6 June 2014 - assets.gov.ie · Slide Title 2 Important notice This report has been prepared for the...

Progress update report

6 June 2014

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Important notice

This report has been prepared for the Minister for Finance following consultation with the Department of Finance and in response to a request for a detailed update report made under Section 17 (c) of the Ministerial Instructions issued on 7 February 2013.

Our work on Irish Bank Resolution Corporation Limited (In Special Liquidation) (“IBRC in SL”) commenced on 7 February 2013 on the appointment of the Special Liquidators. This

report covers the period 7 February 2013 to 31 March 2014. We have not undertaken to update our report for events or circumstances arising after that date.

This Report is for the benefit of the Minister for Finance and has been released on the basis that it shall not be copied, referred to or disclosed, in whole or in part, without our prior

written consent. This Report is not suitable to be relied on by any party wishing to acquire rights against KPMG for any purpose or in any context. Any other party that obtains

access to this Report or a copy and chooses to rely on this Report (or any part of it) does so at its own risk. To the fullest extent permitted by law, KPMG does not assume any

responsibility and will not accept any liability in respect of this Report to any party other than the Minister for Finance.

This engagement is not an assurance engagement conducted in accordance with any generally accepted assurance standards and consequently no assurance opinion is

expressed.

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Glossary of terms

a/c Account

ALCO Asset and Liability Committee

ALG A&L Goodbody

AIB Allied Irish Bank plc

BAU Business As Usual

BNPP BNP Paribas

BTL Buy To Let

c. circa

CBI Central Bank of Ireland

CCMA Code of Conduct on Mortgage Arrears 2013

CRE Commercial Real Estate

CRO Chief Risk Officer

DD Direct Debit

DGS Deposit Guarantee Scheme

DOF Department of Finance

ECB European Central Bank

EFTs Electronic Fund Transfers

ELA Exceptional Liquidity Assistance

ELG Eligible Liability Guarantee

FAQ Frequently Asked Questions

FCA Financial Conduct Authority

FX Foreign Exchange

GCC Group Credit Committee

HR Human Resources

IBRC Irish Bank Resolution Corporation Limited

IBRC in SL Irish Bank Resolution Corporation Limited (in Special Liquidation)

IBRC Act/The Act Irish Bank Resolution Corporation Act 2013

INBS Irish Nationwide Building Society

ID Invoice Discounting

IT Information Technology

KPIs Key Performance Indicators

LCC Local Credit Committee

LPT Local Property Tax

LSA Loan Sale Agreement

MARS Mortgages Arrears Resolution Strategies

NAMA National Asset Management Agency

NARL National Asset Resolution Limited

NDA Non Disclosure Agreement

NTMA National Treasury Management Agency

PAYE Pay As You Earn

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Glossary of terms (continued)

PDH Personal Dwelling House

PI Participating Institution

PW Private Wealth

ODCE Office of the Director of Corporate Enforcement

RMCC Residential Mortgages Credit Committee

RE Real Estate

REV Real Estate Value

RFP Request For Proposal

RMI Recovery Management Ireland

ROI Republic Of Ireland

Q&A Questions and Answers

SAM Specialised Asset Management

SL Special Liquidation

SLA Service Level Agreement

SLs Special Liquidators

SME Small and Medium Enterprise

SPV Special Purpose Vehicle

SO Standing Order

TSA Transitional Service Agreement

TUPE Transfer Of Undertakings

VA Vendor Assistance

VAT Value Added Tax

VDR Virtual Data Room

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Contents

The contacts at KPMG

in connection with this

report are:

Kieran Wallace

Restructuring

Partner, Dublin

Tel: + 353 1 410 1932

Fax: + 353 1 412 1932

[email protected]

Eamonn Richardson

Restructuring

Partner, Dublin

Tel: + 353 1 410 1344

Fax: + 353 1 412 1344

[email protected]

Page

Executive Summary 6

Introduction/overview of the Special Liquidation 15

Deal workstream 22

Loan management workstream 34

Finance workstream 39

Legal workstream 43

Regulatory and compliance workstream 46

Operations workstream 52

Loan migration workstream 56

HR workstream 61

IT workstream 64

Facilities workstream 67

Deposits workstream 70

Tax workstream 75

Costs and fees 79

Executive

Summary

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Spreading the cost of the Promissory Notes from a weighted average life of c. 7 to 8 years to c. 34 to 35 years at a lower funding cost.

Significant annual interest savings for the State (estimated at c. €2.3 billion in the first year and c. €20 billion over the next 10 years if costs of the transaction are excluded).

A reduction in the underlying deficit of c. €1 billion per annum in the coming years (before transaction costs).

Unprecedented liquidation in Irish corporate history.

To date the biggest loan sale globally in 2013/2014.

90% loans sold to third party purchasers.

Governance of liquidation, value maximization and cost control were key priorities for the Special Liquidators (“SLs”).

€12.9 billion National Asset Resolution Limited (“NARL”) facility will be repaid in full by Q3 2014.

New legislation underpinned the entire liquidation.

Complex and challenging assignment which required a multi disciplinary team.

Significant support of IBRC employees and contractors provided to SLs.

IBRC Liquidation overview

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IBRC sales process by numbers

€21,700,000,000

52 15,000

27,000 345

80,000

3,500 201 90%

145

OF LOANS PREPARED AND BROUGHT TO MARKET

LOAN SALES PROCESSES CONDUCTED

LOANS CONSISTED OF OVER

LETTERS ISSUED TO BORROWERS AND GUARANTORS

INTERESTED PARTIES ACROSS 13 COUNTRIES

DOCUMENTS WERE REVIEWED AND UPLOADED TO VIRTUAL DATA ROOMS (“VDRS”)

PROPERTY VALUATIONS WERE OBTAINED

INDIVIDUAL BIDS WERE RECEIVED ACROSS 6 PORTFOLIOS

OF THE LOAN BOOK TRANSACTED

NON DISCLOSURE AGREEMENTS (“NDAS”) SIGNED WITH INTERESTED PARTIES

DIFFERENT BORROWER GROUPS

22COLLATERAL WAS BASED IN

DIFFERENT JURISDICTIONS

Project Pebble (€0.8bn)US CRE, UK hotels and UK & Ireland Shopping Centres

■ Ireland/UK (84%)

■ US (15%)

■ World: other (1%)

Project Sand (€1.8bn)Irish originated Residential Mortgages

■ Ireland (100%)

Project Evergreen (€2.5bn)Irish originated Corporate Loans

■ Ireland (93%)

■ UK (7%)

Project Salt (€1.8bn)UK originated CRE Loans

■ Germany (60%)

■ UK (30%)

■ Poland (7%)

■ Europe: other (3%)

Project Rock (€5.5bn)UK originated Commercial Real Estate (“CRE”) Loans

■ UK (89%)

■ US (7%)

■ Germany (3%)

■ Europe: Other (1%)

Project Stone (€9.3bn)Irish originated CRE Loans

■ Ireland (46%)

■ United Kingdom (33%)

■ Continental Europe (18%)

■ Other (3%)

The IBRC loan portfolio was supported by collateral based in 22 different jurisdictions worldwide.

Total Indicative and Binding Bids (across multiple tranches per portfolio)

58

20

31

13

11

4

13

2

25

14

6

4

Evergreen Rock Salt Sand Stone Pebble

Indicative

Binding

Bids

We saw strong interest from a variety of financial and strategic buyers and funders, with

US private equity houses and hedge funds being key participants across each of the 6 portfolios.

Executive summary: Scale of the task

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Managed the advancement and collection of in excess of €1 billion through the Invoice Discounting (“ID”) function for Specialised Asset Management (“SAM”) borrowers.

Contact with residential borrowers up 28% from rates achieved in February 2013.

Full suite of Mortgages Arrears Resolution Strategies (“MARS”) solutions launched in May 2013.

Completed the migration of National Asset Management Agency (“NAMA”) Case Management and operations to Capita relating to the original NAMA Participating Institution (“PI”) book:

– Phase 1: August 2013;

– Phase 2: Dec 2013; and

– Phase 3: June 2014.

Management of over 1,100 legal cases.

Management of over 20 legacy and public interest cases.

Dealt with over 240 data access requests.

Establishing full control and management of IBRC

Oversight of the HR function with responsibility for 971 employees across 10 offices, including 135 based in London and 34 based in Belfast at date of Special Liquidation (“SL”), including the processing of payroll. Over the period 80 people obtained educational support for additional training.

Created a stable staffing platform of 80 full time employees supporting a full service proposition for residential borrowers.

Considered 3,173 applications at 208 commercial credit committees.

Considered 2,915 applications at 122 residential credit committees.

Credit committee activity for IBRC in SL can be summarised as follows:

Number of credit

committees

Number of applications

considered

Commercial Credit Committee 208 3,173

Residential Credit Committee 122 2,915

Residential Credit Committee Appeals Board 18 32

Number of Credit Committees 07 Feb 13 to 19 May 2014

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Governance

Regular engagement with the Central Bank of Ireland (“CBI”), with monthly reporting and formal meetings held as requested by the CBI.

Regular engagement with the Department of Finance (“DOF”) as required. This has included:

– Weekly liquidation update meetings;

– Weekly sales update meetings;

– Other ad hoc meetings as requested;

– Monthly liquidation and sales update reports;

– Fee reports as requested; and

– Meetings with the Minister for Finance as requested.

Regular engagement with NAMA in respect of:

– Management of IBRC NAMA PI unit;

– Transfer of IBRC NAMA PI unit to Capita; and

– Planning for potential acquisition of loan assets.

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Outcome to date

€10.9 billion repaid to NARL following conclusion of loan sales.

Balance of the NARL facility to be repaid by Q3 2014.

Very little residual risks remain given the lack of warranties, representations and indemnities provided on loan sales to date.

Loan portfolio Current status

Project Evergreen Contracted and completed

Project Rock Contracted and completed

Project Salt Contracted and completed

Project Sand Contracted. Completion 6 June

Project Stone Contracted. Completions in May-July

Project Pebble Contracted and completed

GRAND TOTAL

Current status of the various IBRC loan portfolios

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Minister negotiated the agreement of various further rebates on the already reduced rates with KPMG, A&L Goodbody (“ALG”) and Linklaters.

In summary:

– It should be noted that had the Bank continued with its planned wind-down the operating costs were anticipated to be €1.1bn to the end of 2020. While the cost of liquidation is significant we anticipate the total cost of the wind-down will be considerably less than previously estimated while at the same time eliminating many of the risks associated with the long term wind-down plan.

– Net of sales related costs liquidation costs are currently €42 million which should be considered in the context of operational cost savings of €56.2 million over the same period.

– Sales costs to date of €70 million for successfully disposing of c. €20 billion of loans, or 0.35% of the value of loans sold.

Note: (a) Represents the period following the commencement of SL of 7 February 2013 to 31 March 2014;

(b) The above is exclusive of value added tax (“VAT”) and disbursements;

Costs summary

SLs reviewed and monitored all third party advisor costs.

Certain legal advisors signed up to NAMA rate card and/or fixed cost pieces of work. Certain other advisors signed up to NAMA rate card.

Certain other advisors were engaged following a competitive tender process with fixed fee quotes.

€m

SL related professional and legal fees to 31 March 2014 119.2

Rebate obtained (7.6)

Fee relevant to the sale of €21.7 billion of loans (70.0)

Liquidation specific 41.6

On-going cost reduction in IBRC during same period 56.2

14 month

period to

31 March 14(a)

Cost reduction achieved at IBRC was greater than liquidation specific fees

(excluding loan sales)

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Other matters

As of 7 February 2013, there were 2,442 deposit accounts with a total value of €333.8 million to be either paid out through the Deposit Guarantee Scheme (“DGS”)/Eligible Liability Guarantee (“ELG”) schemes or set-off against loan balances.

We have reviewed and approved 1,797 deposit accounts with a total value of €215.7 million for payment through the DGS/ELG Schemes.

To date, payments of €28.6 million and €109.8 million through DGS and ELG schemes respectively have been paid out. The remainder will be repaid as claim forms are submitted for the ELG scheme.

To date, we have obtained approval for and processed 527 deposit accounts for set-off with a total value of €98.6 million.

Recovery of outstanding refunds with included a UK tax refund Stg£23 million and US federal tax refund US$3.5 million.

Prepared and filed Local Property Tax (“LPT”) returns and payments for over 200 properties.

Tax review of over 250 mortgagee in possession transactions.

Provision of extensive tax support to the Deal (loan sale) workstream, including tax implications of the loan sales in each of the relevant jurisdictions and cash repatriation from overseas subsidiaries.

Successfully surrendered/disclaimed 11 onerous leases in Republic of Ireland (“ROI”) and 3 in the UK.

Dealt with 22 landlords in relation to lease negotiations/surrenders and 59 tenants in relation to rent collection and recovery of rent arrears.

Manage the sale of surplus properties including 33 former INBS Branches and 14 apartments which were owned by IBRC.

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Currently planning sales process for residual assets of c. €2.5 billion.

Management of on-going litigation and any new litigation which may arise.

Planning structure for legacy loans following conclusion of sales process for residual assets.

Liquidation or sale of remaining subsidiary interests.

Repayment of NARL facility.

Complete all statutory liquidation matters.

Management and unwind of hedging position following loan sales.

Further work to complete in order to support Transitional Service Agreements (“TSA”) post completion and further completions scheduled in June and July.

Next steps

Introduction/

overview of the

Special

Liquidation

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Introduction/overview of the Special Liquidation

Overview

■ On 7 February 2013, the Oireachtas passed legislation (the Irish Bank Resolution Corporation Act 2013) (the “Act”), appointing joint Special Liquidators (the “SLs”) to Irish Bank Resolution Corporation Limited (“IBRC”) with immediate effect to wind up its business and operations.

■ The purposes of the Act are to:

– help address the continuing serious disturbance in the economy of the State;

– provide for the winding up of IBRC in an orderly and efficient manner in the public interest;

– end the exposure of the State and the CBI to IBRC;

– help to restore the financial position of the State;

– help enable the State to re-establish normalised access to the international debt markets;

– assist, to the extend achievable, in recovering the financial assistance provided by the State to IBRC as fully and efficiently as possible;

– resolve the debt of IBRC to the CBI;

– protect the interests of the taxpayers;

– restore confidence in the banking sector by furthering the reorganisation of the Irish banking system in the public interest; and

– underpin Government support measures in relation to the banking sector.

■ At the date of the appointment of the SLs, the CBI had provided funding of approximately €40 billion in the form of an Exceptional Liquidity Assistance (“ELA”) Facility Deed to IBRC. The appointment of the SLs caused this funding arrangement to unwind.

Overview (continued)

■ As a result, the CBI became the economic owner of the Promissory Notes and the floating charge assets. The Government replaced the Promissory Notes with a series of longer term, non-amortising floating rate Government bonds.

■ The CBI assigned the rights and entitlements (including the floating charge over IBRC’s assets) under the ELA Facility Deed to a newly established NAMA Special Purpose Vehicle (“SPV”), National Asset Resolution Limited (“NARL”).

■ NARL issued Government Guaranteed NAMA Bonds to the CBI in an amount equal to the amount outstanding under the ELA Facility Deed.

■ NARL became entitled to the repayment of the entire amount owed by IBRC under the ELA Facility Deed together with the right to enforce its security over the assets of IBRC under the floating charge.

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Introduction/overview of the Special Liquidation (continued)

Overview (continued)

■ It was envisaged that an independent asset valuation and sales process for the charged assets would be undertaken by the SLs, with NARL acquiring the assets (at the independent valuation price) that were not purchased by third parties as part of that process;

■ Following this sales process it was envisaged that the Minister would make good any shortfall to NARL if the valuation of the assets acquired by NARL was less than the value of the NARL Bonds issued;

■ Excess assets available following the repayment of NARL would be for the pool of unsecured creditors (including the State as a result of the Eligible Liabilities Guarantee (“ELG”) payments).

Benefits of the transaction

■ The benefits of these actions i.e. the replacement of the Promissory Notes for the Government Bonds and the assignment of the CBI’s interest in the IBRC assets to a NARL include:

– The provision of a longer term non-amortising (up to 40 years) portfolio of Government bonds to replace the amortising Promissory Notes ensured the liability to repay is beyond most credit investors’ time horizon;

– Spreading the cost of the Promissory Notes from a weighted average life of c. 7 to 8 years to c. 34 to 35 years at a lower funding cost will result in significant annual interest savings for the State;

– We understand there will be a substantial annual cash flow benefit to the State by replacing the Promissory Notes with non-amortising Government bonds (estimated at c. €2.3 billion in the first year and c. €20 billion over the next 10 years if costs of the transaction are excluded);

– A reduction in the underlying deficit of c. €1 billion per annum in the coming years (before transaction costs);

– A reduction in General Government debt over time; and

– The wind down of IBRC.

Ministerial Instructions

On 7 February 2013, the Minister for Finance, Michael Noonan issued Ministerial Instructions to the SLs (on foot of the Special Liquidation Order) which set out the details in respect of the manner in which the winding up of IBRC was to proceed. These instructions included:

■ To assist with and provide information to the CBI in the termination of the repurchase agreement dated 24 May 2012 between IBRC and the Bank of Ireland in relation to certain Government bonds (the 2025 Irish Government Bond held as collateral by the CBI was funded through an agreement with Bank of Ireland);

■ To assist with the assignment of debts owing to the CBI including the purchase by NARL of the rights and entitlements of the CBI (including the floating charge over IBRC’s assets) under the ELA Facility Deed;

■ To engage professional advisors to:

– provide independent valuations by employing standard valuation methodologies appropriate to each class of asset of IBRC; and

– assist and support the SLs with devising and implementing a strategy for the sale of the assets of IBRC.

■ To assist the CBI with respect to the operation of the Deposit Guarantee Scheme (“DGS”); and

■ To assist with and provide information to the National Treasury Management Agency (“NTMA”) in respect to the operation of the Eligible Liabilities Guarantee Scheme (“ELG Scheme”).

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Ministerial Instructions (continued)

■ On 10 May 2013, a second set of Ministerial Instructions were issued to the SLs, setting out the valuation methodology to be adopted for the IBRC assets. They also required that the sale of assets should be completed by 31 December 2013 or as soon as practicable thereafter.

■ Further Ministerial Instructions were issued on 20 July 2013 primarily to clarify the definition of IBRC assets in the context of the SL. They also provide that the valuation of the IBRC assets should be completed as expeditiously as possible by not later than 30 November 2013.

■ A fourth Ministerial Instruction was issued on 24 April 2014 which removed NARL as a bidder for the assets at the valuation price.

Role of the SLs

■ The SLs generally have the same duties, powers and responsibilities as are usually conferred on a Court appointed liquidator, however there are some key differences including that the Minister (and not the Courts) have the principal role in overseeing the winding-up.

■ The SLs replaced the Board and management in IBRC and are winding up its business and operations in the interests of its creditors.

■ As a key part of their appointment, the SLs are overseeing a valuation and sales process for the assets of IBRC.

■ The SLs are winding down IBRC under the supervision of the CBI.

■ The SLs put in place governance structures to ensure effective and efficient delivery of the liquidation across various workstreams.

Request

■ This report has been prepared for the Minister for Finance following consultation with the Department of Finance and in response to a request for a detailed update report made under Section 17 (c) of the Ministerial Instructions issued on 7 February 2013.

■ This report sets out an update on the progress to date in SL for the period 7 February 2013 to 31 March 2014. It also details the liquidation fees during this period.

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Restricted preparation period in order to keep planning of the liquidation confidential.

Operating new legislation specific to this liquidation.

Unique assignment given the scale of the assets to be realised.

The need to deploy significant KPMG resources immediately.

Tight deadline to deliver results.

BACKGROUND Clear message from the Minister for Finance to deliver best outcome for creditors,

which includes the Irish taxpayer.

Multi-jurisdictional issues given location of operations of IBRC and location of underlying collateral supporting the loan book.

Unprecedented scale and complexity of legal issues critical to the process.

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Potential non cooperation of employees and/or contractors.

Key issues

Ability to fill key outstanding roles in IBRC.

Union issues given termination of employee contracts.

Multi-jurisdictional issues to deal with.

Appointment of appropriate advisors.

Communication strategy both internally and externally with key stakeholders.

Reaction of critical suppliers/ creditors.

Ensuring borrowers continue to pay.

Setting up of new bank accounts/payment mechanisms.

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Key work streams

■ A summary of the key work streams are presented below.

■ Each of the work streams set out below necessitated careful management of the relevant legal processes and risks. ALG and Linklaters have been lead legal advisors to the SLs throughout this process.

Deal

■ Design, implement and oversee the data preparation, independent valuation and sale process for each of the underlying loan portfolios.

■ Manage the borrower representation process and related legal matters.

Loan management

■ Management of existing loan portfolios and lending operations for the commercial and residential portfolios. The workstream deals with borrowers to ensure business as normal continues.

Finance/Treasury

■ Preparation of internal and external financial and regulatory reporting. Liquidity and Foreign Exchange risk management.

■ Effective unwind of balance sheet assets not included in the Deal workstream and development of a value realisation strategy for the subsidiaries and joint ventures interests.

Regulatory and compliance

■ Liaising with relevant regulatory bodies and ensuring IBRC in SL is compliant with all regulatory and compliance requirements whilst supporting KPMG UK with UK regulatory and compliance issues.

■ Ensuring appropriate governance structures are in place in accordance with CBI/Financial Conduct Authority (“FCA”) guidelines.

Key work streams (continued)

Operations

■ Oversight of operational functions in IBRC including (1) Lending services; (2) Treasury operations and (3) Supporting UK operations.

Loan migration

■ Responsible for oversight and planning for migration of the NAMA PI loan book management to Capita and non NAMA loan portfolio management to respective purchasers and their service providers.

Legal and litigation

■ Management of over 1,100 legal cases.

■ Deals with legal issues arising in the course of the SL of IBRC including legacy issues.

■ Recognition issues.

■ Section 56 report and investigation.

HR/IT/Facilities

■ Management of all HR and employee matters. This workstream is also responsible for IT, Property and Facilities.

Deposits

■ Administration and oversight of the DGS and ELG scheme.

Taxation

■ Oversight of IBRC tax affairs to ensure that:

- Tax obligations are met on a timely basis;

- Tax assets are realised; and

- Legacy tax issues are addressed.

Deal

workstream

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IBRC sales process by numbers

€21,700,000,000

52

15,000

22

27,000

345

80,000

3,500

201

90%

€21.7 billion of loans prepared and brought to market

52 loan sales processes conducted

Loans consisted of over 15,000 different borrower groups

Collateral was based in 22 different jurisdictions

Over 27,000 letters issued to borrowers and guarantors

345 interested parties across 13 countries

Over 80,000 documents were reviewed and uploaded to virtual data rooms (“VDRs”)

Over 3,500 property valuations were obtained

201 individual bids were received across 6 portfolios

90% of the loan book transacted

145 145 Non Disclosure Agreements (“NDAs”) signed with interested parties

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Transaction background and timeline

Jan2014

Jun 2014

2010 2011

August 2010

Irish Nationwide receives

government bailout and is

effectively State-owned

July 2011

Irish Nationwide and Anglo Irish

Bank are merged to create Irish

Bank Resolution Corporation

Limited

2012 Jan 2013

Jun 2013

February 2013

Kieran Wallace and

Eamonn Richardson of

KPMG appointed as joint

Special Liquidators to

IBRC

December 2013

Significant portion of

the Project Evergreen

portfolio trades to the

market

November 2013

Valuation of all €21.7

billion of IBRC’s

assets is completed

February 2014

Project Rock, Salt and

Pebble trade to the

market in their entirety

March/April 2013

Significant portions of

the Project Sand and

Stone trade to the

market

20091850

January 2009

Anglo Irish Bank

is nationalised

1964

Anglo Irish Bank

established

1873

Irish

Nationwide

Building

Society founded

On 7 February 2013, under the terms of the Irish Bank Resolution Corporation Act 2013, Ireland’s Minister for Finance appointed Kieran Wallace and Eamonn Richardson of KPMG as its joint Special Liquidators with a mandate for the orderly winding up of IBRC.

Key duties included:-

■ Engage and oversee independent professional valuation advisors to obtain a valuation of each loan asset to be used as its ‘benchmark’ sales price;

■ Organise and mobilise Vendor Assistance and Vendor Preparation teams to source and remediate data, documentation and coordinate legal advisors;

■ Develop a sales strategy and conduct detailed market sounding;

■ Implement and close portfolio and single credit sales processes with market bidders; and

■ Deliver best value for all creditors, including the Irish tax payer.

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No. of Borrower Groups

No. of Sales Tranches

Gross Loan Balance (€bn)

Project Evergreen

■ Corporate loan portfolio; originated in Ireland 42 14 2.5

Project Rock

■ Commercial real estate loan portfolio; originated in the UK secured by primarily UK properties

203 14 5.5

Project Salt

■ Commercial real estate loan portfolio; originated in the UK by subsidiaries of IBRC 101 2 1.8

Project Sand

■ Residential mortgage loan portfolio originated in Ireland

■ 74% Personal Dwelling House (“PDH”) and 26% Buy to Let (“BTL”) mortgages including €28 million leasing book

12,778 4 1.8

Project Stone

■ Commercial real estate loan portfolio; originated in Ireland secured by primarily Irish and UK properties

1,934 16 9.3

Project Pebble

■ Portfolio of mixed commercial real estate comprising a mixture of commercial real estate and hotel assets and equity interests

2 2 0.8

TOTAL 15,060 52 21.7

The total par value of IBRC’s assets which have been brought to the market in the last 6 months has exceeded €21 billion with approximately 90% of this total being sold to third-party investors.

An overview of the IBRC loan portfolio

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An overview of the geographical spread of assets

Project Sand (€1.8bn)

Irish originated Residential

Mortgages

■ Ireland (100%)

Project Rock (€5.5bn)

UK originated Commercial

Real Estate (“CRE”) Loans

■ UK (89%)

■ US (7%)

■ Germany (3%)

■ Europe: Other (1%)

Project Salt (€1.8bn)

UK originated CRE Loans

■ Germany (60%)

■ UK (30%)

■ Poland (7%)

■ Europe: other (3%)Project Pebble (€0.8bn)

US CRE, UK hotels and UK

and Ireland Shopping Centres

■ Ireland/UK (84%)

■ US (15%)

■ World: other (1%)

Project Stone (€9.3bn)

Irish originated CRE Loans

■ Ireland (46%)

■ United Kingdom (33%)

■ Continental Europe (18%)

■ Other (3%)

The IBRC loan portfolio was supported by collateral based in 22 different jurisdictions worldwide.

Project Evergreen (€2.5bn)

Irish originated Corporate Loans

■ Ireland (93%)

■ UK (7%)

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Portfolio sale timeline

The Ministerial Instructions required that all valuations be complete by 30 November 2013 and the sale of all loans to be agreed or completed by 31 December 2013, or as soon as practically thereafter.

Portfolio timeline

Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14

Evergreen

(Corporate)

€2.5bn

Rock

(UK CRE)

€5.6bn

Salt

(UK CRE)

€1.7bn

Sand

(Irish Resi)

€1.9bn

Stone

(Irish CRE)

€10.4bn

Pebble

(HNWI)

€0.8bn

Portfolio timeline

Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14

Evergreen(Corporate)€2.5bn

Rock(UK CRE)€5.5bn

Salt (UK CRE)€1.8bn

Sand(Irish Resi)€1.8bn

Stone (Irish CRE)€9.3bn

Pebble(Mixed CRE)€0.8bn

Vendor assistance/valuation preparation

ValuationSales

Phase IClosing Phase 3

SalesPhase II


Valuation Sales Phase ISales

Phase IIClosing Phase 3



Valuation

Valuation

Sales Phase ISales

Phase II

Sales Phase ISales


Sales Phase ISales



Valuation Sales Phase ISales



Valuation

Closing Phase 3

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Vendor assistance and valuation preparation: overview

Vendor assistance and valuation preparation

Month 1 2 3 4 5 6

Activity

Portfolio review and segmentation

Assessment of IBRC’s €21.7 billion portfolio by origination and across asset classes/geography.

Deliverable and output

Segmented IBRC’s €21.7 billion of loan portfolios including:

■ Performing/Non Performing;

■ CRE, Small and Medium Enterprise (“SME”), Corporate, Residential mortgages and Leasing loans; and

■ Assets spanning mainly Ireland, UK, Europe and the US.

Activity

Sourcing Key Data, Validation and Gap analysis

Identifying reliable sources of data, efficiency of collation and gap analysis.


■ A combination of desk top review, management discussions and detailed due diligence identified data deficiencies. Focused on key data fields that impact value e.g.:

— Collateral values;

— Tenancy data;

— Payment history; and

— Security.

■ Created a Valuation VDR.

Activity

Appointment of advisors including Independent Valuers, legal advisors, real estate valuers and data room provider.

Deliverable and output■ KPMG drafted the

Request for Proposal (“RFP”) requirements, evaluated, selected and instructed the Independent Valuers.

■ Instructed Savills as Master Valuer to manage a panel of 12 real estate valuers conducting over 3,500 valuations of properties located in 22 jurisdictions.

■ Managed a panel of 10 key law firms to deal with incumbent firms to review security, title, facility, transfer etc.

Activity

Commenced data remediation

Efficient remediation of data gaps; data integrity and verification.


■ Commissioned Independent Business Reviews for corporate borrowers.

■ Extensive datatape remediation work.

■ Instructed security reviews for over 90% of the portfolioby value.

■ Updated Real Estate (“RE”) valuations for all connections > €3 million (3,500 CRE and Residential properties).

■ Contacted borrowers for latest tenancy schedules.

Activity

Borrower Engagement and sales strategy

Borrower representations and market interaction informed the sales strategy.


■ KPMG wrote to each of the borrowers and guarantors. (approximately 27,000) informing them their loans were to be sold.

■ KPMG reviewed each Borrower response and assessed impact on sales strategy.

■ Combining input from Independent Valuers & Sales Strategy Advisors, KPMG finalised the sales strategy.

Activity

Data and documentation redaction, final review and upload


■ Liaising with legal advisors, reviewed 80,000 documents, and redacted where necessary, for Confidentiality, Data Protection and Competition issues.

■ Finalised the structure, upload of data and documents for each portfolio VDR.

■ Managed the physical and VDR datarooms for the Independent Valuers and Bidders including Bidder “Question and Answers” (“Q&A”).

A B C D E F

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29

Month 1 2 3 4 5 6

Valuations and sales process: overview

ValuationSales process:

Closing Sales process: Indicative bids

Sales process:Binding bids

Activity

Market Sounding


■ Drafting and implementation of Qualified Bidder criteria to select Phase I bidders

■ Market Soundings with over 340 potential Bidders including strategic investors (for portfolios and single names), Private Equity, pension debt funds, insurers etc

■ Market Soundings conducted in 13 countries including Ireland, UK and USA.

■ Review and sign off of Phase I bidder list.

Activity

Sales preparation: Design sales strategy and sales process


■ Lead weekly ‘all-party’ meetings with KPMG, legal advisors and real estate advisors.

■ Combined input from the Independent Valuers and the market sounding process designed the sales strategy.

■ Developed a TSA.

Activity

Indicative Bid Phase


■ Execution of NDAs and Process letters with over 140 parties across six key portfolios.

■ Drafting of bid documents including Loan Sale Deed, Transfer Mechanics and TSA.

■ Management of Bidders.

■ Indicative Bid evaluation versus benchmark price; sign off with the SLs.

■ Finalise listing of parties proceeding to Phase II.

Activity

Binding Bid Phase


■ Finalising the Phase II data and documentation.

■ Management of bidder interaction including Q&A and relationship manager meetings.

■ Agree the Loan Sale Deed with the bidders.

■ Provision of additional information including updated cash flow information.

■ Invite, receive and review final binding bids from bidders.

Activity

Signing and closing


■ The SLs have signed Loan Sale Deeds for 90% of the 6 portfolios with market bidders within two weeks of receiving bids.

■ Closing procedures including preparing a final portfolio cut-off datatape and a summary of any post binding bid date portfolio movements.

■ IBRC will provide TSA services as agreed with bidders pre-signing.

Activity

Oversight of Independent Valuation process


■ Discuss Valuation Methodology with Independent Valuersin accordance with Ministerial Instruction.

■ Oversight and challenge of loan and RE valuers.

■ Review of individual connections.

■ Review and challenge of Independent Valuation.

A B C D E F

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Market sounding and buyer profile

We saw strong interest from a variety of financial and strategic buyers and funders, with US private equity houses and hedge funds being key participants across each of the 6 portfolios.

Market sounding

KPMG conducted an in depth market sounding exercise with expressions of interest received from 345parties across 13 countries including Ireland, UK and USA, including private equity houses, hedge funds,pension debt funds and insurers.

345 expressions of interest

Non-disclosure Agreements Signed

Following a comprehensive market sounding exercise, parties were assessed against a pre-defined biddercriteria (Qualifying Bidder Criteria) prior to their selection for participation in the sales process.145 NDAs signed

Project Evergreen

58

Project Rock

31

Project Salt

11

Project Sand

13

Project Stone

25

Project Pebble

6

20 13 4 2 14 4

Ind

ica

tive

Bid

sB

ind

ing

Bid

s

Total Indicative and Binding Bids (across multiple tranches per portfolio)

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An overview of Vendor Assistance (“VA”) and Valuation preparation

VA and Valuation

Preparation

Portfolio

review and segmentation

Sourcing key data,

validation and gap analysis

Final review and uploading

Data

remediation

Borrower engagement

and sales strategy

Data and document redaction

Appointment of advisors

Segmented IBRC’s €21.7 billion of loan portfolios including:

■ CRE, SME, Corporate, Residential mortgages and Leasing loans;

■ Assets spanning Ireland, UK, Europe and the US; and

■ Single names versus Portfolios of loans

Total number of tranches offered for sale was 52 comprising over 25,000 individual loans

A combination of desk top review and detailed due diligence with a focus on key data fields that impact value:-

■ Loan/borrower level data;

■ Property collateral and tenancy information;

■ Other collateral/security information; and

■ Borrower payment history data.

Each datatape comprised over 200 data fields per loan with one datatape prepared for each of the 52 tranches

KPMG ran tender processes, evaluated and instructed:-

■ Savills as Master Valuer to manage a panel of 12 real estate valuers in 22 jurisdictions;

■ A panel of 10 key law firms to deal with incumbent firms to review security, title, facility, transfer etc.; and

■ PwC, Valuer A, Deloitte and Eastdil appointed as Independent Valuers.

Instructed over 3,500 property appraisals (92% of Real Estate Value (“REV”)) and security reviews for over 90% of the loan portfolio value

The early organisation and mobilisation of a comprehensive and suitably experienced vendor assistance team was key to the success of this transaction.

■ KPMG finalised the structure and upload of data and documents for each tranche to the VDR.

■ KPMG managed the physical datarooms and VDR for the Independent Valuers and Bidders including the entire Bidder Q&A process.

80,000 documents were uploaded to the VDR with responses provided to 3,000 Q&As in total

■ Liaising with legal advisors, reviewing all documents, and redacting where necessary, for Confidentiality, Data Protection and Competition issues.

■ Data Protection and Competition restrictions need to be clearly understood in order to redact sufficient information to be compliant whilst preserving value to the SLs.

80,000 documents were reviewed and redacted for confidential information

■ KPMG wrote to each borrower informing them their loans were to be sold and reviewed each borrower response and assessed impact on sales strategy.

■ Combining input from Independent Valuers and market sounding process, KPMG finalised the sales strategy and wrote back to each borrower to inform them of the outcome.

KPMG wrote to approximately 27,000 borrowers and guarantors and reviewed each response received

■ Extensive data collection exercise undertaken and data tape remediation work required.

■ Contacted borrowers for tenancy schedules.

KPMG sourced, validated and remediated every datatape and document where possible

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32

14 months after the SLs’ appointment, KPMG transacted 90% of the marketed IBRC’s loan portfolios to market buyers.

■ The success of the sales process will ensure that there is no residual claim on the Minister for Finance’s guarantee in respect of the floating charge held by NARL.

Outcome of the sales process

Portfolio Type

Gross Loan

Balance (€bn)

% of Total book sold to

the Market

Date of

Sale

Current

Status

Project Evergreen Corporate loans 2.5 84% Dec 2013Contracted and

completed

Project Rock UK CRE 5.5 100% Feb 2014Contracted and

completed

Project Salt UK CRE 1.8 100% Feb 2014Contracted and

completed

Project Sand Irish residential 1.8 64% Mar 2014Contracted.

Completion 6 June

Project Stone Irish CRE 9.3 85% Mar 2014

Contracted.

Completions in May-July

Project Pebble Mixed CRE 0.8 100% Feb 2014Contracted and

completed

GRAND TOTAL 21.7 90%

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Successfully mitigating key loan sales risks

We successfully managed a transaction of unprecedented scale and complexity in Ireland delivered using a ‘common sense’ and ‘sleeves rolled up’ approach.

Segmentation to maximise interest

Strong stakeholder

relations

Clear and transparent

pricing

Strict timetables

Transparent bid evaluation

process

Pre-negotiated transaction documents

No representations and warranties

We listened to understand the market’s appetite and its preference in relation to portfolio sizes and composition

Segmentation ensured that a maximum number of bidders participated and maximised competitive tension

We ensured the Department of Finance was updated on the process by holding weekly and monthly meetings

We ensured all information in relation to the sales process remained confidential and any communications were

clear

We ensured bidders understood the benchmark price mechanism and its key drivers for maximising value

We understand bidders’ approach to pricing these asset classes and ensured relevant information was provided

We maintained a strict timetable for each portfolio to minimise delays and provide bidders comfort on deal costs

We communicated deadlines to all bidders providing sufficient notice of any changes to prevent them from

walking away

1

2

3

4

5

6

7

We ensured all bidders understood the bid evaluation process by issuing clear and concise communications

We made it clear that all bids submitted were on a best and final basis to prevent delays and maintain full

transparency

We ensured all transaction documents were negotiated before the final bid date to provide execution certainty

We maintained strong communication lines between legal teams on both sides to ensure issues were resolved

immediately

We provided loan statements to give bidders comfort on the legality of the underlying claims against borrowers

We obtained security reviews and real estate valuations to provide comfort on legal title and views on collateral

values

Loan

Management

workstream

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35

Loan Management workstream: key highlights

Considered 2,915 applications at 122 residential credit committees.

Managed a team of 384 IBRC Loan Management employees across seven locations in Ireland and the UK.

Corresponded with all borrowers outlining the implications of the SL for them.

Managed deleveraging of the loan book through the normal course of business in tandem with the loan

sales process.

Considered 3,173 applications at 208 commercial credit committees.

Full suite of MARS solutions launched in May 2013.

Aligned with and supported the delivery timelines of the Deal workstream.

Reconstituted commercial and residential credit committees put in place.

Average monthly hours worked by KPMG staff on this workstream: 3,640 hours.

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Loan Management workstream: overview

Core liquidation strategy

■ The Ministerial Instruction issued on 7 February 2013 set out the basis on which lending operations could continue in IBRC in SL:

– SLs can lend funds to any existing customer of IBRC in SL where the SLs consider such lending to be necessary to maintain or preserve the value of the loan asset of IBRC in SL; and

– The core aim was to preserve and maintain value in the loan book pending sale.

Workstream overview

The IBRC loan book is split/managed as follows:

■ Specialised Asset Management (‘SAM’);

■ Recovery Management Ireland (‘RMI’);

■ Residential mortgages (INBS loans);

■ UK loan book; and

■ Residual US loan book (managed through the UK).

The gross value of the loan book as of 7 February 2013 is broken down as follows:

Workstream overview (continued)

■ The Loan Management workstream is responsible for the following principal areas:

– Stabilising and ensuring effective operation of loan management activities for the loan portfolio;

– Continue to manage borrower relationships as normal;

– Restoring and ensuring effective operation of Loan Governance Frameworks and associated operating processes e.g. governance and risk management, loan portfolio management;

– Establishing what new facilities can be advanced under the remit of the SLs’ current operating mandate;

– Ensuring sufficient resourcing is in place to manage the loan book throughout the SL process;

– Deleveraging of the loan book (other than through loan sales) in an appropriate manner and in line with SL Guidelines;

– Managed the advancement and collection of in excess of €1 billion through the Invoice Discounting function for SAM borrowers;

– Developing an appropriate plan to wind down the Loan Management function in a controlled manner as deleveraging is completed; and

– Attendance of the SLs at the Joint Committee on Finance, Public Expenditure and reform.Gross value of loan book

€m 07-Feb-13

SAM 7,052

RMI 9,413

UK 7,215

Residential 1,856

US 411

Gross IBRC loan book 25,947

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Loan Management workstream (continued)

Key actions/achievements

■ Issuing of correspondence informing borrowers of the SLs’ appointment and details of the DD/EFT/SO process going forward.

■ Reconstituted credit committee put in place made up of a joint Special Liquidator representative, group risk, and IBRC senior management. Credit committee activity for IBRC in SL can be summarised as follows:

■ Guidance provided to lending teams on revised criteria for credit applications.

■ Guidance issued to staff detailing SL operational and control processes put in place in order for IBRC to proceed with:

– Contractually bound sales;

– Receivership sales and appointments;

– Consensual sales; and

– Release of funds for essential costs.

■ Full suite of MARS solutions launched in May 2013.

■ Panel of valuers appointed to value repossessed properties.

Key actions/achievements (continued)

■ Stratification of Residential Mortgages loan book to target collections and arrears restructuring efforts.

■ Code of Conduct on Mortgage Arrears (“CCMA”) compliance project implemented.

■ Created a stable staffing platform of 80 full time employees supporting a full service proposition for residential borrowers.

■ Contact with residential borrowers up 28% from rates achieved in February 2013.

■ Introduced the capacity to measure underlying performance in arrears cases where rate of improvement (cases improving their arrears position) has increased.

■ Letters issued to borrowers inviting them to make representations to the SL. A dedicated KPMG team was established to deal with borrower queries.

■ Agreed a process in order to allow for the continuation of residential sales with specific safeguards in place.

■ Ensured that all on going litigation cases continued to be managed.

■ Engaged with relationship managers to manually collect sterling direct debits which had been halted following the SL.

■ Supported the loan sale process including key customer communications for pre completion as well as developing full operating protocols for post completion period.

Number of

credit

committees

Number of

applications

considered

Commercial Credit Committee 208 3,173

Residential Credit Committee 122 2,915

Residential Credit Committee Appeals Board 18 32

Number of Credit Committees 07 Feb 13 to 19 May 2014

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Key issues arising/risks/challenges

■ Previous arrangements for the collection of DD/EFT/SO were inoperable.

■ Risk that borrowers would become un-cooperative following the appointment of the SLs, which would have an adverse impact on cash collection, loan performance and loan value.

■ Case knowledge, borrower relationships and experience diminished following staff departures.

■ Ensuring that sufficient staff and resources at both a loan management and group level were in place to manage and maintain the loan portfolio.

■ Ensuring that the high volumes of cases requiring action were brought to and reviewed by credit committee.

■ Ensuring that the high volume of decisions taken at credit committee were acted on by case managers in accordance with the policies and procedures outlined by the SLs.

■ Ensuring that any deleveraging of the loan book through asset sales was completed in line with the SLs’ valuation policy.

Work remaining/Key future actions

■ Ensure that all loan sales are correctly recorded and reflected in the loan management files.

■ Ensure successful management of the staggered loan sale completion process.

■ Ensure loan service agreements entered into with purchasers are delivered by the loan management teams including management of purchasers meetings and queries.

■ Closure of the regional offices.

■ Continue to manage the remaining loan book and develop a plan to meet the loan management requirements throughout the final sales process.

■ Maintaining compliance with regulatory requirements.

■ Replace head of RMI in June 2014 and ensure that the remaining management team is sufficient to continue effective management of the remaining loan book.

■ Continue to manage remaining 185 IBRC Loan Management staff throughout the remainder of the SL and ensure that sufficient skilled staff are retained to manage the remaining loan book.

■ Manage the archiving of files and data to assist with the ultimate winding down of the SL.

Loan Management workstream (continued)

Finance

workstream

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Finance workstream: key highlights

Oversight of group rationalisation of 293 subsidiaries in 16 jurisdictions.

Management of a further 24 financial interests in 24 companies in 6 jurisdictions.

Managed IBRC finance team of 77 employees across Ireland and the UK on appointment.

Management of €1 billion loan facility provided by NAMA.

Production of winding up plan for CBI.

Repayment of €10.9 billion to NARL.

Preparation and submission of monthly updates and other ad hoc reports to DOF.

Manage hedging of up to Stg £4.7 billion and US$1.5 billion.

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Finance workstream: overview

Workstream overview

■ The Finance workstream is responsible for the following principal areas:

– Ensuring finance function supports operations;

– Preparation of monthly financial information;

– Preparation and submission of regulatory results to the CBI and FCA;

– Preparation and submission of monthly update and other ad hoc reports to DOF;

– Ensuring the control environment around cash management and accounts payable continues to operate;

– Deleveraging balance sheet items (other than loan assets) in an appropriate controlled manner;

– Managing a controlled orderly wind up or divestiture of various subsidiary entities;

– Managing the cash flow of IBRC;

– Managing the €1 billion facility provided by NAMA;

– Developing appropriate plan to wind down finance function in a controlled manner as deleverage is completed; and

– Supporting the treasury operations of IBRC from an on-going business and liquidation perspective.


■ Old pre SL bank accounts were closed with new post SL accounts opened in the required currencies. This allowed collections from borrowers to continue.

■ New processes for the collection of Euro and Sterling DDs were established and implemented.

■ Accounting structure put in place to protect against the risk of IBRC in SL accepting deposits as this was prohibited by the CBI following the SL.


■ Cash flow forecasting process re-established.

■ Operational and control processes put in place for the payment of funds to third parties in respect of loan drawdowns, invoice discounting, accounts payable and NAMA payments/sweeps.

■ Liaised with internal audit to ensure that adequate processes and procedures in place for cash collections and payment approvals.

■ A dedicated cross functional IBRC in SL project team was mobilised to address the volume of reconciling items following the SL.

■ Liquidity and statistical returns completed on a monthly/quarterly basis for submission to the CBI.

■ Reviewing other assets on the balance sheet and determining a strategy in respect of each asset completed. Independent valuations were arranged where appropriate.

■ Cash management process following loan portfolio sales established.

■ Disposal of remaining senior bond portfolio.

■ Managed the derivative valuation and settlement process of terminated trades with a gross notional of approximately €8.3 billion across 30 counterparties.

■ Settlements involved closing out valuation differences, rights of set-off and guarantee claims. These derivatives were terminated by inter-bank counterparties following IBRC entering SL.

■ Entered into replacement hedging derivative transactions with the NTMA.

■ Valuation and technical support to credit teams on corporate derivative transactional activity.

■ Repayment of €10.9 billion to NARL.

■ Agreement and payment of €11.9 million of preferential creditors.

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42

Finance workstream (continued)


■ Regular engagement with the Department of Finance (“DOF”) as required. This has included:

– Monthly liquidation and sales update reports;

– Fee reports as requested; and

– Meetings with the Minister for Finance as requested.


■ Following the appointment of the SLs, IBRC was no longer part of the clearing system and the transaction capability of IBRC was impacted as follows:

– IBRC Nostro accounts (155 accounts) with other banks were “ruled”;

– IBRC’s authorisation for DD effectively revoked;

– No longer permitted to accept deposits. Funds received were required to be applied directly to loan accounts; and

– Inability to service NAMA borrowers in accordance to SLA requirements.

■ Changes to the existing IBRC information flows required following implementation of controls around credit approval and loan drawdown processes by the SLs.

■ The appropriate regulatory reporting requirements were discussed with the CBI as the SL progressed.

■ Ensuring that the segregation of duties around inputting and authorising of payments continues to be adhered to and that the process is monitored.


■ Review the monthly accounts for completeness and ensure that loan sales are correctly recorded.

■ Review and potentially reassess the scope of financial reporting requirements as the loan sales progress and the scale and complexity of the remaining business reduces.

■ Review the bank accounts on a regular basis and sweep all available cash into the main SL bank accounts.

■ Close bank accounts as the loan sale process concludes and accounts are no longer required.

■ Monitor the DD processes to ensure no issues.

■ Continue to meet with the reconciliations team to ensure that outstanding items are cleared in a timely manner.

■ Continue the approvals for payments via the various channels and amend processes as appropriate as the loans are sold.

■ Review the finance staffing requirement and backfill where necessary for critical roles.

■ Monitor the cash flows and ensure that excess monies are either paid to NARL or are placed on deposit to maximise returns.

■ Review the liquidity and statistical returns with the CBI as the assets reduce and assess the necessity to continue to produce some/all of the returns.

■ Continued management of other treasury activities.

Legal

workstream

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44

Legal workstream: key highlights

Obtained recognition of the SL in two jurisdictions.

Retrieved title and security documentation pertaining to over 3,000 facilities.

Management of over 1,100 legal cases.

Investigation on conduct of directors and will report to the Office of the Director of Corporate Enforcement (“ODCE”).

Management of over 20 legacy and public interest cases.

Dealt with over 240 data access requests.

Average monthly hours worked by KPMG staff on this workstream: 392 hours.

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Legal workstream: overview

Legal

Legacy Issues

Collateral Retrieval

Litigation

Independent Review

Recognition of the SL

Data Access Requests

Conduct of Directors

■ There are over 20 legacy and public interest cases which the SLs are continuing to pursue.

■ The SLs assess the merits of litigation cases being pursued and develop appropriate strategies taking into account the commercial benefit, legal costs, public interest in continuing/discontinuing proceedings.

The SLs are managing over 20 legacy and public interest cases

The Collateral Retrieval Team is tasked with the following:

■ Identifying the location of security/title documentation and documents schedules for circa 2,666 properties;

■ Identifying security documentation for circa 945 non-property collateral items; and

■ Managing legal firms to review security, title, facility, transfer etc.

■ The SLs have dealt with over 350 law firms.Retrieved title and security documentation pertaining to over 3,000 facilities

■ The SLs have carried out an investigation into the conduct of each of those persons who acted as directors of IBRC within the twelve months preceding 7 February 2013.

■ The SLs will submit a report on the conduct of the directors of IBRC to the ODCE.

The SLs have investigated the conduct of the directors of IBRC and will report to ODCE

The legal workstream review and mange current litigation/legal cases taken by or against IBRC (in SL)

■ The legislation under which the SLs were appointed contained provision for a stay on all legal proceedings being taken against IBRC in SL.

■ We dealt with litigation matters to ensure that the asset positions of IBRC in SL were not prejudiced and to avoid risk to the assets and to asset recovery.

IBRC in SL is a party to over 1,100 legal cases

■ The legal workstream deals with general letters of litigation and borrowers’ correspondence.

■ On appointment, we put a protocol in place for dealing with new and ongoing instructions, pre-liquidation fees, solicitors’ liens being exercised and ensuring appropriate controls are in place.

■ We have dealt with over 240 data access requests since appointment.

The SLs have dealt with over 240 data access requests

■ Chapter 15 recognition of SL was obtained in the US on 18 December 2013.

■ The SLs have also obtained legal recognition of the Special Liquidation in Switzerland. This has enabled the SLs to file a formal claim in the Lehman Brothers liquidation.

Recognition of the SL has been obtained in two foreign jurisdictions

■ The SLs have instructed Eugene F. Collins Solicitors to independently review legal advice previously provided regarding proceedings against former Directors of INBS.

Independent review of legal advice.

Regulatory and

Compliance

workstream

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Regulatory and Compliance workstream: Key highlights

Managing the ongoing relationship with the CBI with regular meetings.

Revising IBRC’s Corporate Governance structures, including delegated authorities.

Managed IBRC Group compliance team of 17 employees across Ireland and the UK on appointment.

Worked with the FCA to stand down their Section 166 review into the mis-selling of interest rate hedges.

Oversight of IBRC’s compliance with CBI and FCA regulations and codes of conduct.

Supervision of ongoing reporting obligation to the CBI.

Acting as administrators to the Investor Compensation Scheme for IBRC.


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Regulatory and Compliance workstream: Overview

The SL of IBRC resulted in the CBI revoking its banking license.

IBRC continues to operate with the consent, and under the supervision of the CBI.

Workstream overview

■ The Regulatory and Compliance workstream is responsible for ensuring that IBRC adheres to a broad range of legislation, regulation and regulatory guidance.

■ The workstream acts as a point of contact between the SLs and IBRC’s Compliance function.

■ The workstream also provide advice to other workstreams in the course of their activities.

■ Areas of regulation that IBRC has to comply with are as follows:

– CCMA;

– The Consumer Protection Code;

– Code of Conduct on Lending to Small and Medium Sized Enterprises;

– The Minimum Competency Code;

– Fitness and Probity;

– Anti Money Laundering legislation and guidelines; and

– Data Protection.


■ Establishing collection arrangements for customers without breaching the CBI requirement that IBRC in SL could not take deposits.

■ The FCA Section 166 investigation into the mis-selling of interest rate hedging products.

■ Working with IBRC Compliance to close gaps identified in IBRC’s Code of Conduct on Lending to Small and Medium Sized Enterprises.


■ Established and managed lines of communication between the CBI and the SLs.

■ Worked with the FCA to stand down their Section 166 investigation of IBRC with regards to the mis-selling of interest rate hedging products.

■ Revised the corporate governance and delegated authority frameworks. Revisions were required to support the operations of a bank in an orderly wind-down.

■ Provided regulatory advice and support across other workstreams, in particular with regard to establishing banking arrangements to deal with cashflows and also with regard to customer communications.

■ Reached agreement with the CBI to reduce the regulatory reporting requirements of IBRC, thereby freeing up resources to work on other finance initiatives.

■ Worked with Finance, IT and Treasury operations to deliver European Market Infrastructure Regulation (“EMIR”) reporting on time.


■ Ensuring IBRC maintains its regulatory obligations until all assets have been sold.

■ Applying to the CBI for permission to carry on with certain excluded activities to 31 December 2014.

■ Concluding activities as administrator to the Investor Compensation Scheme for IBRC.

Conflicts of interest

■ Conflicts of interest have been raised by a number of parties during the course of the SL. The SLs adopt policies and procedures which are utilised by KPMG in assessing and managing conflicts of interest.

■ The SLs are confident that any conflicts of interest that have arisen have been appropriately managed and do not pose a threat to independence issues. This has been confirmed to DOF.

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49

Governance structures

■ The liquidation of IBRC resulted in the immediate dissolution of its governance structures, including the Board of Directors, Risk and Audit Committees and other Board sub-committees such as the Asset and Liability Committee (“ALCO”).

■ Delegated authorities appropriate to an entity in liquidation were also drawn up with immediate effect.

■ The regulatory and compliance workstream worked with ALG and IBRC to re-constitute governance arrangements that provide structures to assist with the orderly wind-up of a credit institution that remains subject to the supervision of the CBI.

■ Following re-constitution, the first key action of the governance forums was to validate or modify IBRC’s pre-liquidation policies and procedures, including delegated authorities. A diagram setting out the governance structure is provided on page 51. The terms of reference for the committees are summarised in the table below:

■ In addition, there was also significant reporting to various stakeholders as outlined in the Finance section.

Committee Summary

Supervisory

Committee■ The Supervisory Committee is responsible for:

– oversight of IBRC in SL;

– overseeing the risk profile and implementation of the strategy for the liquidation/Winding Up Plan in adherence to Ministerial Instructions as well as management of legacy matters; and

– monitoring the system of internal controls.

■ Members of the Supervisory Committee are Kieran Wallace (Chairman), Eamonn Richardson and John Hansen (KPMG partner). Members of IBRC’s senior management and other KPMG partners also attend.

■ Decision rights reside solely with the SLs, save for any delegated authorities confirmed in writing.

Credit

Sanctioning

Authorities

■ The role of credit sanctioning authorities is to approve, monitor and control credit risk (including banking and treasury credit risk).

■ Credit sanctioning committees were originally divided up into the Group Credit Committee (“GCC”) (for commercial loans in excess of € 20 million) and all UK credits, the Local Credit Committee (“LCC”) (for commercial loans up to €20 million) and the Residential Mortgage Credit Committee (“RMCC”).

■ Credit committees for GCC and LCC are held weekly. RMCC is held up to three times per week.

■ The GCC and LCC were merged in March 2014.

■ The GCC was chaired by the Chief Risk Officer (“CRO”) and the LCC by a member of IBRC Credit Risk. Members included representatives from Group Credit Risk and one of the Supervisory Committee (Kieran Wallace (Chairman), Eamonn Richardson or John Hansen). IBRC staff were invited to attend for the purposes of presenting to the committees.

■ The credit committees can approve group credit exposures within Commercial and Residential Credit and Recovery policies as well as approving individual credit applications within delegated authority from SLs.

■ Credit was sanctioned in limited circumstances where necessary to protect underlying loan value.

Senior

Management

Meeting

■ The Senior Management Meeting has been delegated authority from the SLs to manage IBRC’s day-to-day affairs.

■ Its role is to:

– propose the policies, processes and standards under which IBRC will execute the wind up strategy;

– assist in developing the work-out plan for submission to the SLs; and

– oversee implementation of the agreed work-out plan in support of the SL.

■ The Meeting is chaired by Declan Keane (KPMG partner) and its members include IBRC senior management and KPMG workstream leaders.

Regulatory and Compliance workstream: Corporate

governance structure of IBRC (in SL)

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Committee Summary

ALCO ■ The ALCO has no decision making authority. The ALCO proposes and makes recommendations to the Supervisory Committee for their approval in relation to the risk control framework, hedging strategies and transactions and asset, liability and liquidity management.

■ The role of the ALCO is defined as:

– The identification, management and monitoring of foreign exchange, interest rate risks, liquidity, funding and regulatory reporting;

– reviewing hedging and funding requirements of the balance sheet and IBRC’s risk profile; and

– proposing and recommending hedging strategies and transactions to the Supervisory Committee for their approval.

■ The ALCO is chaired by Declan Keane (KPMG partner) and its members include Eamonn Richardson and IBRC senior management across treasury, risk and finance as well as other KPMG staff.

Equity

Investment

Committee

■ The Equity Investments Committee (“EIC”) has no decision making authority but will make recommendations to Supervisory Committee as the sanctioning authority.

■ The Committee is charged with dealing with requests from the subsidiaries in which IBRC holds equity shares.

■ The Committee is chaired by a KPMG workstream leader and its members include Eamonn Richardson and the CRO.

Internal Audit ■ The role of Internal Audit is to manage a continuous auditing platform in order to provide assurance on the day to day operation of IBRC’s internal control, risk management, and governance procedures during the liquidation process to all stakeholders as key processes change due to the liquidation status. Internal Audit focus is on those areas with heightened risk or regulatory requirements.

■ Internal Audit carry out investigative work on specific control weaknesses or incidents and independently investigate staff as required by IBRC’s disciplinary procedures.

■ Internal Audit continue to act as protected disclosure officer and owner of IBRC’s whistle blower policy.

■ Internal Audit are also charged with the completion of various legacy related internal audit requests in relation to both INBS and IBRC.

■ Other Internal Audit activity includes:

– on-going participation in risk and control committees as observer;

– following up and validation of relevant audit recommendations, including a continuation of reporting to CBI on progress with outstanding audit recommendations; and

– mandatory audit assignments and coverage which is still deemed relevant for CBI and the European Banking Authority (“EBA”).

Asset Quality

Forum■ The Asset Quality Forum formed part of IBRC’s management of commercial credit risk and was chaired by the CRO and met on a monthly basis.

■ Its purpose was to:

– review of the circumstances and assumptions underlying an estimated movement in provision;

– ensure consistency of approach on provisioning across ROI and UK; and

– endorse the assumptions and resulting move in the provision.

■ The Asset Quality Forum ceased in November 2013 and alternative monitoring arrangements put in place via Group Risk on provision movements, with all movements > €10 million reported to GCC.

Residential

Mortgages

Risk

Management

Committee

■ The RMRMC formed part of IBRC’s management of retail credit risk (primary dwelling and residential investment property). Its purpose was to oversee at a portfolio level arrears management, impairment levels and make recommendations on policy related matters.

■ The RMCC has no decision making authority and recommendations are made to Supervisory Committee.

■ The RMRMC is chaired by the CRO and its members include senior management across residential mortgage business, as well as risk and finance


governance structure of IBRC (in SL) (continued)

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51


governance structure of IBRC (in SL) (continued)

Supervisory Committee* (sole authority is vested in the SLs)

Asset & Liability Committee

Credit Sanctioning Authorities

(GCC/LCC/RMCC)

Senior Management Meeting

Equity InvestmentCommittee

Internal Audit

Note: Has decision making authority (delegated by SLs).

No Decision Making Authority.

.

Operations

workstream

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Operations workstream: key highlights

16 weekends planned in next 7 months to manage the entry into and exit from TSAs plus migration of

information to purchasers/service providers within the terms of the Loan Sale Agreement (“LSA”)/TSA.

Working with NAMA to close out NAMA PI and NAMA Managed legacy deeds (c. 4,500) and file

retrieval.

Managing Section 11 (Pre completion) requirements and TSAs for 11 purchasing SPVs.

Significant work required to re-establish banking operations and return IBRC in SL to pre-liquidation

level of BAU operational/payment processing capability against background of c. 50% staff attrition.

Dealing with an average of 1,500 Section 95 requests, plus another 1,500 business related requests per

month.

Over 2,500 workshops held to support sale of loan portfolios to third parties (including proposed NAMA

acquisition) required to develop and execute sales and transition of over €19 billion in assets to portfolio

and individual purchasers.

Delivery of 4,500 files to Capita, 1 million electronic files and a further 1.2 million emails to NAMA/Capita

as part of transfer of Primary Servicing to Capita on behalf of NAMA.

Ongoing management of operational risks associated staff attrition, fraud, compliance, legal and

governance.

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Operations workstream: Non NAMA

Workstream overview

■ Key roles identified in all areas of the business to facilitate contingency planning.

■ Risk and Control Sell Assessment.

■ Operational calls/working groups tracking and monitoring any new risks arising during SL.

■ Manage change control process with Deal/Migration teams and purchasers/NAMA.

■ Operate business as usual to protect the assets/interests of IBRC.


■ Identify and manage issues arising from daily/weekly meetings and working groups regarding day to day operations and planned operations during the 11 TSAs and transfer of operations to the individual purchasers.

■ Develop TSA for acceptance by purchasers as part of overall sales process with third parties. TSA teams put in place with agreed roles and responsibilities in accordance with the respective LSAs.

■ Managing Section 11 requirements for 11 purchasers SPV LSAs through to completion dates.

■ Accommodate 16 weekends for the set up and exit from TSA, migration of customer related information to purchasers/service providers over next 7 months.

■ Commence planning for final sale of loans that were remain unsold.


■ Heavily dependent on employees continuing to use existing risk control mechanism, concerns were addressed regarding the level of diligence and motivation of staff to maintain standards.

■ Develop and agree solutions for Sub Participation and Total Return Swap obligations.

■ Change control process agreed with Deal and Migration teams and purchasers/NAMA.

■ TSA preparation and operational meetings with purchasers and IBRC staff.

■ Tracking of leavers on a weekly basis to identify gaps. Key roles identified in all areas of the business to facilitate contingency planning in the event these individuals leave.

■ Redeployment, vendor support and agency staff continue to be used to mitigate staff attrition rates.

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Operations workstream: NAMA

Workstream overview

■ Significant work required to re-establish and meet obligations arising from NAMA PI status from date of liquidation to date of transfer to NAMA/Capita.

■ Significant level of preparatory work required to plan for the potential acquisition of IBRC SL assets that were not sold.

■ Work was split into Legacy: original NAMA PI and NAMA managed migration to Capita, plus preparation for new NAMA PI assets.

■ Legal exit planning and delivery continues to be worked through for completion by July 2014.


■ Development of New SLA to cover planned new asset transitional servicing for NAMA.

■ Development of asset transfer legal documentation.

■ Delivery of 4,500 files to Capita, 1 million electronic files and a further 1.2 million emails to NAMA/Capita as part of transfer of Primary Servicing to Capita on behalf of NAMA.

■ Development of e-discovery tool and process to manage transfer of significant level of documentation, supplemented by manual quality assurance of files prior to transmission to NAMA/Capita.

■ Established new Service Delivery Management Team to facilitate servicing of NAMA Legacy services: service required until June 2015, when PI status expires.

■ Working with NAMA to finalise transfer of remaining customer records and data in advance of PI status expiring in June 2015.

■ Working with NAMA to close out NAMA PI and NAMA Managed legacy deeds (c. 4,500) and file retrieval.

■ Dealing with an average of 1,500 Section 95 requests, plus another 1,500 business related requests per month.

Loan migration

workstream

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Loan migration workstream: key highlights

Completed the migration of NAMA Case Management and operations to Capita relating to the original NAMA PI book - Phase 1: August 2013, Phase 2: Dec 2013 and Phase 3: June 2014.

Implementation of secure remote access to enable NAMA service providers access to core IBRC systems.

Development of IT plans and resources required to support planned migration of asset/customer data to third parties, including migration of Legacy NAMA PI services to Capita as Primary Service provider.

Agreement and delivery of migration aspects for 11 TSAs being put in place for third party purchasers in Ireland and UK.

Data extraction projects are underway to provide a platform for migrating the data to third party service providers.

Key resource management including backfilling of roles across IT, Finance and Operations functions.

Segregated data for the main financial systems to support the loans sale process for both commercial and residential portfolios.

Identifying and managing risks associated with staff attrition and loss of corporate knowledge.


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Loan migration workstream: overview

Workstream overview

■ Segregation of data and transition of people, process and portfolios for servicing of TSAs and Interim Operating Models for NAMA PI and third party purchasers.

■ Design, planning and implementation activity for migration of loan sales data from IBRC systems onto third party/NAMA systems and their associated Service Providers.

■ Segregation and migration of unstructured data in the form of electronic data (emails and shared drives) and physical files.

■ Governance and programme management of key activities including third parties engaged in extraction activity.


■ Co-ordinating with numerous Service Providers both for NAMA and third parties with different approaches and timelines for trial migration, migration and completion.

■ Providing requested information that was shared in a timely manner while ensuring that all information was correct and that there were no breaches of information sharing.

■ Ensuring IBRC operates to the strict quality assurance requirements as set by the various regulatory bodies.

■ Identifying and managing risks associated with staff attrition and loss of corporate knowledge.

■ Executing a high volume of parallel projects to support Loan Sales which placed a strain on staff across Finance, Operations and IT.

■ Planning of additional transition activity alongside business as usual, month end requirements and annual leave.

■ Planning and organising extraction of over 12,000 physical files over 6 weekends moving c. 200 crates each weekend.


■ Segregated data for the main financial systems to support the loans sale process for both commercial and residential portfolios.

■ Completed the migration of NAMA Case Management and Operations to Capita relating to the original NAMA PI book.

■ Backfilling of roles across all three areas across IT, finance and operations.

■ Evergreen Purchaser TSAs were executed. On average, 12 people supporting migration and transition activity over key weekends (from Friday through to Saturday/Sunday). 16 weekends over the next 4 months.

■ Implementation of secure remote access to enable NAMA service providers access to core IBRC systems.

■ Data extractions projects are underway to provide a platform for migrating the data to third party service providers.

■ Agreement on migration aspects for TSAs being put in place for third party purchasers in Ireland and UK.


■ Completion of the migration of all key PI legacy data from IBRC systems to NAMA/Capita including trial migration activity, live cutover weekend and migration of auxiliary systems due to complete 6 June 2014.

■ Completion of all exit services with NAMA including Legal, IT and Operations exit services.

■ Execution of Stone, Sand and Rock and Salt purchaser TSAs including in terms of provision of data/reports at start, during and at end of TSAs.

■ Migration and close out activity of all loan data, including physical files (30,000) for Sand, Stone and Rock and Salt data.

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Loan migration workstream: Timeline of key events

■ NAMA PI: Approach for live migration agreed. Data cut provided to NAMA/Capita for testing.

■ Commercial: TSA for services to Evergreen purchaser complete. Stone project underway in relation to Deeds Retrieval Process. Master Servicer Extract testing Round 2 commenced. NAMA announced Capita as their selected service provider.

■ Commercial: Planning for provision of TSA services for Rock/Stone portfolio underway

■ Residential: Phase 1 segregation testing complete

■ NAMA PI: Consolidated programme plan for final solution and final migration exit plan.

■ Commercial: Initial meetings held with NAMA and Certus. High level design and planning commenced.

NAMA PI:

■ Interim migration of Capita.

■ Planning for final migration phase commenced.

■ Design and plan for the extraction of data from the core systems developed.

NAMA PI:

■ Detailed plan prepared.

■ Portfolio migration solution designed.

■ File and correspondence strategy prepared.

Jun 2013 Jul Aug Sep Oct Nov Dec Jan 2014 MarFeb

■ NAMA PI: Capita Phase 2b transition successfully completed.

■ Commercial: Detailed planning and requirements activity with Certus including interconnectivity with IBRC for secure remote access.

■ Residential: Kick-off session held with NAMA Residential Service Provider.

NAMA PI:

■ Revised exit plan submitted to NAMA.

■ Agreement on 42 SLAs with Capita of loans worth €2.5 billion.

■ Transition date agreed by NAMA, Capita and IBRC in SL.

■ Planning for transition completed.

■ Plan for physical, electronic files and e-mail transfer in place.

■ Structure of Service Delivery Management Team (“SDMT”) outlined.

■ NAMA PI : Workshops with Capita to support preparation of detailed scope/plan for Phase 3.

■ Commercial: Team fully mobilised and engaged with NAMA and Certus to plan phasing and service fulfilment.

■ Residential: Initial meetings held with NAMA. Day one case management requirements considered.

■ NAMA PI: Walkthrough/agreement of key milestones for Phase 3 with Capita/NAMA/SLs.

■ Commercial: Workshops commenced with Certusand IBM (Phase 2/3).

■ Commercial: Master Servicer Extract and reporting testing Round 1. NAMA announced re-tendering for service provider. Engagement with Certus ceased.

Apr May

■ NAMA PI: Trial and live migration dates agreed.

■ Commercial: Planning for TSA services for Rock/Salt and Stone underway.

■ Residential: Planning for TSA services to purchases of Sand underway.

■ NAMA PI: Phase 3 trial migration preparation work underway.

■ Commercial: Engagement with purchasers and their service providers to plan transition and migration activity.

■ IT and business cutover activity planning ongoing.

■ Residential: Pre-TSA purchaser operations workshops on-going to clarify TSA operational deliverables. IT and business cutover activity planning ongoing.

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Loan migration workstream: Key milestones

Weekend FRIDAY 11/4 18/425/42/5 9/5 16/523/530/56/6 13/620/627/6 4/7 11/7 18/7 25/7 1/8 8/8 15/8 22/829/85/9 12/919/926/93/10 10/1017/1024/1031/10

Capita P3 BPT Live Migration

Capita P3 Trial Migration

Capita P3 LiveMigrationContin-

gency Date

Capita P3 Close out IBRC A/CsContingency

Date

ROCK/SALT Lonestar Migration 1 EXIT

STONE - Carval/GS EXIT Purchaser has confirmed 1 month TSA

STONE - Deutsche Bank 1 TBC May extend because of 2nd closing date

SAND - Oaktree Option to extend by 2 months

SAND - Lonestar Option to extend by 2 months

STONE - Lonestar

=Start of TSA / Segregation = Migration / start of TSA =End of TSA / Closure activity = unavailable weekend 1, 2 …number of closing / migration weekends

April May

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June July August September October

HR workstream

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HR workstream: key highlights

Met with ROI employees to explain their redundancy and minimum notice entitlements, completed calculation of their claims and submitted the claims on their behalf.

Management of employee relations and contract extensions as the liquidation and sales processes progressed.

Oversight of the HR function (including the processing of payroll) with responsibility for 971 employees across 10 offices, including 135 based in London and 34 based in Belfast at the date of the SL.

Completed the statutory redundancy and TUPE consultation process in the UK on transfer of primary servicing of NAMA PI book to Capita.

Successfully managed communications and industrial relations to ensure orderly wind down of business and adequate staffing levels as the SL progressed.

Meetings/discussions held with Mercer (pension scheme administrators) and liaised with Mercer/ Irish Pensions Trust in relation to existing pension schemes. Arranged for the Defined Contribution scheme to remain in place for the employees.

Following successful conclusion of the loan sale process, agreement to provide a fund of €5.5 million for certain employees to be administered by Kieran Mulvey.

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HR workstream: overview

Workstream overview

■ The HR workstream is responsible for dealing with HR and employee queries. The core strategy of this work stream includes:

– Ongoing and regular communications with all staff during the SL to inform them of the SL plan and ongoing developments as appropriate, and to facilitate staff queries and questions;

– Processing of payroll/salaries as scheduled;

– Processing of statutory entitlements arising from redundancy: salary arrears, minimum notice and statutory redundancy payments;

– HR advice and guidance on implementation of staff policies and conditions of employment; and

– Identification of staff in business critical posts/retained staff and phased terminations as the SL and sales processes progressed.


■ Staff retention and the management of staff attrition represented a significant challenge throughout the SL process.

■ The possibility of industrial action taking place following the SL having a negative impact on normal business operations as well as the SL process.

■ Management of HR issues around the transfer of the NAMA Book to Capita, in particular.

■ The HR team had to deal with a broad range of queries from employees following the SL, including questions on maternity leave, pensions and other employee entitlements.


■ Identification and analysis of Critical Roles have been ongoing since the SL process started. Resource retention and contingency planning have also been monitored on a weekly basis.

■ Recruitment plans and acting up allowances have been put in place to ensure sufficient resources are available to manage the orderly wind down.

■ Managed the processing of statutory and minimum notice applications and payments.

■ Successfully managed redundancy and TUPE consultation in relation to transition of management of NAMA assets to Capita. The majority of employees in NAMA loan unit that did not transfer to Capita/NAMA were reassigned to the RMI division. A small number of staff had their contracts terminated.

■ Negotiated the continuance of main defined contribution pension scheme for the SL period.


■ Establish TSA staffing requirements and ensure sufficient resources are maintained.

■ Manage exit of staff from Regional Offices.

■ Pay statutory minimum notice claim to current and ex employees.

■ Manage any HR issues arising out of the transfer of remaining loans to loan purchasers.

■ Continued communications to employees on SL progress.

■ Manage ongoing employment claims in the UK arising out of Northern Ireland Redundancy Payment Service view of date of termination.

■ Storage of HR files and other documentation.

■ Discharge preferential claims.

IT workstream

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IT workstream: key highlights

IT Operations currently support 246 individual applications, these cover the core banking applications including critical IT infrastructure applications.

IT Operations manage approximately 400 tasks per day and comprised 83 staff on appointment.

Actively managed 27 live change projects during the period of the SL.

IT Operations manage a data real-estate of approximately 250 terabyte. Services are provisioned across two Live Data Centres and one Test and Development Data Centre.

We have provided oversight to 219 eDiscovery cases and 9 Data Subject Access Requests to date.

Release management (to support business change project and various software releases): 33 weekends worked. “Patch” changes/upgrades to infrastructure: 16 weekends worked.

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IT workstream: overview

Workstream overview

■ Ensure key IT processes and services are maintained to support IBRC and the SL programme.

■ Ensure an appropriate data retention hold remains in place to preserve and/or retain access to data and documentation.

■ Ensure existing Service Level Agreements (“SLAs”) with NAMA were maintained for IT services.

■ Support the loan sale process and migration of data to the successful bidders.

■ Support electronic discovery (eDiscovery) for ongoing litigation, regulatory enquiries and migration activity.


■ Critical suppliers threatened to withdraw service which would have had an impact on operations and technology infrastructure.

■ Pre liquidation service levels agreed with NAMA and AIB had to be met.

■ IT staff numbers currently stand at 63 people, this is down from 83 people in March 2013. The loss of institutional knowledge has been a major challenge within IT Operations. Out of the 63 IT staff remaining, only 42 pre date the SL.

■ Risks associated with staff attrition and loss of corporate knowledge as IT senior management and technical resources leave continues to remain high.

■ Significant volume of project work to support Loan Sale activities has placed a strain on IT staff capacity.

■ Ongoing commitments to meet and service litigation and regulatory enquiries results in significant effort and time to produce relevant data to meet these requests.

■ Increased risk that staff may breach data, security and confidentiality policies.


■ A Critical Suppliers Group was established to ensure all critical suppliers continue to maintain service to IBRC during liquidation.

■ Data room due diligence was undertaken with Merrill, data room providers, to ensure that data stored in the data rooms was secure during the Loan Sales process.

■ Engagement with IT service providers and the backfill of IT management and resources to mitigate risk of staff and knowledge loss.

■ Strict security and operational controls were maintained and continuously monitored. A stable IT service was maintained throughout the 15 month period.

■ A Data Leakage Prevention risk assessment utility (Ironport) was applied across the complete IBRC environment to ensure appropriate data protection was maintained during the SL.

■ Implementation of Clearwell to support eDiscovery processes.

■ IT Operation have completed shutdown/migration (from an IT perspective) of 3 Dublin offices (Baggot Street/Heritage House/Connaught House), two Irish regional offices (Limerick/Waterford) and one UK location (Belfast, Centre Point) post SL. This included the consolidation of UK core IT systems and services to Dublin.

■ Successful completion of business continuity and disaster recovery testing for 2013.


■ Closure of regional offices and retention and storage of hardware, network kit and data.

■ Continued monitoring and assessment of IT resources and risk mitigation approaches to maintain key individuals and knowledge.

■ Strategy to decommission IT services and systems and determine appropriate support model required for storage and retrieval of data.

■ Continued support for migration programmes including provision of IT services during TSA periods.

■ Further enhancement to eDiscovery platform and processes.

Facilities

workstream

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Facilities workstream: key highlights

Dealt with 22 landlords in relation to lease negotiations/surrenders and 59 tenants in relation to rent collection and recovery of rent arrears.

Successfully surrendered/disclaimed 11 onerous leases in ROI and 3 in the UK.

Management of group property requirements for IBRC across 10 locations in Ireland, Northern Ireland and the UK.

Manage the sale of surplus properties including 33 former INBS Branches and 14 apartments owned by IBRC.

Managed property requirements for IBRC as employees numbers reduced and effected location closures as appropriate.

Maintaining Financial Lines insurance and Non Financial Lines insurance cover for the duration of the SL.

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Facilities workstream: overview

Workstream overview

■ Management of group property requirements.

■ To optimise operational efficiencies in the IBRC’s buildings during the duration of the SL. Maintain professional services, maintenance contracts, office supplies and equipment.

■ Provide a safe and healthy working environment for staff throughout the SL. Ensuring group compliance with legislation, encompassing the group’s safety statement, safety management system and evacuation planning.

■ Maintenance of utilities and environmental services across all properties, to include security systems, manned security, building maintenance, staff re-locations and management of maintenance contracts.

■ Maintaining Financial Lines insurance cover for the duration of the SL including : Property Damage/Business Interruption, Repossessed Properties, Encumbered Properties, Employer’s Liability, Public Liability, Motor Fleet, Personal Accident/Travel insured and Engineering.

■ Maintaining Non Financial Lines insurance cover for the duration of the SL including : Professional Indemnity, Crime, Directors and Officers Liability.

■ Sale of the 33 former INBS branches and the 14 apartments owned by IBRC.


■ Successfully surrendered/disclaimed 11 onerous leases in ROI and 3 in the UK.

■ Exit from Burlington Road and Heritage House, including the surrender of the leases.

■ Managed property requirements as employee numbers reduced.

■ Sale of 14 apartments in Dublin which were owned by IBRC.


■ Sale of 33 former INBS branches. 20 properties have been sold to date. Of the remaining 13 properties, 2 are currently contracted for sale, 8 have been sale agreed and 3 are being marketed for sale.

■ Sale of the IBRC and INBS art collections: 134 lots have been sold, with 4 pieces still unsold.

■ Document Management: file retrievals and transfer of 4,500 customer files to Capita (re NAMA loan transfer).

■ Project manage the Commercial Rates revaluation process for all Dublin properties.

■ Closure of the regional offices:

– Limerick Office: 9 May 2014;

– Waterford Office: 16 May 2014;

– Galway Office: 30 May 2014;

– Cork Office: 13 June 2014;

– Belfast Office: 31 July 2014; and

– London Office: 24 June 2014 relocating to Tower 42 until 31 August 2014.


■ Conclude the sale of the remaining INBS branches.

■ Manage the exit process of the regional offices.

■ Work in conjunction with ALG to progress the recovery of rent arrears from six tenants.

■ Document management: currently assessing requirements to meet the on-going and increasing Section 95 requests from NAMA to the Service Delivery Management Team.

Deposit

workstream

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Deposits workstream: key highlights

To date, payments of €28.6 million and €109.8 million through DGS and ELG schemes respectively have been paid out. The remainder will be repaid as claim forms are submitted for the ELG scheme.

We worked closely with ALG and the IBRC relationship teams to ascertain if a right of set-off exists with regard to depositors indebted to IBRC.

As of 7 February 2013, there were 2,442 deposit accounts with a total value of €333.8 million to be either paid out through the DGS/ELG schemes or set-off against loan balances.

To date, we have obtained approval for and processed 527 deposit accounts for set-off with a total value of €98.6 million.

We met with NAMA to agree appropriate review processes over NAMA related deposit accounts and we are liaising with them on a regular basis in order to complete the reviews and repayments.

We have reviewed and approved 1,797 deposit accounts with a total value of €215.7 million for payment through the DGS/ELG Schemes.

Timely and professional communication with deposit holders following pay-out of deposit funds through DGS/ELG or set-off of deposit funds against related outstanding loans.


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Deposits workstream : Overview

Overview

■ The Deposits workstream is responsible for administering the DGS and ELG Scheme. The DGS and ELG Schemes were activated upon appointment of the SLs to provide compensation to eligible depositors of IBRC. Eligible deposits of up to €100,000 for an individual or small company and €100,000 for every individual with a joint account in IBRC are protected by the DGS. Eligible deposits above this limit are guaranteed under the ELG.

■ On 7 February 2013, there were approximately 2,442 deposit accounts in IBRC valued at €333.8 million. Eligible account holders were either compensated by DGS from CBI and/or through ELG administered by NTMA.

■ This was the first time claims were made under the DGS and ELG schemes.

■ Under the IBRC Act, the SLs were obliged to offset deposits where the depositor is indebted to IBRC and a right of set-off is established by the SLs or the legal advisors, ALG.


■ We met with both the CBI and the NTMA to agree and set up the processes and procedures for confirming the total deposits, which ones could be paid to customers and which ones would be offset and therefore not payable.

■ We subsequently met with ALG to understand the criteria for offset under the NAMA Act.

■ We reviewed every deposit and classified them into the relevant categories:

– Deposits for offset;

– Deposits payable under DGS;

– Deposits payable under ELG;

– Deposits not eligible under either criteria and therefore unsecured; or

– Other accounts which could be eligible for payment: uncashedcheques from deposit accounts and credit loan balances.

■ In respect of each deposit we had to review the type of deposit to ascertain if it was eligible under DGS as there are 17 different categories of deposit accounts, not all of which would be paid e.g. only certain types of pensions were paid under DGS and collective investment schemes were not eligible under DGS.

■ We worked alongside the ALG team to locate documents in respect of the loans which were potentially to be offset.

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Deposits workstream (continued)


■ As at 9 May 2014, 1,797 deposit accounts valued at €215.7 million have been marked for payment, of which 1,340 accounts have been paid out by CBI and NTMA. The other 457 accounts will be paid out by CBI on a phased basis or subject to a claim being submitted to NTMA by the account holder.

■ As at 9 May 2014, 527 deposit accounts valued at €98.6 million have been marked for set-off. A small number of these account set-offs have yet to be completed.

■ 16 deposit accounts with a value of €2.4 million are under investigation by NAMA.

■ 15 deposit accounts with a value of €7.8 million are under investigation by IBRC and are being released for payment on a phased basis pending completion of any investigation.

■ No claim is anticipated for a further 88 deposit accounts with a value of €9.3 million where the beneficiary is unknown/IBRC or where the amounts are insignificant.

■ The SLs have issued explanatory letters together with deposit and interest statements to depositors following the closure of their respective accounts.

Quantum of Deposit Accounts Value of Deposit Accounts (€m)

Value of Deposit

Accounts €’000

Deposit accounts payable under DGS - €39.3

Deposit accounts payable under ELG -€152.6

Deposit accounts for

set -off €98.6

Ineligible deposit

accounts (i.e. unsecured) -

€30.0

Deposit accounts

where no claim is anticipated -

€9.3

Quantum of Deposit Accounts

Deposit accounts payable under DGS - 1,586

Deposit accounts payable under ELG -526

Deposit accounts for set-off - 527

Ineligible deposit accounts (i.e. unsecured)

- 89

Deposit accounts

where no claim is anticipated -

88

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Key issues arising/Risks/Challenges

■ Insufficient documentation being available for some customers which required extensive investigation by the team to resolve the issues.

■ Where a Receiver/Administrator has been appointed over a depositor, it can be difficult to establish whether they exercise control over the depositor’s account(s). In these instances, we worked with the Receivers/Administrators to confirm their charge.

■ Some loan documents require that an ‘Event of Default’ must have occurred before set-off can occur. Establishing this can prove complicated and we worked with the relationship teams and legal teams to confirm the facts.

■ There are some customer accounts with numerous tax and legal complications. As a result, set off is not straight forward.

■ All uncashed cheques relating to deposit accounts and credit loan balances are investigated in full which can prove to be time-consuming.

■ Some uncashed cheques relate to NAMA linked deposit accounts. These cheques cannot be processed for payment until NAMA releases these for payment.

■ From a tax perspective, the SLs do not have access to the borrowers’ previous Capital Gains Tax gains and losses where a gain arises on a foreign currency deposit.


■ The SLs will continue to liaise with the CBI and NTMA to clear the remainder of the deposit accounts for payment (subject to a claim being submitted for ELG).

■ The estimated outcome of the payout under both the DGS and ELG Schemes continually changes due to legal reviews of the deposit accounts together with decisions made by both CBI and NTMA.

■ Currently we believe the maximum amount payable under the ELG scheme and the DGS will be €153.3 million and €40.2 million, respectively. The above figures are estimates only and are subject to change as set off is applied and further deposits are added.

■ In collaboration with ALG and IBRC staff, final decisions are being made on remaining potential deposit accounts set-off.

■ The same controls and investigations used on deposit accounts have been undertaken to resolve issues with uncashed cheques relating to deposit accounts and credit loan balances.

■ We are completing the issuance of deposit statements and DIRT certificates as the deposits are paid by the DGS/ELG or set-off.

■ The SLs will continue to work with the Tax team, ALG and IBRC staff to complete the remainder of the set-offs once identified.

■ The SLs will continue to work with the Tax team to ensure that the Deposit workstream is fully compliant with all potential tax liabilities.

Deposits workstream (continued)

Tax

workstream

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Tax workstream: key highlights

Prepared and filed Local Property Tax (“LPT”) returns and payments for over 200 properties.

Tax review of over 250 mortgagee in possession transactions.

Analysis of the tax implications of IBRC realising its interest in Tutelana Limited, which held an interest in Liberty Insurance and its disposal of branch and US properties.

Analysis of the tax implications of the winding down of various Irish and foreign subsidiaries.

Provision of extensive tax support to the Deal (loan sale) workstream, including tax implications

of the loan sales in each of the relevant jurisdictions and cash repatriation from overseas

subsidiaries.

The SLs’ tax team has been working with IBRC personnel to ensure that IBRC’s tax affairs are

managed effectively in order that all relevant tax obligations are met on a timely basis.

Recovery of outstanding refunds which included a UK tax refund of Stg£23 million and US federal tax refund of US$3.5 million.

Average monthly hours worked by KPMG staff on this workstream: 1,334 hours.

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Tax workstream: overview

Overview

■ IBRC is a complex organisation which gives rise to tax obligations under a very broad range of headings. The key tasks undertaken by the Tax workstream are described below:

Operation of IBRC’s Irish tax function

■ The SLs tax team has been working with IBRC personnel to ensure that IBRC’s tax affairs are managed effectively in order that all relevant tax obligations are met on a timely basis. This includes:

– Preparation and filing of Irish corporation tax returns for IBRC and 21 of its Irish subsidiaries;

– Preparation and filing of tax information returns as required (encashment tax returns, EU Savings Directive returns, return of payments to third parties, etc.);

– Operation of the VAT tax regime (including related tax filings and payments);

– Operation of the professional services withholding tax regime (including related tax filings and payments);

– Operation of the tax relief at source regime for mortgages (including related tax filings);

– Preparation and filing of LPT returns and payments for over 200 properties;

– Operation of the PAYE regime;

– Engaging with Revenue in relation to an open tax audit and historic tax matters; and

– Dealing with Revenue attachment notices.

IBRC’s US tax obligations

■ Analysis of tax implications of IBRC making Chapter 15 bankruptcy filing.

■ Preparation and filing of US federal and over 30 state tax returns.

■ Recovery of outstanding refunds which included a US federal tax refund of US$3.5 million.

IBRC/INBS UK tax obligations

■ Review and supervision of IBRC’s tax compliance arrangements.

■ Supervision of the preparation and filing of UK corporation tax returns.

■ Extensive engagement with HMRC in relation to open enquiries with respect to prior period tax returns. To date, this has resulted in tax refunds of over Stg£23 million.

Asset recovery

■ Analysis and review of the tax implications of loan enforcements.

■ Tax review of proposed customer reorganisations.

■ Tax review of over 250 mortgagee in possession transactions.

■ Addressing the complex tax compliance issues that arise for IBRC as mortgagee on taking possession of mortgaged property and on their ultimate realisation.

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Tax workstream (continued)

Loan sales

■ The SLs’ tax team has provided extensive tax support to the loan sale workstream:

– Analysis of the tax implications of the loan sales in each of the relevant jurisdictions;

– Dealing with tax issues raised by purchasers;

– Tax review of the loan sale agreements entered into with each of the purchasers;

– Tax review of TSAs;

– Preparation for the proposed transfer of loans to NAMA; and

– Analysis of the tax implications of cash repatriation from overseas subsidiaries.

Other asset disposals

■ Analysis of the tax implications of IBRC’s realising its interest in TutelanaLimited, which held an interest in Liberty Insurance.

■ Analysis of the tax implications of surrendering various leased properties.

■ Analysis of the tax implications of disposing of various branch properties.

■ Analysis of the tax implications of US asset disposals.

■ Wind down of subsidiaries.

■ Analysis of the tax implications of the winding down of various Irish and foreign subsidiaries.

Costs and fees

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Overheads analysis from 7 February 2013 to 31 March 2014

€m Notes Actual Budget % Variance

Staff costs

Salaries 1 63.3 78.2 (19.0%)

Pensions 6.3 9.7 (34.6%)

Contractors costs 2 10.6 9.8 7.9%

Other 0.5 3.5 (85.8%)

80.7 101.2 (20.2%)

Administrative costs

Legal and professional 4 46.4 63.6 (26.9%)

Computer expense 13.9 10.4 34.0%

Insurance 5 6.3 4.1 52.5%

Other 5.3 15.5 (66.0%)

71.9 93.5 (23.2%)

Premises costs

Rent and rates 6 7.2 11.1 (35.0%)

Other occupational costs 3.7 6.8 (45.5%)

10.9 17.9 (39.0%)

Other (0.5) 6.6 (106.9%)

Total before SL related costs 163.1 219.3 (25.6%)

Actual overheads analysis

Notes

The table opposite details the general overhead costs of IBRC in SL for the period from 7 February 2013 to 31 March 2014. The principal matters to highlight are as follows:

1. Salaries were 19% below budget as actual headcount was 470 compared to the budgeted staff level of 518.

2. Contractor costs are 8% ahead of budget. There are 106 contractors engaged which was similar to budgeted contractor headcount.

3. Legal and professional fees are 27% less than planned. SL costs are shown separately.

4. Insurance costs were 53% over budget due to additional insurance requirements.

5. Actual rental costs are 35% less than budget principally due to timing differences and vacating surplus properties.

■ The SL has resulted in specific overhead cost savings which would not otherwise have been achieved.

■ The total forecast operating expenses for IBRC produced prior to the liquidation for the period 1 January 2013 to 31 December 2020 was €1.131 billion.

Source: IBRC in SL management accounts

1

2

3

4

5

1

2

3

4

5

The budgeted overheads presented in the table below represents the pre-liquidation budget prepared by IBRC management adjusting for certain cost

savings implemented following the SL.

Headline overhead costs before SL costs are circa €56 million (25.6%)

below budget for the SL period from 7 February 2013 to 31 March 2014.

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The table below details the nature and scope of the work streams that comprise the SL engagement

KPMG: workstream structure

Special Liquidator – KPMG work streams

Work stream Scope of workHeadcount

(Mar 2014)

Fees to March

2014 (€m)Peak

headcount

Average monthly

hours

Deal team ■ Design, implement and oversee the data preparation, independent valuation and sale process for each of the underlying loan portfolios.

■ Manage the borrower representation process and related legal matters.

57 20.6 134 7,392

Loan Management ■ Management of existing loan portfolios and lending operations for the commercial and residential portfolios. The workstream deals with borrowers to ensure business as normal continues. The regional offices are included within this workstream.

31 9.5 69 3,640

Finance, Regulatory and compliance and operations

■ Preparation of internal and external financial and regulatory reporting. Liquidity and Foreign Exchange risk management.

■ Effective unwind of balance sheet assets not included in the Deal workstream and development of a value realisation strategy for the subsidiaries and joint ventures interests.

■ Oversight of operational functions in IBRC in SL including (1) Lending services; (2) Treasury operations and (3) Supporting UK operations.

■ Liaising with relevant regulatory bodies and ensuring IBRC in SL is compliant with all regulatory and compliance requirements whilst supporting KPMG UK with UK regulatory and compliance issues.

■ Ensuring appropriate governance structures are in place in accordance with CBI/FCA guidelines.

24 8.5 50 2,689

Legal ■ Deals with legal issues arising in the course of the liquidation of IBRC including legacy issues.■ Recognition issues.■ Section 56 report and investigation.

3 1.2 9 392

Loan migration ■ Responsible for oversight and planning for migration of the NAMA PI loan book management to Capita and non NAMA loan portfolio management to respective purchasers and their service providers.

24 5.0 28 438

HR/IT/Facilities ■ Management of all HR and employee matters. This workstream is also responsible for IT, Property, Facilities and the overall Project Management Office.

12 2.7 27 989

Deposits ■ Administration and oversight of the DGS and ELG scheme. 3 1.0 12 453

Taxation ■ Effective management of IBRC tax affairs to ensure that (1) it meets its tax obligations on a timely basis (2) tax assets are realised; and (3) legacy tax issues are addressed.

59 3.8 69 1,334

Total (headcount) 213 52.3 330 17,327

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Principal legal advisors

Special Liquidation – Principal legal advisors

A &L Goodbody Linklaters

Deal Team ■ Lead transactional legal advisors on sale structure and principle transaction documents.

■ Extensive due diligence on assets across range of portfolios.■ Unprecedented title and other documentation retrieval exercise

throughout Ireland/Europe/US/UK.■ Valuation, NDA and Sales Process Letter work streams.■ Population of legal data rooms/data tapes.■ Data Protection advice and data scrubbing of VDR.■ Advice on Borrower Representation process, responses received and

segmentation.■ Bidder process briefing sessions and negotiations with successful

bidders.■ Managed external legal advisors (Irish, UK, US and c. 20 other

jurisdictions). ■ Competition law matters.■ Closing mechanics across multiple Irish portfolios and tranches.■ Other asset sales (including equity, sub bonds and other interests).■ Extensive planning with NAMA on potential transfer. ■ Project management team resources.■ Replacement as NAMA Servicer.■ Headcount of 112.

■ Lead transactional legal advisors on sale structure and principal transaction documents on the Rock and Salt portfolios.

■ Conducting transferability reviews on loan and hedging documentation across a range of portfolios.

■ Managing incumbent law firms on multiple security reviews across portfolios and reviewing outputs.

■ Extensive due diligence on assets and production of statistical data to documents results.

■ Liaising with PwC on valuation exercises.

■ Advising on VDR/data protection/competition law advice.

■ Assisting on the bidder process meetings with bidders and/or managing queries.

■ Drafting and negotiating loan sale deeds, with bidders and transfer documents (in c. 20 jurisdictions).

■ Drafting and negotiating TSAs.

■ Extensive work on establishing process for transfer of each asset and/or obtaining the relevant consents.

■ Co-ordinating signing, closing and related deliverables.

■ Advising on Evergreen and Stone portfolios.

■ Headcount of c. 90.

Treasury, General Banking, regulatory

■ Termination of market and borrower hedging arrangements.

■ Termination of CBI and bilateral funding arrangements.

■ Advice on new NAMA funding arrangements and collateral.

■ Ongoing banking and asset management advice (including Credit Committee issues).

■ Advice on regulatory matters.

■ Head count of 9.

■ Swap and derivative advice including in relation to transferability, in particular, structuring around consent issues (e.g. by way of total return swap or early termination and transfer of termination amount).

■ Advice on various regulatory matters e.g. financial promotions issues and consumer credit act issues.


Deposits and ELG ■ ELG Due diligence and claims categorisation work streams.

■ Set-off analysis on claims under ELG.

■ Advice on managing Day 1 accounts freeze.


■ Not applicable.

The table below details the roles and responsibilities of the principal legal advisors engaged in the SL process.

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Principal legal advisors (continued)

Special Liquidation – Principal legal advisors

A &L Goodbody Linklaters

Legal and litigation ■ Advice on mis-selling/over-charging claims.

■ Dealing with all litigation against SLs (sales process and Judicial Review actions etc.).

■ Managing certain existing litigation.

■ Chapter 15 in US and all related applications.

■ Headcount of 14.

■ General litigation advice/strategy on threatened/issued proceedings as well as more specific advice in relation to certain borrowers and representations when required.

■ Consideration of jurisdictional issues and interaction of English law with the IBRC legislation and Irish law generally.

■ Chapter 15 issues including Recognition and Section 12 Motion.


Northern Ireland ■ Extensive N.I. due diligence exercise.

■ Title and documentation retrieval exercise.

■ General liquidation advice to SLs.

■ Closing mechanics across a range of portfolios.

■ Headcount of 10.

■ Instructed N.I. incumbent firms on extensive Rock/Salt due diligence exercise and closing mechanics.

■ Advice on UK subsidiaries and discussions with their legal advisers in relation to the sales and transfer process.

■ Headcount (included in Deal Team).

Employment and Pensions

■ Employee termination / retention and related advice.

■ Advice on TUPE.

■ Transitional issues.


■ Employee termination/retention and related advice.

■ Advice on TUPE.


Advice to SLs on miscellaneous issues and project management

■ Advice on Foreign recognition.

■ Advice on IBRC Act and various Ministerial Instructions.

■ Liaising with DOF Legal.

■ Section 56 Report issues.


■ Advice on UK Recognition of the Special Liquidation.

■ Advice on processes around ongoing management and/or redemption of loans, disposals and partial repayment.


Total ■ Total Headcount of 172

■ Total hours spent to 31 March 2014: 103,376 hours.

■ Total Headcount of c. 135

■ Hours spent to 31 March 2014: 43,845 hours.

The table below details the roles and responsibilities of the principal legal advisors engaged in the SL process.

Note: Please note that headcount numbers for A&L Goodbody and Linklaters are approximate and the total does not match individual sections as fee earners may have worked on more than one work stream. Please also note that the “Total Headcount” does not include fee earners who have recorded less than 50 hours.

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Principal professional advisors

Special Liquidation – Principal professional advisors

Responsibilities and scope

KPMG ■ Special Liquidators;

■ Taxation Advisors;

■ Deal Advisors; and

■ Migration Advisors.

ALG ■ Please refer to pages 82 and 83.

Linklaters ■ Please refer to pages 82 and 83.

Arthur Cox ■ Primary legal advisor on Sand and a lead legal advisor on Stone. Responsible for general legal advice, deal advice, contract negotiation, documentation management, project management of Irish and non Irish firms, legal and security reviews and other legal diligence.

Byrne Wallace ■ Legal advisor on certain Evergreen tranches and legal advisor on Stone. Responsible for: general legal advice, deal advice, contract negotiation, documentation management, project management of other firms, legal and security reviews and other legal diligence.

Maples and Calder ■ Legal advisor on certain Stone tranches. Responsible for: general legal advice, documentation scheduling, project management of other firms, legal and security reviews and other legal diligence.

Skadden , Arps, Slate, Meagher & Flom LLP

■ US Chapter 15 application.

■ Other US related legal matters.

RDJ ■ Legal advisor on certain Evergreen connections. Responsible for: general legal advice, contract negotiation, documentation management, project management of Ex-ROI firms, legal and security reviews and other legal diligence.

PJ O'Driscoll ■ Legal advisor on Stone; responsible for: general legal advice, documentation management, project management of other firms, legal and security reviews and other legal diligence.

PwC ■ Independent valuers of Rock/Salt, Sand and Stone portfolios. Also valued shares of certain UK subsidiaries.

Valuer A ■ Independent valuers of certain loan and shareholding assets.

Various property valuers

■ Property collateral valuation.

■ Includes Jones Lang LaSalle, Allsop UK, CBRE, Cushman & Wakefield, Ganly Walters, GVA, Knight Frank, Savills, Jordan Auctioners and HT Meagher O'Reilly.

Savills ■ Project management of property collateral valuation process.

Eastdil ■ Valuers of Project Quest.

The table below details the roles and responsibilities of the principal professional advisors engaged in the SL process.

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Special liquidation professional and legal fees

14 month

period to

€'000 Notes 31 Mar 14(a)

KPMG SL team

- KPMG Ireland 41,807

- KPMG UK 6,023

- KPMG other 585

KPMG SL team total 48,415

KPMG migration 3,885

ALG 25,164

Linklaters 15,959

Other legal advisors

Arthur Cox 4,075

Byrne Wallace 2,768

Maples and Calder 2,064

Skadden, Arps, Slate, Meagher & Flom LLP 1,198

RDJ 491

PJ O'Driscoll 181

Other legal advisors total 10,777

Professional advisors

PwC 4,648

Valuer A 3,461

Savills 941

Property valuation fee (all firms including Savills) 4,168

Deloitte 367

Eastdil 525

Merrills 800

Goodbody 60

Professional advisors total 14,970

Total 119,170

Summary of Special Liquidation fees to

31 March 2014

Notes

1. KPMG rates are based on NAMA rate cards for the relevant services. This is the total fee chargeable for the period. This is before a rebate of €5.0 million is processed in July 2014. This was agreed following discussions at the request of the Minister.

2. Represents fee for work done in relation to the oversight and planning for the migration of the NAMA PI loan book management to Capita. This fee will be recovered in full from NAMA.

3. ALG rates are based on NAMA rate cards for the relevant services. This is the total fee chargeable for the period. This is before a rebate of €2.5 million which was processed in April and May 2014. This was agreed following discussions with the SLs and DOF.

4. At the outset, Linklaters was engaged at specially agreed rates. This is the total fee chargeable for the period, although it is subject to an adjustment to reflect a further discount of 5% on their fees from 1 February 2014 to 31 July 2014. This was agreed following discussions with the SLs.

5. Valuer A has not provided consent to the release of their name.

1

2

1

2

The table below details the actual professional fees associated with the SL since the commencement of the SL on 7 February 2013 to 31 March 2014.

Note: (a) Represents the period following the commencement of SL of 7 February 2013 to 31 March 2014;(b)The above is exclusive of VAT and disbursements;(c) GBP fees have been converted at GBP1:€1.18 and USD fees have been converted at USD1:€0.7485.

3

3

4

5

4

5

The table below details the SL professional and legal fees net of the rebates agreed.

SL professional and legal fees analysis - gross vs net

€m

SL related professional and legal fees (gross) 119.2

Rebates agreed:

- KPMG (5.0)

- ALG (2.5)

- Linklaters (0.1)

Total rebate (7.6)

SL related professional and legal fees (net of rebate) 111.6

14 month

period to

31 March 14

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Cost management

Cost management

■ KPMG resourcing reviewed regularly:

– workstream leads monitor workload and capacity. Resourcing amended as required to ensure efficient delivery of workstream to the liquidation;

– fortnightly project review meeting to discuss progress and delivery of loan sale process against plan;

– monthly review of costs by workstream;

– budgeted costs set for the liquidation process to 31 May 2014;

– reviewed actual against plan and investigated variances; and

– reviewed most efficient method of delivery project and used IBRC staff where appropriate.

■ KPMG reviewed and monitored third party advisor costs:

– certain legal advisors signed up to NAMA rate card and/or fixed cost pieces of work;

– certain other advisors signed up to NAMA rate card;

– certain other advisors engaged following a competitive tender process with fixed fee quotes;

– monthly review of third party costs against delivery of process to timeline and budget;

– review of costs against agreed fixed fees;

– review of costs incurred in relation to security reviews;

– review of valuer costs against agreed fixed fees; and

– negotiation and agreement of a 10% rebate with ALG and 5% with Linklaters.

■ KPMG updated DOF regularly:

– monthly report included analysis of time spent by KPMG, ALG and Linklaters;

– report on budgeted costs to 31 May 2014 issued to DOF;

– costs discussed in weekly update meeting with DOF; and

– regular fee update reports issued to DOF.

■ Cost managed and minimised where appropriate through the use of IBRC staff to support the sales process.

■ Accelerated timeline required multiple processes to run concurrently which required additional resources in order to deliver.

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