strategic step in providing a new, long-term funding growth platform to the Group with very significant potential now and in future years.

2007 has also been a very successful year on the debt securities side of our funding strategy, with issuance increasing by 60%¹ to €23.6 billion. This significant activity, aligned with the Bank's consistent strategy of raising market funding well in advance of requirements, has aided the Bank to insulate itself from the effects of the current turbulence in credit markets.

Close to 60% of debt market funding has a maturity profile of greater than one year. Early in 2007, the Bank expanded its sources of long-term funding through the establishment of an innovative commercial mortgage covered bond programme, raising €1.3 billion by year end.

Throughout our considerable growth over the past three decades, we have always been keenly aware of the importance of maintaining a robust liquidity profile. The Bank maintains a strong customer deposit to loan ratio at 79%. Customer deposits plus term debt securities equate to 104% of total lending - including capital, this ratio increases to 118%. The Bank has maintained its excellent liquidity position since the turbulence in credit markets began in July. Access to funding has remained strong in the intervening period, with significant volumes raised through customer and market funding sources. Our liquidity position was further enhanced by the creation of €2 billion of covered bonds in November. The nature of the Bank's assets and the low usage of covered bond funding to date provide significant incremental secured funding and liquidity capacity for the future. The Bank maintains a very active debt investor relations programme, enabling regular contact and ensuring that investors have a thorough understanding of the Bank's model.

From a regulatory liquidity perspective, the Group operates within the revised and strengthened liquidity regime introduced by the Irish Financial Regulator this year. Considered one of the most stringent regimes in Europe, it requires liquidity to cover commitments allowing for no new funding from any source out to thirty days. The assumptions applied within the regime are prudent. The Bank always maintains a significant buffer over these requirements and continues to do so during the current market volatility. Our pool of high grade liquid assets, combined with short-term bank placings of less than two weeks duration, currently stands at a similar level to year end. The Bank has been, and continues to be, a significant net lender to the inter-bank market.

The success of the Bank's funding and liquidity management strategy means it has a balance sheet with the underlying strength and flexibility to take advantage of opportunities and to successfully meet the challenges of changing market conditions. This strength was recognised in March when Standard & Poor's initiated coverage of the Bank with an 'A' long-term / 'A-1' short-term rating. This strong rating is in addition to those of Moody's, Fitch and Dominion Bond Rating Service, our other rating agencies.

Other treasury assets

The Bank has very limited exposure to assets impacted by the current capital markets uncertainty. These include investments of €134 million (0.14% of total assets) in major bank sponsored Structured Investment Vehicles ('SIVs'). Although we are a buy-to-hold investor and none of these assets are in default, we have charged a prudent collective impairment provision of €67 million (50% of our holding) in arriving at the €1.243 billion in pre-tax profits for the year. This serves to protect the Bank from further possible deterioration in this asset class given market uncertainty. The Bank has no exposure to SIV-lites and does not sponsor any SIVs or conduit vehicles.

The Bank holds €80m (0.08% of total assets) of asset-backed securities with a synthetic exposure to underlying subprime assets. We have taken a mark-to-market adjustment of €21 million against these assets resulting in a carrying value of €59 million at year end. In addition, the Bank has €199 million (0.21% of total assets) of other highly rated asset-backed securities with some indirect subprime component. The fair value of these assets, all of which continue to perform, is €175 million. All of the above securities have been independently valued. Pricing provided by independent external experts is in line with FASB 157 Level 2 standards. These bonds are generally well seasoned, originated between 2003 and early 2006. We are a buy-to-hold investor of these assets, 90% of which are AAA / AA rated. The Bank does not have any direct exposure to subprime sectors.

The Bank is a buy-to-hold investor of treasury assets and does not engage in the trading of such securities. This is reflected in our minimal trading Value at Risk which, at a 99% confidence level, averages €0.3 million, stemming solely from the management of customer related positions.

Capital - a solid foundation for future growth

During the year we raised an additional €1.8 billion of capital in significantly oversubscribed offerings, providing a robust platform to support the medium to longer term opportunities that we see in all of our core markets.

Over the past two years the Board has adopted a strategy to significantly enhance the Bank's equity ratio. This was achieved through strong retentions and two equity placings, the most recent in February 2007 raising €542 million. In 2007 alone, the Bank's equity increased by 51%, bringing total shareholders' funds to €4.1 billion. Accordingly, the Bank's core equity ratio has increased from 4.2% to 5.2%, based on risk weighted assets at 30 September of €78.67 billion.

The capital base was further added to in June when the Bank raised €510 million of Tier 1 and €750 million of Tier 2 capital. Tier 1 and Total Capital ratios are strong at 8.6% and 12.0% respectively, well in excess of minimum regulatory requirements. The Bank, given its current excellent position and ongoing strong retentions, has sufficient equity for future growth. In addition, the Bank will not need to raise Tier 1 or Tier 2 debt capital before the first half of 2009.

The Capital Requirements Directive ('CRD'), which implements the provisions of the Basel II Capital Accord in the EU, will come into effect on 1 January 2008. We have invested significantly to ensure the implementation during 2008 of enhancements to our Group-wide credit grading models to meet the required standards of the Internal Ratings Based approach. In the interim period, we will calculate our capital requirements under the Standardised approach. We expect some regulatory capital benefit over time following implementation of the CRD.

Delivering for clients

In addition to its key objectives outlined earlier, Treasury provides a valuable source of revenue diversification, particularly in our Corporate Treasury Sales business. Our teams work closely with customers to develop innovative risk management solutions, individually tailored to manage their specific interest rate and foreign currency exposures. Importantly, this business is a natural compliment to our lending business and gives the Bank enhanced visibility and certainty over client cash flows.

Wealth Management - another excellent year

Our Wealth Management Division had another excellent year, contributing €97 million to Group profit before tax, an increase of 84%. The Division continues its targeted strategy as a niche provider of financial products and solutions to high net worth clientele.

We launched our UK Private Banking business in 2006 and it has made considerable progress to date. We see significant opportunity in a business that compliments our existing lending activities and core client base. Over time, we expect the business to replicate the success of our Irish Private Bank.

Our People

Our continuing success is testament to the commitment and performance of our people, and I take this opportunity to thank all my colleagues for their outstanding contribution this year. Our people are committed to our client-centric culture of delivery and this gives me confidence for the Group's performance in the years ahead.

We continue to invest for the future and remain dedicated to finding and recruiting the best available talent in each of our markets. We added 320 people during 2007, bringing headcount to 1,873, an increase of 21% allowing for the disposal of our Isle of Man trust activities. This investment has been achieved while improving our cost to income ratio from 26.5% to 22.3%. Looking forward, I see further opportunities to make strategic hires in an environment where people will place increasing value on a long-term, relationship based business.

I join our Chairman in recognising the immense contribution made by Tom Browne. Tom has been a key member of our senior management team for many years and played a large part in the success of the Bank over this time. I thank Tom again for his dedication and commitment to the Bank and wish him every success for the future.

Outlook - confidence for the future

We expect Ireland to remain one of the strongest European economies in 2008, despite a gradual moderation in growth rates. Our positioning in the UK and US, notwithstanding the uncertainty in capital markets, provides opportunities to expand our franchise and increase market share.

The relevance of our relationship driven lending model is underscored in today's market conditions. Our liquidity, funding and capital strength position us well to take advantage of the significant potential in each of our core markets. As always, the Bank's risk appetite remains conservative - we will never sacrifice asset quality for growth.

The Bank's €9.8 billion of lending work in progress at year end is well spread and of high quality, although it is natural to expect a slower conversion rate than previously. We anticipate that lending growth during 2008 will calibrate to the levels seen in 2005 - 2006 with net interest margins and cost to income levels broadly stable. We will always adopt a prudent approach to provisioning and expect specific charges for lending impairment to increase, although remaining low. Reflecting these factors, we expect continued significant equity capital generation.

We anticipate underlying earnings per share growth in excess of 15% in 2008 and are confident that our proven organic strategy will continue to deliver in the years beyond.

David Drumm
Group Chief Executive

27 November 2007

¹On a constant currency basis

€9.60