IRELAND ON RECOVERY PATH - NAMA Wine Lake · 2012. 1. 26. · Presentation for institutional investors, January 2012 . SUMMARY 2 Ireland has delivered on targets and private capital

IRELAND ON RECOVERY PATH

Ireland doing everything asked of it that is within its control;

but turmoil in euro area makes recovery more challenging

Presentation for institutional investors, January 2012

SUMMARY

2

Ireland has delivered on targets and private capital has been attracted

2011 marked the turning point, following three bad

years

• Recapitalisation of banks completed by end-July 2011� Government cost limited by private capital raised and burden-sharing� Overseas investment in Bank of Ireland; covered bond issues by BoI and IL&P; and

large-scale take-up of BoI rights issue were positive signs� Contingent liability from banking sector has finally been quantified

• Government set to have deficit of 10% of GDP at most for full year, beating Troika target of 10.6%� Troika (EC/ ECB/ IMF) very pleased with delivery on all Programme benchmarks

• Economy grew for first time since 2007� Export growth remains resilient so far, despite euro area difficulties� But domestic demand may continue to decline at a slow pace in 2012

• Summit on July 21st, 2011 delivered rate cut and term extension � This bolsters debt sustainability and is worth more than 4% of 2011 GDP� Helps to cement domestic buy-in to ongoing fiscal consolidation� Threat to Ireland's 12.5% corporation tax rate removed

• NAMA has now raised €6bn of gross cash from sales of assets� Ireland's main contingent liability being reduced

3

Pro-forma Core Tier 1 ratios stand out in euro area

after huge PCAR re-capitalisation

15

20

25

30

Ireland’s banks look ahead of the

game versus the rest of the euro

area because they’ve already

provided for likely losses

4

0

5

10

15

AIB BoI IL&P

Dec-10 Jun-11

Source: Department of Finance

Exchequer deficit improved versus a year ago (€bn

excluding banking recapitalisations)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

Central Government

(cash) deficit €2.7bn

lower like-for-like in 2011

compared with 2010

5


-20.0

-18.0

-16.0

-14.0

-12.0

-10.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2009 2010 2011

2011

2009

2010

Economy pulled out of long recession in H1 2011

160

170

180

190

200

Nominal GDP

Real GDP

Activity slipped in

Q3, as domestic

economy declined

6

Source: Central Statistics Office (CSO)

100

110

120

130

140

150

Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Nominal GNP

Real GDP

Real GNP

SECTION 1: MACRO

7

Irish economy stabilised grew for first time in four years in 2011, thanks

to exports

Rapid recovery in exports, but euro area crisis is a

threat for 2012

35000

40000

45000

Exports above

previous peak

8

Source: CSO

20000

25000

30000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Ireland’s PMIs now among the highest in euro area

50.0

55.0

60.0

65.0

70.0 Service activity holding up

particularly well, thanks to

US/ UK exposure

9

Source: Markit; NCB

30.0

35.0

40.0

45.0

50.0

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Manufacturing Services

Ireland's composite PMI is a good guide to GDP

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

50.0

55.0

60.0

65.0

On current evidence, Ireland

may avoid recession unlike

other non-core countries

10

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

30.0

35.0

40.0

45.0

Q4 2000 Q4 2001 Q4 2002 Q4 2003 Q4 2004 Q4 2005 Q4 2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010

PMI composite (LHS) GDP % change yoy (RHS)

Source: Markit; NCB; CSO

Euro area economy slowing, but not collapsing

50

55

60

65Euro area PMI below 50,

signalling recession, but

has stabilised for now

11

30

35

40

45

Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

Source: Markit; Bloomberg

Domestic economy still in deleveraging phase

70

80

90

100

110

12

20

30

40

50

60

Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Nominal domestic demand (index, peak = 100) Real domestic demand (index, peak = 100)

Investment and consumer

spending may reach bottom

in next 18 months, but

government spending will

shrink out to 2015 at least

Source: CSO

Employment decline accelerates again in Q3

0.0

1.0

2.0

Disappointing decline

may be one-off following

steady improvement

13

Source: CSO

-4.0

-3.0

-2.0

-1.0

Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Unemployment rate stabilising at 14%-14.5%

10

12

14

16

14

Source: CSO

0

2

4

6

8

Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Employment declined

1.1% in Q3, but labour

force also fell almost 1%

Real disposable income still declining (€ per person)

20,000

21,000

22,000

23,000Hit by lack of non-wage

earnings; higher taxes;

elevated energy prices; and

lower social transfers

15

Source: CSO; NTMA

15,000

16,000

17,000

18,000

19,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

Household net worth per capita reduced by falling

house prices (chart is € net worth per capita)

130000

140000

150000

160000

170000

Falling house prices cause

self-reinforcing cycle; and

negative equity a barrier to

second-hand transactions

16

80000

90000

100000

110000

120000

Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Source: Central Bank; NTMA

Personal savings ratio highest since early 1990s

10.0%

15.0%

20.0%

Households are in the

process of deleveraging

and confidence will take

a long time to rebuild

17

-5.0%

0.0%

5.0%

Source: CSO

Consumer spending still declining: set to continue

through 2012 (quarterly €m is scale)

20000

21000

22000

23000

24000

18

Source: CSO

15000

16000

17000

18000

19000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Spending suffering from

declining disposable incomes,

high household debt and

negative wealth effects

Housing starts still falling

50000

60000

70000

80000

90000

19

0

10000

20000

30000

40000

Dec 04 Jun 05 Dec 05 Jun 06 Dec 06 Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11

Starts now below 5,000 on

a 12-month basis, but need

to run below level of

demand for some time

Source: Department of the Environment, Heritage and Local Govt.

Investment as a % GDP at all-time low

20.0

25.0

30.0

Long run average

20

0.0

5.0

10.0

15.0

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Excesses are being purged,

so investment is unlikely to

mean revert in near term

Source: CSO

Economic and fiscal forecasts: Budget 2012

2011F 2012F 2013F 2014F 2015F

GDP (% change, volume) 1.0 1.3 2.4 3.0 3.0

GNP (% change, volume) 0.4 0.7 1.7 2.3 2.3

Current Account (% GDP) 0.5 1.7 2.5 3.3 3.7Current Account (% GDP) 0.5 1.7 2.5 3.3 3.7

General Government Debt

(% GDP) 107 115 119 118 115

General Government

Balance (% GDP) -10.1 -8.6 -7.5 -5.0 -2.9

Inflation (HICP) 1.2 1.9 1.4 1.5 1.9

Unemployment rate (%) 14.3 14.1 13.5 12.9 11.6

Source: Department of Finance: Budget 2012 (issued December 6th, 2011)

21

SECTION 2: REBALANCING

22

Competitiveness gains have been significant; Ireland outperforms other

“non-core” countries thanks to its flexible economy

Ireland becoming more competitive and living within

its means: current account (% GDP) back in surplus

-1.0%

0.0%

1.0%

2.0%

3.0%

Last year saw first

current account surplus

since 1999

Source: CSO

23

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Economy-wide employment has re-balanced quickly

(% share of each sector in total employment)

30.0%

40.0%

50.0%

60.0%

Employment has not

increased in the public sector:

it has simply declined at a

slower pace than elsewhere

24

Source: CSO

0.0%

10.0%

20.0%

30.0%

Agriculture Industry Construction Public sector (incl. private

health & education)

Private sector

Peak (Q2 2007) Q3 2011

Ireland to benefit more than most from decline in FX

value of euro in recent months (chart: export shares)

40.0%

50.0%

60.0%

70.0% US/UK together have

same weight in Irish

exports as euro area

25

0.0%

10.0%

20.0%

30.0%

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

UK Rest of EU US Rest of World

Source: CSO

Ireland’s competitive position vastly different to the

non-core countries

Unit Labour Costs (Q1 2001=100) Current Account Balance (% GDP)

130

140

150

Ireland has few

structural

rigidities

-4.0%

-2.0%

0.0%

2.0%

26

Source: European Commission Source: DataStream

90

100

110

120

130

Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011

Spain Greece Ireland Italy Portugal

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Spain Greece Ireland Italy Portugal

Ireland is far more open than other non-cores

Exports (%GDP) Imports (%GDP) Openness proxy

Ireland 101 82 1.23

Spain 27 29 0.93

Italy 27 29 0.93Italy 27 29 0.93

Portugal 31 38 0.81

Greece 21 29 0.71

Source: Datastream (for 2010)

27

Ireland’s export performance was much stronger

than Portugal and Greece even during bubble

120

130

140

150

Ireland’s exports above their

previous peak; not the case

in Portugal or Greece

28

90

100

110

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Greece (export volume 2000 = 100) Portugal (export volume 2000 = 100) Ireland (export volume 2000 = 100)

Source: Datastream

SECTION 3: PROPERTY

29

Residential property prices have further to fall, but commercial market

has probably bottomed

Mortgage volumes have collapsed

40000

50000

60000

30

0

10000

20000

30000

Q1 2005 Q3 2005 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011

Credit supply and

demand issues impact,

but there were tentative

signs of a bottom in 2011

Source: IBF

Mortgage credit restrictions on the rise

3.25

3.50

3.75

4.00

Credit standards loosening

31

2.00

2.25

2.50

2.75

3.00

Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

Credit standards tightening

Source: ECB bank lending survey for Ireland

National house prices down 46% from peak in 2007

80

90

100

110

32

Source: CSO

40

50

60

70

Jan 05 Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

All country Dublin

Dublin market, which is

more liquid, has seen 54%

fall (index peak = 100)

Valuation of housing has adjusted but does not yet

look compelling

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Reasonable rental yield (annual rent/ average house price) range: similar to other risky assets

33

Source: CSO; ESRI; NTMA

0.0%

1.0%

2.0%

3.0%

4.0%

Q1

1996

Q1

1997

Q1

1998

Q1

1999

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Q1

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Gross yield Net yield

Collapse in yield

during 2001-

2007 bubble

House prices as a ratio of disposable income per

capita nearly back to typical trough of 8-9x

14.0

16.0

18.0

20.0

Prices followed disposable

34

6.0

8.0

10.0

12.0

1976 1981 1986 1991 1996 2001 2006 2011

Prices followed disposable

income per person for a

decade from 1986-1996

Source: CSO; NTMA

But private housing rents are now rising

150.0

160.0

170.0

180.0

35

100.0

110.0

120.0

130.0

140.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Rents are rising, suggesting that

current available supply in

balance with demand

Source: CSO

Commercial property valuations (particularly office

and industrial) look attractive versus history

7.0

8.0

9.0

10.0

2nd half 1990s average

Average since 1995

Highest yield level on record

(data back to 1995), thanks

to 65% drop in prices

36

Source: IPD

2.0

3.0

4.0

5.0

6.0

Q1 1995 Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009 Q1 2011

Foreign buyers now interested on valuation grounds

6.0

7.0

8.0

9.0

10.0

Positive

carry

37

Source: IPD; NTMA

2.0

3.0

4.0

5.0

6.0

Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011

5-year Euro swap rate + 300bp margin Ireland Commercial Property yields

Made no sense for

foreign buyer

Yield pick up

significant

SECTION 4: BANKING

38

Ireland has drawn a line under bank re-capitalisation; Contingent liability

quantified for the State; Execution of deleveraging plan progressing well

The six domestic banks funding profiles

€bn Dec-08 Dec-09 Dec-10 June -11 Sept-11

Change v

Dec 08

Retail deposits 152 146 136 118 121 -31

Corporate deposits 103 80 32 21 21 -82

Debt Capital Markets 140 123 69 58 55 -85

Repo/Interbank 89 50 30 19 21 -68

Central Bank 37 62 142 123 122 +85

Total 521 461 409 339 339 -181

Loss of market confidence in banking system in 2010

• Between September to December 2010 the domestic banks lost over €100bn of funding

following credit rating downgrades (via a combination of deposit outflows coupled with an

inability to roll over debt instruments)

• A large quantum of senior debt (c. €30bn) matured in September 2010 as the original

government guarantee (Credit Institutions Financial Supports Act) expired and was replaced by

the Eligible Liabilities Guarantee (ELG) scheme

Source: Financial Measurement Program Report / Central Bank of Ireland

39

Domestic deposits have stabilised

80000

100000

120000

140000

160000

Flat over last six months

40

Source: Central Bank of Ireland - resident private sector (unconsolidated balance sheet)

0

20000

40000

60000

80000

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

Households Non-financial corporations

Reliance on ECB funding has declined significantly

80000

100000

120000

140000

160000

Reliance on ECB liquidity

down c. €40bn from peak

(scale on left is €m)

Source: Central Bank of Ireland; NTMA

41

0

20000

40000

60000

80000

Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

ELA Covered banks' liquidity from repo Estimate of Eurosystem reliance covered banks

Capital - NAMA haircuts erode equity base

December 2010 (€bn) Loans transferred Discount/Haircut

NAMA Bonds

received

AIB 20.2 55% 9.0

BoI 9.9 43% 5.6

Anglo 34.1 61% 13.4

INBS 8.7 61% 3.4

EBS 0.9 57% 0.4

Total 73.8 57% 31.8

• The original National Asset Management Agency (NAMA) writedowns were expected to be in the region of 30% (v 57% actual); bonds swapped for the loans increase banks’ eligible assets

• c. 44% of loans are secured on assets outside the Rep. of Ireland (primarily UK)

• 71% of total portfolio is classified as investment (incl. residential & hotels) with 29% as Land and Development

• 23% of loans performing at June 2011 (no change since December 2010: 23%)

• Over €6.9bn of asset sales already agreed by the end of 2011 (see NAMA section)

Source: National Asset Management Agency (NAMA)

42

Capital injections following NAMA transfers (up to

2010 year-end)

€bn Anglo INBS AIB **BOI EBS ILP Total

Government recapitalisations (Dec 2010)

Equity 4.0 - 3.7 1.7 - - 9.4

Preference Shares - - 3.5 1.8 - - 5.3

Promissory Note* 25.3 5.3 - - 0.3 - 30.9

Special Investment shares - 0.1 - - 0.6 - 0.7

Subtotal Government Recapitalisation 29.3 5.4 7.2 3.5 0.9 - 46.3

Liability Management Exercises ("LMEs")

2009 1.8 0.3 1.2 1.0 - - 4.3

2010 1.6 - 0.4 1.4 - - 3.4

• * Promissory notes are an unfunded instrument drawn down over 20 years

• ** BoI also raised €1.9bn independently from capital markets in April 2010 via a combination of a placing, rights issue and debt for equity swap (€3.6bn in total including Government contribution)

2010 1.6 - 0.4 1.4 - - 3.4

2011 (up to March 31) - 0.1 1.5 - 0.1 - 1.8

Subtotal LMSs 3.3 0.4 3.0 2.5 0.2 - 9.4

Total (as at March 31, 2011) 32.6 5.8 10.2 6.0 1.1 - 55.7

Source: Company data

43

Overview of the Process for Recapitalisation and

Restructuring of the Irish Banking

• Prudential Capital Assessment

Review carried out by the

banks for the period 2011-2013

in a stress scenario

• Banks submitted detailed forecasts of

funding position through to 2013 in a

Prudential Liquidity Assessment Review

• Blackrock Solutions (“BRS”)

carried out a bottom up review

of future loan losses and other

assets Prospective profile

of the Irish banking

• Forecasts are based on

target funding ratios set by

CBI

• Results fed into the PCAR

Deleverage banking sector to ensure

future stability

• Utilising PCAR and PLAR analysis, the Banks in conjunction

with the Central Bank have developed deleveraging plans

• Identification of non-core loans to be deleveraged by 2013

through disposals and run-off

• Capital requirement

based on stressed,

adverse scenario

with contingencies

taking into account

potential losses

post 2013 and other

uncertainties

of the Irish banking

system

• Results fed into the PCAR

and deleveraging work

Source: Central Bank of Ireland

44

Programme for Financial Support 2011 (including

PCAR and PLAR)

The Financial Measures Programme involved a comprehensive review of sector’s capital and liquidity positions

• The Prudential Capital Assessment Review (PCAR) assessed the capital resources under a baseline scenario and a stringent three year stress scenario resulting in a further €24bn recapitalisation to meet a minimum Core Tier 1 ratio of 10.5% and 6% in the base and stressed scenarios respectively

• The capital raise incorporates €5.3bn to cover “additional but unlikely losses” as a means of providing an extra buffer against the emergence of potential losses post 2013 (of which €3.0bn is to be in the form of contingent capital)

• The Prudential Liquidity Assessment Review (PLAR) targets a reduction in the size of the banks loan to deposit ratios towards 122.5% by 2013, as a means of de-risking the balance sheet and reducing wholesale exposure while avoiding fire-sale losses in the processreducing wholesale exposure while avoiding fire-sale losses in the process

€bn AIB BOI EBS ILP TOTAL

Capital required 2011-2013 pre-buffer 10.5 3.7 1.2 3.3 18.7

Additional capital buffer (equity) imposed by the Central Bank 1.4 0.5 0.1 0.3 2.3

Contingent capital imposed by the Central Bank 1.4 1.0 0.2 0.4 3.0

Total capital required 2011-2013 13.3 5.2 1.5 4.0 24.0

Total Capital Requirement under the FMP Report

Source: PCAR 2011

45

PCAR 2011 recapitalisation sources

€bn NPRF Exchequer Other Total

Allied Irish Banks/EBS 8.8 3.9 2.1 14.8

Bank of Ireland (BoI) 1.2 0.0 4.0 5.2

Irish Life and Permanent (IL&P) 0.0 2.7 1.3 4.0

10.0 6.5 7.5* 24.0


• Following the sale of BoI shares to private investors, the State’s total PCAR 2011 bank recap

amounted to €16.5bn (this is significantly below the total €35bn contingency fund

originally earmarked for the banking package at the time of the EU/IMF bailout)

* “Other” comprises LMEs (€5.6bn which includes anticipated further burden sharing of

€0.4bn in relation to BoI’s subordinated debt), BoI’s private sector contribution (€1.7bn)

and IL&P’s internal capital generation (€0.2bn)

46

Successful completion of BoI rights issue

• On 25 July 2011, the Government announced the completion of negotiations with a group

of significant investors (Fairfax Financial Holdings, WL Ross, Capital Research and

Management Company, Fidelity Investments) who committed to buy up to €1.123bn of the

State’s stock (equate to 34.9% of the total outstanding shares)

BoI share ownership %

NPRFC 15.1%

47

NPRFC 15.1%

Existing Stockholders 30.9%

The Investors 34.9%

Exchanging Bondholders 19.0%


Total cost to Irish State for Bank recapitalisation

AIB/EBS BoI ILP Anglo/INBS Total

Preference Shares (2009) 3.5 3.5 * 7.0

Cash - Capital Contribution (2009) 4.0 4.0

Promissory Notes/Special Investment

Shares (2010) 0.9 30.7 31.6

Ordinary Share Capital (2010) 3.7 3.7

48

Ordinary Share Capital (2010) 3.7 3.7

Total pre-PCAR/PLAR 2011 8.1 3.5 0.0 34.7 46.3

PCAR / PLAR 2011

Cash - Capital Contribution From

Exchequer 2.3 2.3 4.6

Contingent Capital 1.6 1.0 0.4 3.0

NPRF Capital 8.8 0.2 ** 9.0

Total PLAR 12.7 1.2 2.7 0.0 16.6

Total Cost of Recap 20.8 4.7 2.7 34.7 62.9

* Bank of Ireland cost is net of share sale to private investors

* €1.7bn of BoI’s government preference shares were converted to equity in May/June 2010 (€1.8bn still left in existence). The

government also received €0.5bn from the warrants relating to BoI’s preference shares (excluded from table above)

6% Core Tier 1 ratio under stress scenario drove capital

requirement of €24bn

9.9

3.9

2.3

3.0

10

20

30

€ Bn

27.7

Capital

short-fall

€ 24BN

€5.3BN of additional capital as conservatism

buffers

• €2.3BN of cash capital for additional

conservatism

• €3.0BN of contingent capital to safeguard

against loan losses beyond 2013

13.3

8.4

2.3

-20

-10

0

10

2013 Capital

requirements

@ stress CT1

6%

Stress CT1

2013 pre

capital

injection

10.3

Completed

capital

increases

since end

2010

3.5

Loss on

deleveraging

non core loans

13.2

3yr stress

loss

projections

based on

BRS

3yr operating

profit before

provisions &

deleverage

costs

Stock

provisions

2010

CT1 capital

2010

Capital

buffers

Source: PCAR 2011

49

Capitalisation of Banking Sector

Current and pro forma CT1 following recapitalisation

AIB BoI EBS* ILP

CT1 Ratio (June 2011) 9.9% 9.5% 8.0% 8.4%

Pro-forma CT1 ratios including €24bn recap 22.4% 15.4% 22.6% 26.0%

Peer Core Tier 1 ratio analysis

30.0%

35.0%

* EBS is at Dec 2010 (since merged with AIB)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

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50

* Note: Citigroup estimates (2011 year-end) except for Irish banks (pro-forma June 2011)

Restructuring of Irish domestic banking sector

Domestic banks re-organised into two “pillar banks”

Pillar 1: (Merger of Allied Irish banks with EBS Building Society)

• EBS to initially operate as AIB subsidiary

Pillar 2: (Bank of Ireland)

• BoI to remain as independent institution but is required to dispose of €30bn of non-core assets (by 2013)

• Revised restructuring plan was approved by the European Commission (20 December 2011)

Irish Life and Permanent

• Plan is separate Life business from bank, but institution to be fully recapitalised in any case

Wind-down of unviable banks

• The deposits of Anglo Irish Bank (c. €8.2bn) and Irish Nationwide (c. €4bn) were transferred to AIB and IL&P in February 2011

• Joint restructuring plans approved by the EC: now renamed Irish Bank Resolution Corporation (IBRC). To be wound down by 2020

• Auction of US commercial property loan portfolio (c. $9bn) completed in Q4 after process conducted by Eastdil with third parties, external advisors

51

Deleveraging of domestic banking system

Smaller banking system to better reflect size of Irish economy going forward

• Target loan to deposit ratio of 122.5% by 2013 (from c. 180% at Dec 2010)

• €70bn of non-core assets have been earmarked for disposal via redemptions/provisions and controlled asset sales

• Process almost half complete by end-2011

• Actual “market” disposals are expected to amount to c. €34bn (c. 50% of total deleveraging)

• Recapitalisation caters for up to €13bn of potential losses from asset sales assumed under stress test

• Banks have reorganised balance sheets/operations into core and non-core

• “Deleveraging Committees” set up to monitor disposal process

• Semi-annual interim targets to assess deleveraging progress

• The government no longer intends to transfer land and development loans (of less than €20m) from the banks to NAMA. Final transfer of €1.9 billion of loans transferred in Q4 2011. As a result the Portfolio Par value of loans transferred from the banks reached final total of €74bn versus the cost to NAMA of €31.5bn

52

Core72%

Non-core28%

Core86%

Non-core14%

Core66%

Non-core34%Core

71%

Non-

core

29%

System Deleveraging, post May 2011 updated plans

Core €61.2 bn

Non-Core €25.1 bn

Core €76.2 bn

Non-Core €39.1 bn

Core €14.1 bn

Non-Core €2.3 bn

Core €26.6 bn

Non-Core €10.4 bn

AIB BOI EBS IL&P

53

Deleveraging: 2010 - 2013Deleveraging: 2010 - 2013

Source: Central Bank of Ireland & Institutions’ deleveraging plans1 Note: Deleveraging shortfall in AIB of €560m currently being reassessed

Source: Central Bank of Ireland & Institutions’ deleveraging plans1 Note: Deleveraging shortfall in AIB of €560m currently being reassessed

Note: Balances as at 31 December 2010

� The LDR target is based on the assumption of flat deposit growth

€bn AIB BOI EBS IL&P Total

2010 Net loans to customers 86.4 115.3 16.4 37.0 255.1

2013 Net loans to customers 68.1 84.1 11.5 21.3 185.0

Total (change in loans 2010-13) 18.3- 31.2- 4.9- 15.7- 70.1-

2013 LDR% 123.5%1

122.3% 121.1% 121.7% 122.6%1

Amortisations New lending Other

Zero Balance Sheet Growth – Core & Non-Core

Deleveraging

Core

€179bn

2010

Core

€169bn

2013

>30bn

c.-€10 bn

54

Amortisations Disposals Other

Non-Core

€77bn

Non-Core

€17bn

� In the zero balance sheet growth scenario, ILP and EBS must deleverage an element of their core assets.

� This is achieved through run off, with limited new lending and expected amortisations/redemptions used to

reduce net loans.

c.-€60 bn

Source: Central Bank of Ireland, Institutions

Note: 1. Based on zero balance sheet growth scenario, excludes additional €560m of additional deleveraging to be identified by AIB

2. ‘System’ in this instance refers to loans to customers of AIB, BOI, EBS and ILP only

Source: Central Bank of Ireland, Institutions

Note: 1. Based on zero balance sheet growth scenario, excludes additional €560m of additional deleveraging to be identified by AIB

2. ‘System’ in this instance refers to loans to customers of AIB, BOI, EBS and ILP only

Non-Core Analysis

2010 Non Core loans to

customers12010 Non-Core

Loans: €77bn

Residential Mortgages

40%

Corporate 19%

SME10%

NAMA II11%

Non-Mortgage consumer and Other

1%

Ireland24%

US9%

Europe5%

AsiaPac1%

RoW0%

55

� Approximately 76% of the non-core assets are outside Ireland, which increases to 86% when NAMA II loans

are excluded.

� Non-Irish assets are likely to prove more liquid from a disposal perspective and are likely to be saleable at

lower discounts than Irish assets in the period to 2013.

CRE19%

19%

GB61%

Source: Central Bank; institutions

Non-core banking assets

Allied Irish Banks (c. €25bn) UK loan portfolios

International Corporate Loans

Land & development (Sub -€20m)

Bank of Ireland (c. €39bn) UK intermediary sourced mortgages

Selected international niche businesses (project finance, asset based lending)

Land & Development (Sub -€20m)Land & Development (Sub -€20m)

International commercial investment portfolios

Irish Life and Permanent UK mortgages

Commercial portfolios


56

SECTION 5: NAMA

57

NAMA fully up-and-running; further sales in pipeline for 2012

Property Market Measures

• Budget 2012 contained a number of significant measures aimed at boosting

the property market

� Should help boost NAMA’s book of loan assets, underpin collateral in the banking system

and may bring forward mortgage demand

• Stamp duty on Commercial Property cut from 6% to 2%

� Now lower than the current UK rate. Should boost overseas demand

• NAMA can directly approve rent reductions with tenants of commercial

properties under its controlproperties under its control

� Changes to upward-only rent legislation shelved

• Incentive Scheme

� Property bought between today and the end of 2013 will be exempt from CGT on sale as

long as it is held for at least seven years

• Mortgage interest relief raised

� Won’t be available after 2012. This may bring forward some housing demand

• Some legacy tax reliefs will be honoured for small buy-to-let investors� This may help to reduce arrears in this troubled part of the mortgage market, all other things equal

58

NAMA progress to end December 2011

Following the passing of the NAMA Act in late 2009 and the receipt of EU Commission approval in

February 2010 a lot of progress has been made as outlined below

• Successfully acquired 12,000 loans (over 35,000 individual properties) related to €73.8 billion

par of loans relating to 800 debtors for €31.8 billion

• Successfully injected over €30 billion of liquid assets into five participating Irish institutions

• Paid down over €1.6 billion of NAMA debt (€1.3bn NAMA Bonds and €0.3bn to the State)

• Cash balances of €3.8 billion as at 31 December 2011

59

• Over €6 billion in cash generated by NAMA over first 21 months to 31/12/2011

• 2010 Operating profit of €305m before impairment charge of €1,485m

• 2011 Operating Profit forecasted to exceed €600m

• New organisation established from scratch (Almost 200 staff recruited with long standing

experience in banking and property)

• Decisions made on debtor business plans relating to €70 billion – 95% of portfolio

• Over €6.9bn billion in approved sales as at 31 December 2011 (90% outside Ireland)

• 4,500 individual credit decisions made – incl. €950m in development and working capital

NAMANAMAECB/MarketECB/Market BankBank

(1) Bank Sells €100m Loan to NAMA

(4) Bank generates liquidity

NAMA Model

60

BorrowerBorrower

(4) Bank generates liquidity

through repo’s of NAMA

Bonds with ECB / Market

(2) NAMA pays Bank

€42m Government

Securities in return

(3) Borrower continues to owe €100m to NAMA despite

NAMA only having paid €42m to the Bank for the Loan.

Summary of bond activity since inception

28,000

28,500

29,000

29,500

30,000

30,500

31,000

61

26,500

27,000

27,500

28,000

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11

Senior bond issuance gross Outstanding bonds after redemptions

• Bond issuance of c.€1 bn in Q4 2011 was due to final asset transfers

• Senior Notes in issuance at year end 31 Dec 2011 - €29,106,000,000

• Subordinated Bonds in issuance at year end 31 Dec 2011 - €1,601,000,000

• Further Senior debt redemptions to be reviewed by NAMA Board in Q1 2012

Source: NAMA

NAMA Strategy is three-pronged

• Financing� Provide equity capital and credit facilities only where appropriate

� NAMA will provide staple/vendor financing on commercial property sales in Ireland

� New capital is a scarce resource: it will be advanced by NAMA only where it makes commercial sense and enhances NAMA’s financial position

� Only undertake development to realise full value of underlying asset

� NAMA has approved the advance of €950m in working and development capital

• Asset disposal• Asset disposal� Will be orderly and phased to generate maximum return for taxpayer

� There will be no fire sales; neither will assets be held to speculate

� NAMA’s profitability goal will be consistent with potential growth in the economy, by facilitating functioning property market

� 23% of NAMA portfolio is performing. That figure should rise, as business plans are approved or rejected: 95% of business plans by value (€70 billion nominal) have been reviewed

• Debt reduction targets; to reduce contingent liability of the Irish State� By year-end 2013: 25% of NAMA bonds to be repaid; 40% by end-2015; 80% by end 2017

and 100% by end-2019

62

Distribution of larger debtors

Nominal DebtNumber of

debtors

Average nominal

debt per debtor

€m

Total nominal

debt in this

category

€m

In excess of €2,000m 3 2,784 8,352

Between €1,000 and €2,000m 9 1,564 14,077

63

Between €1,000 and €2,000m 9 1,564 14,077

Between €500m and €999m 17 666 11,322

Between €250m and €499m 28 358 10,023

Between €100m and €249m 78 160 12,483

TOTAL 135 417 56,257

Source: NAMA

Management of larger debtors

Largest 190 Debtors – €61bn

Intensively managed by NAMA – key credit decisions and

Other 610 Debtors - €13bn

Credit decisions made by NAMA. Cascading system of credit limits and delegated authority:

NAMA Board – Credit Committee - NAMA

64

– key credit decisions and relationship management

carried out by NAMA multi-disciplinary teams.

Loan administration performed by participating

institutions

NAMA Board – Credit Committee - NAMA management – NAMA units in banks.

NAMA will have a presence in each of the bank units – day-to-day credit decisions and operations – liaison and oversight role.

Relationship management and loan administration carried out by participating

institutions within NAMA parameters.

Breakdown of original NAMA portfolio (price paid for

loan assets)

€bn

Land &

Development % of Total Investment % Total Total book % Total

Ireland 5.4 58% 12.7 56% 18.1 57%

UK & NI 3.3 35% 8.4 37% 11.7 37%

USA/Europe 0.6 6% 1.4 7% 2.0 6%

Total 9.3 29% 22.5 71% 31.8 100%

65

Source: NAMA• The portfolio consists of 71% Investment and 29% Land & Development

• The UK and NI accounts for 37% of the portfolio. Assets outside Ireland account for 43%

• The most difficult part of the portfolio to monetise is likely to be L&D in Ireland of €5.4bn but Dublin accounts for €3bn of this.

• The remaining €26.4bn should be realised (in today’s money) from the rest of the portfolio

• Commercial property market rents have undershot in Ireland, while the residential market may deflate further

• Good opportunity to continue to realise value in the UK (excl. NI) in the short term

• Budget 2012 changes may help to put a floor under Irish commercial property values, by restoring confidence and liquidity in time

Further Information

NAMA information available on www.nama.ie

For more information, requests can be sent to the email address

[email protected]

Receivership information added in July 2011, with monthly updates

thereafter.

66

As at November 2011, website contains details of over 1,057 properties

where Receivers / Administrators have been appointed.

Geographical breakdown of these 1,057 properties

69% ROI

13% NI

18% UK

SECTION 6: BUDGET 2012

67

Budget not as severe as previous three years: fiscal drag is lessening

Fiscal Consolidation thus far

• Ireland’s Fiscal Consolidation began in July 2008

• Consolidation to date has totalled more than €21bn or c. 13% of GDP; further consolidation of €12.4bn until 2015� Will have €7.8bn expenditure; €4.6bn tax split

• 2012 Consolidation will amount to approximately €3.8bn• 2012 Consolidation will amount to approximately €3.8bn� Fiscal drag is lessening

68

Table 1: Annual Gross fiscal consolidation (€bn and % GDP)

2009 7.6 (4.7%)

2010 6.4 (4.1%)

2011 6.1 (3.9%)

2012E 3.8 (2.4%)

Budget 2012 breakdown

• The 2012 package of budget measures were announced by

the Government in December 2011

• €3.8bn consolidation split into expenditure reduction of

€2.15bn and revenue-raising measures of almost €1.7bn� Note, however, that there is significant carryover of revenue measures from

previous consolidations totalling €0.6bnprevious consolidations totalling €0.6bn

69

Table 2: Split of Budget 2012 €3.8bn gross consolidation (€bn)

Capital expenditure 0.75

Current expenditure 1.4

Revenue 1.7

- of which carryover 0.6


Budget 2012: Current Expenditure Measures

• Expenditure measures focus on reductions in social protection

spending and the health sector � Includes some job cuts for public sector workers

Table 3: Breakdown of current expenditure reduction (€bn)

Social protection -0.48

70

Health -0.54

Education -0.13

Other -0.30

Source: Department of Public Expenditure and Reform

Budget 2012: Revenue Measures

• VAT rate increased from 21% to 23%

• Household charge introduced (fore-runner to property tax)

• Carbon tax & motor tax increased

• Capital Gains Tax and tax on deposit interest increased to 30%

• Tax relief for indigenous exporters to BRICs countries

• Exemption limit of Universal Social Charge raised to take lower paid • Exemption limit of Universal Social Charge raised to take lower paid

workers out of tax net

71

Table 4: Breakdown of revenue measures (€bn)

VAT 0.56

Household charge 0.16

Excise changes 0.18

CGT/ CAT 0.13


SECTION 7: FISCAL

72

Fiscal trends improving: further three-year challenge to reach debt

sustainability

Gains from bubble period given back, but living

standards (GDP per capita) higher than 15 years ago

25000

30000

35000

40000

This is one key reason

that fiscal austerity has

been accepted, although

GNI per capita has fallen

back even further

73

0

5000

10000

15000

20000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: CSO

Tax revenue beginning to recover from trough: at

about mid-2004 levels now

40000

45000

50000

Note that tax revenue

accounts for about 60%

of General Govt. revenue


74

25000

30000

35000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Swing in primary balance required to stabilise debt

ratio another 8pp of GDP from end-2011

0.0

2.0

4.0

6.0

8.0

Debt stabilising primary

balance reached in 2014

75

Source: Department of Finance; CSO

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011F 2012F 2013F 2014F 2015F

Ireland’s fiscal challenge made easier by rate cuts

Years

Turnaround required

in Primary Balance

(% of GDP) GDP (% chg. real) GDP (% chg. nom)

Belgium (1981-1990) 9 12.3 2.3 5.8

Denmark (1982-1986) 4 14.1 3.9 9.2

Finland (1993-2000) 7 13.5 4.5 6.7

Sweden (1993-2000) 7 12.6 3.7 5.4

Ireland (1982-1991) 9 12.0 3.6 8.2

Ireland (2009-2014F)* 5 10.7 1.5 1.3

76

Source: NTMA

Ireland is halfway through the

process, but it remains politically

difficult anywhere to consolidate

when inflation is low

Rollovers of bonds light in 2012 and 2013

15.0

20.0

25.0

Government fully funded to

end-2013, so €12bn in 2014

is first challenging year

77

Source: NTMA

0.0

5.0

10.0

2012 2013 2014 2015 2016 2017 2018 2019 2020

Ireland govt. bonds Troika loans

Gross Government debt stabilises at 119% of GDP in

2013

80.0

100.0

120.0

Debt is reported gross and does

not take account of offsetting

financial resources

78


0.0

20.0

40.0

60.0

1990 1993 1996 1999 2002 2005 2008 2011F 2014F

APPENDIX

September 2008

Bank Guarantee Scheme

introduced (CIFS)

January 2009

Nationalisation of Anglo

Irish Bank

September 2010

Estimates for fiscal costs

associated with support

measures for the banking

sector were raised to

c. EUR 45bn

The Eligible Liabilities

Guarantee Scheme (ELG)

extended (to

cover shorter maturities)

December 2010

IMF/EU financial support package signed

NPRF investment of EUR 3.7bn in AIB

31 July 2011

PCAR €24bn recap largely completed (excluding

€0.4bn forbearance afforded to BoI & sale of Irish

Life) - LME gains of €5.2bn generated, BoI source

€1.7bn from private investors, contribution from

State of €16.5bn

March and May 2009

NPRF investment by way of preference shares of EUR

3.5bn each in BOI (March) and AIB (May)

Timeline of banking sector developments

80

2008 2009 2010 2011

NPRF investment of EUR 3.7bn in AIB

December 2009

NAMA established

March 2011

Following PCAR/PLAR 2011, AIB/EBS, BoI and

IL&P are required to raise €24bn in order to meet a Core Tier 1

ratio of 10.5% and 6% in the base and stressed scenarios

respectively

The banks are also required to deleverage c. €70bn of loans to

meet a loan to deposit ratio of 122.5% by 2013

March and September 2009

The Prudential Capital Assessment

(PCAR) raised the Core Tier 1

Capital Ratio to 8%, including a

minimum of 7% in Core Tier 1 equity

capital

31 December 2011

BoI complete

remaining €0.4bn

recap

Loan book analysis

Total loans (€bn) AIB BOI ILP EBS Total

Residential mortgages 31 60 34 16 141

Corporate 21 23 0 0 44

SME 19 17 0 0 37

CRE 17 20 2 1 40

other 6 5 2 0 13

Total (Dec 2010) 94 126 38 17 274

Source: PCAR 2011

Mortgage analysis (€bn) AIB BOI ILP EBS Total

Irish owner occupier 20 21 19 14 74

Irish Buy-to-let 7 7 7 2 23

Total Irish 28 28 26 16 98

UK owner occupier 3 20 0 0 24

UK Buy-to-let 0 12 7 0 19

Total UK 3 32 8 0 43

Total residential mortgages (Dec 2010) 31 60 34 16 141

Source: PCAR 2011

81

Central bank 2011 - 2013 projected losses under

adverse scenario

Projected stressed losses derived from bottom-up analysis of loan data by Blackrock Solution

€bn AIB BOI ILP EBS Total

Residential mortgages 3 2.4 2.7 1.4 9.5

Corporate 1 1.1 0 0 2.1

SME 2.7 1.8 0 0 4.5

CRE 4.5 3.9 0.4 0.2 9.0

other 1.4 0.9 0.3 0 2.6

Total 12.6 10.1 3.4 1.6 27.7

% of loan book

Residential mortgages 9.9% 3.9% 7.9% 8.7% 6.7%

Corporate 4.7% 5.2% 0.0% 0.0% 4.9%

• The €27.7bn of projected losses is significantly more conservative than the banks’ own forecast provisions over the same period (c. €22bn) and is designed to add to the credibility of the tests

• The losses are projected on a “repossess and sale” approach using stressed property values with little recognition of customer repayment capacity, incorporating the write-down experience of foreign jurisdictions (UK repossession levels)

• Negative equity (as opposed to unemployment levels) had a large bearing on forecast residential loan losses

• Modelled rental income declines assumed on commercial real estate (with little regard to sustainable cash flows from actual lease contracts)

Corporate 4.7% 5.2% 0.0% 0.0% 4.9%

SME 13.9% 10.6% 0.0% 0.0% 12.3%

CRE 26.2% 18.8% 19.5% 23.4% 22.1%

other 25.0% 16.4% 20.7% 0.0% 20.7%

Total 13.4% 8.0% 9.1% 9.4% 10.1%

Source: PCAR 2011

82

Projected adverse case losses by bank and portfolio used

for capital purposes (derived from BlackRock analysis)

Product AIB BOI ILP EBS Total

Residential Mortgages BlackRock lifetime loan

losses post-deleveraging 4,908

(15.8%)

4,286

(7.2%)

5,209

(15.4%)

2,495

(15.7%)

9,925

(7.1%)

16,898

(12%)

CB three-year projected

losses3,066

(9.9%)

2,366

(3.9%)

2,679

(7.9%)

1,380

(8.7%)

5,838

(4.1%)

9,491

(6.7%)

Corporate BlackRock lifetime loan


(5.5%)

1,379

(6%)

0

(0%)

0

(0%)

1,608

(3.7%)

2,512

(5.8%)


losses972

(4.7%)

1,179

(5.2%)

0

(0%)

0

(0%)

1,362

(3.1%)

2,151

(4.9%)

SME BlackRock lifetime loan


(21.2%)

2,871

(16.6%)

0

(0%)

0

(0%)

5,398

(14.8%)

6,956

(19%)

CB three-year projected 2,674 1,837 0 0 3,603 4,511CB three-year projected

losses2,674

(13.9%)

1,837

(10.6%)

0

(0%)

0

(0%)

3,603

(9.9%)

4,511

(12.3%)

CRE BlackRock lifetime loan


(27.5%)

4,950

(24.2%)

411

(20.1%)

225

(26.7%)

8,114

(20.1%)

10,303

(25.5%)


losses4,490

(26.2%)

3,847

(18.8%)

400

(19.5%)

197

(23.4%)

7,159

(17.7%)

8,934

(22.1%)

Non-mortgage Consumer

and Other

BlackRock lifetime loan


(29.8%)

1,332

(24.5%)

444

(26.8%)

0

(0%)

2,477

(19.5%)

3,450

(27.1%)


losses1,403

(25%)

891

(16.4%)

342

(20.7%)

0

(0%)

2,052

(16.1%)

2,635

(20.7%)

Total BlackRock lifetime loan


(17.6%)14,819

(11.8%)

6,064

(16.1%)

2,719

(16.3%)

27,522

(10%)

40,119

(14.6%)


losses12,604

(13.4%)

10,119

(8%)

3,421

(9.1%)

1,577

(9.4%)

20,014

(7.3%)

27,722

(10.1%)

Source: PCAR 2011

83

Projected adverse case mortgage book losses used for

capital purposes derived from BlackRock

AIB BOI ILP EBS Total

Ireland

BlackRock lifetime loan losses post-

deleveraging

4,846

(17.6%)

3,836

(13.7%)

5,103

(19.4%)

2,495

(15.7%)

16,280

(16.7%)

CB three-year projected losses3,007

(10.9%)

2,016

(7.2%)

2,594

(9.9%)

1,380

(8.7%)

8,997

(9.2%)

Owner Occupier


deleveraging

2,968

(14.7%)

2,075

(9.9%)

2,975

(15.3%)

2,164

(15.5%)

10,181

(13.7%)


(8.9%)

1,115

(5.3%)

1,598

(8.2%)

1,164

(8.3%)

5,668

(7.6%)

Buy-to-Let


deleveraging

1,879

(25.5%)

1,761

(24.9%)

2,128

(30.8%)

331

(17.1%)

6,099

(26.2%)


(16.5%)

901

(12.7%)

996

(14.4%)

216

(11.2%)

3,330

(14.3%)

BlackRock lifetime loan losses post- 62 451 106 0 619

Source: PCAR 2011

UK


deleveraging

62

(1.8%)

451

(1.4%)

106

(1.4%)

0

(-)

619

(1.4%)

CB three-year projected losses59

(1.7%)

350

(1.1%)

85

(1.1%)

0

(-)

494

(1.1%)

Owner Occupier


deleveraging

37

(1.2%)

112

(0.6%)

6

(1.3%)

0

(-)

156

(0.7%)


(1.1%)

92

(0.5%)

5

(1.1%)

0

(-)

131

(0.6%)

Buy-to-Let


deleveraging

25

(5.2%)

338

(2.9%)

100

(1.4%)

0

(-)

462

(2.4%)


(5.3%)

259

(2.2%)

79

(1.1%)

0

(-)

363

(1.9%)

Total

Residential

Mortgages


deleveraging

4,908

(15.8%)

4,286

(7.2%)

5,209

(15.4%)

2,495

(15.7%)

16,898

(12.0%)


(9.9%)

2,366

(3.9%)

2,679

(7.9%)

1,380

(8.7%)

9,491

(6.7%)

84

Stress loss projections in 2011-2013 of €27.7bn; total

lifetime stress economic loss projections of €43.1bn

50

40

30

2043.1

3.0

40.1

12.4

5.9

€ Billions

Non-disposed book

10

0

BRS lifetime

economic

losses base

scenario

29.5

BRS total

lifetime

economic

losses

permanent

stress

Lifetime economic

loss of disposed

book

Lifetime stress

economic loss

projections of

non-disposed

Stress default

post 2013

Stress loss

projections

2011-2013

27.7

Stress default

but not

crystallised

Crystallised

stress losses in

period

21.8

Source: PCAR 2011

85

Residential mortgage loans: total universe and

loss assumptions

Projected losses by bank, including the impact of deleveragingBaseline Adverse

Figures in €m Total notional

balanceProjected lifetime

losses %Projected lifetime

losses %

AIB 31,014 3,100 10.0% 4,908 15.8%

BOI 59,941 2,388 4.0% 4,286 7.2%

EBS 15,891 1,411 8.9% 2,495 15.7%

ILP 33,872 3,026 8.9% 5,209 15.4%

Total 140,718 9,925 7.1% 16,898 12.0%Total 140,718 9,925 7.1% 16,898 12.0%

• Given lack of recent foreclosure data in Ireland, BRS calibrated the foreclosure experience in other jurisdictions to the current Irish economic, political and social conditions

• BlackRock assumed that Irish repossession rates would converge with those in the UK

• Implicit in the model is the assumption that forbearance of high LTV loans moderately increases losses by increasing time and expense to recovery, while impairing property value through accumulated disrepair

• Loss severities relatively high, as forced sale discounts and expenses are taken into account

• House price index challenged through property "drive-bys" involving local real estate expertise

• Differentiated models for Buy-to-Let and Owner Occupied for Ireland and for UK given variances across these different pools

• BRS models were subjected to in and out of sample testing and a variety of test statistics to ensure robustness

• The BlackRock models are statistically robust and performed well in out-of-time and out-of-sample testing

Source: PCAR 2011

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Corporate loans: total universe and loss assumptions

Projected losses by bank, including the impact of deleveraging

Figures in €m Baseline Adverse

Product type

Total notional

balance

Projected lifetime

losses %

Projected lifetime

losses %

AlB 20,723 683 3.3% 1,133 5.5%

BOI 22,815 926 4.1% 1,379 6.0%

Total 43,538 1,608 2,512

• Loan loss forecasts for Corporate loans were based upon a combination of manual loan file reviews and a more statistical PD/ LGDapproach

• BlackRock focused its efforts during the loan file reviews on the largest and/or most impaired loan exposures with a view to achieving maximum risk-based coverage

• Critical metrics used in the loan review analysis were debt service measures (e.g. debt-to-EBITDA), sustainable cash flow and borrower credit characteristics

• In order to ensure asset quality was accurately reflected in the loss models, BlackRock performed detailed manual file reviews on 75% of loans (by value) over €50mm with the results of the review used to inform forecasting assumptions for the remaining portfolio. The results of the manual re-underwriting were used to inform the assumptions used in the loan loss forecasting of these loans

• BlackRock has substantial in-house knowledge of projected default (PDs) and loss severities (LGDs) for corporate sectors / clusters based upon historical experience

• JPM’s Default Monitor, Moody’s, and BRS proprietary databases are used in corporate lending analysis

Total 43,538 1,608 3.7% 2,512 5.8%

Source: PCAR 2011

87

SME loans: total universe and loss assumptions

Projected losses by bank, including the impact of deleveraging

Baseline Adverse

Figures in €mTotal notional



losses %

AlB 19,229 3,224 16.8% 4,085 21.2%

BOI 17,305 2,175 12.6% 2,871 16.6%

Total 36,534 5,398 14.8% 6,956 19.0%

Source: PCAR 2011

• "Loss" is the crystallized principal loss through insolvency/realized collateral or write downs from balance sheet restructurings

• The main driver of losses is the current stock of criticized loans (watch list or impaired)

• Given the severity of the economic downturn in both Ireland and UK, both institutions have undergone a significant review and downward

re-rating cycle over the last three years

• BlackRock applied a forbearance overlay to its loss projections for Ireland to take the current and future level of forbearance and the

significant balance sheet restructuring backlog into account

Source: PCAR 2011

88

CRE loans: Total universe and loss assumptions


Figures in €mTotal notional



losses %

AlB 17,124 3,843 22.4% 4,717 27.5%

BOI 20,414 3,879 19.0% 4,950 24.2%

EBS 841 152 18.1% 225 26.7%

ILP 2,049 240 11.7% 411 20.1%

Total 40,428 8,114 20.1% 10,303 25.5%

Source: PCAR 2011

• BlackRock performed bottom-up (Deep Dive) analysis on the large facility exposures (c. 20% of the portfolio) with a view to achieving maximum risk-based coverage

• Facilities under €50mm were reviewed via a series of deterministic tests to evaluate whether property cash flows are sufficient to service the debt, based on which the term and maturity default3 were calculated for each facility in the portfolio

• Given the data quality issues in this portfolio, BRS applied significant conservatism, e.g.

� Given that the loss forecasting model is based significantly on Net Operating Income and current drawn balance, if these fields were missing from a loan's data, the loan was excluded from bottom-up analysis and a more pessimistic loss rate was applied

� If maturity date was missing, an assumed maturity of January 2011 was applied

� If payment schedule was missing, loan assumed to be interest-only

• Default triggers are more conservative than banks would typically apply, e.g.

� At maturity, regardless of debt servicing coverage, if the LTV >120%, the loan is considered in default

• Workout costs depend upon the loan balance, ranging from 10% (for balances up to €10mm) to 3.5% (for balances above €200mm) based upon discussions with bank's management, and real estate attorneys

Source: PCAR 2011

89

Non-mortgage consumer and other: total universe

and loss assumptions


Figures in €m Total notional



losses %

AlB 5,621 1,326 23.6% 1,674 29.8%

BOI 5,444 825 15.2% 1,332 24.5%

ILP 1,655 326 19.7% 444 26.8%

Total 12,721 2,477 19.5% 3,450 27.1%

• The historical data for this category of loans is robust enough to be used as the predictor for future losses

• BRS obtained data from the banks on loans becoming three months past due and subsequent "cure rates"

• For this category, three months of missed payments means a loan is delinquent; a borrower has three subsequent months to "cure", else the

loan will be considered a loss

• For secured loans (e.g. secured by automobiles) BRS used loss assumptions for liquidations based on actual performance of securitized loans

for which BRS was able to obtain data

• For unsecured debt, BRS assumes that the debts have nil value after they been nonperforming for six months, which is marginally more

conservative than banks' assumptions

Source: PCAR 2011

Total 12,721 2,477 19.5% 3,450 27.1%

90

Irish “covered” banks: Summary balance sheets

€m AIB BOI ILP EBS Anglo INBS *

Summary balance sheet as at 30 June 2011 30 June 2011 30 June 2011 31 Dec 2010 30 June 2011 31 Dec 2009 Total

Assets

Loans and advances to customers* 73,097 100,686 34,982 16,473 15,471 2,400 243,109

Promissory notes - - - 251 23,804 - 24,055

NAMA notes 19,549 4,872 - 306 259 - 24,986

Loans and advances to banks 5,992 6,911 675 181 2,030 1,189 16,978

Available for sale assets 16,373 14,241 31,725 2,575 8,332 5,740 78,986

Other assets 8,595 28,197 7,657 51 3,930 3,853 52,283

Cash 3,269 531 218 250 255 133 4,656

Total assets 126,875 155,438 75,257 20,087 54,081 13,315 445,053

Liabilities

Deposits from banks 36,294 38,720 18,417 5,756 41,225 804 141,216

Customer accounts 63,932 65,143 14,968 9,421 689 5,340 159,493

Debt securities in issue 14,374 22,140 8,245 3,568 5,684 5,395 59,406

Subordinated liabilities 126 2,663 304 218 475 184 3,970

Other liabilities 5,288 20,198 31,369 432 2,604 242 60,133

Total liabilities 120,014 148,864 73,303 19,395 50,677 11,965 424,218

Total equity 6,861 6,574 1,954 692 3,404 1,350 20,835

Total liabilities and equity 126,875 155,438 75,257 20,087 54,081 13,315 445,053

• Since 2010 year-end the banks have reduced total subordinated liabilities by c. €2.2bn via additional liability management exercises

• *INBS received total promissory notes of €5.3bn and NAMA bonds of €2.8bn during 2010


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IRELAND ON RECOVERY PATH - NAMA Wine Lake · 2012. 1. 26. · Presentation for institutional investors, January 2012 . SUMMARY 2 Ireland has delivered on targets and private capital