Progress update report

Progress update report

12 March 2015

Slide TitleSlide Title

2

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 1 April 2014 to 31 December 2014 (unless otherwise stated) and is an update to the progress report issued on 6 June 2014.

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.


3

Glossary of terms

a/c Account

ALCO Asset and Liability Committee

ALG A&L Goodbody

c. circa

CBI Central Bank of Ireland

CRE Commercial Real Estate

CRO Chief Risk Officer

DGS Deposit Guarantee Scheme

DOF Department of Finance

ELA Exceptional Liquidity Assistance

ELG Eligible Liability Guarantee

FCA Financial Conduct Authority

FX Foreign Exchange

GP Grand Parade

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

IRRCAC IBRC Assurance Company Limited

INBS Irish Nationwide Building Society

IT Information Technology

JCBC Joint Committee of Inquiry into the Banking Crisis

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

PI Participating Institution

ODCE Office of the Director of Corporate Enforcement

RMI Recovery Management Ireland

ROI Republic Of Ireland

SC Stephen Court

SL Special Liquidation

SLA Service Level Agreement

SLs Special Liquidators

SMU Service Management Unit

SPV Special Purpose Vehicle


4

Glossary of terms (continued)

TSA Transitional Service Agreement

TUPE Transfer Of Undertakings (Protection of Employment) Regulations 2006

VAT Value Added Tax

VDR Virtual Data Room


5

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

Deal workstream 13

Loan management workstream 16

Finance workstream 19

Creditor Adjudication Process 23

Legal workstream 26

Regulatory and compliance workstream 29

Operations workstream 33

Loan migration workstream 38

HR workstream 41

IT workstream 44

Facilities workstream 47

Deposits workstream 50

Tax workstream 54

Costs and fees 58

ExecutiveSummary


7

Cash inflow and outflow summaryNARL repaymentsSettlement of hedging derivative contracts

NAMA repayment

CBI repayment

Administrative expenses

Other liquidation costs

Liquidation legal fees

Liquidation fees

Outcome to date

Status of Wave 1 sales process

Dec 2013 Feb 2014 Feb 2014 Jun 2014 Jul 2014Feb 2014

Evergreen Rock Salt Sand StonePebble

Completed

Project

Status of Wave 2 sales process

Feb 2015Nov 2014 Feb 2015 March 2015 March 2015

QuartzAmber Pearl Amethyst Opal (IBRCAC)

Completed

Project

Outflows

€14.68 bn

Inflows

€16.53 bn

Net customer loan and derivative receipts

Distributions from subsidiaries

Sale of bonds

NAMA funding

Fee income

Tax refunds

Fixed and other asset sales

Other miscellaneous receipts

€1.85 bnNET CASH AT 6 FEBRUARY 2015


8

IBRC sales process by numbers

€21,700,000,000

64 15,900

>130,000 355

755,000

3,500 241 100%

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

INDICATIVE BIDS WERE RECEIVED ACROSS 9 PORTFOLIOS

OF THE LOAN BOOK TRANSACTED

DIFFERENT BORROWER GROUPS

22COLLATERAL WAS BASED IN

DIFFERENT JURISDICTIONS

Project PebbleUS CRE, UK hotels and UK & Ireland Shopping Centres■ Ireland/UK (84%)■ US (15%)■ World: other (1%)

Project Sand/PearlIrish originated Residential Mortgages■ Ireland (100%)

Project EvergreenIrish originated Corporate Loans■ Ireland (93%)■ UK (7%)

Project Salt UK originated CRE Loans■ Germany (60%)■ UK (30%)■ Poland (7%)■ Europe: other (3%)

Project Rock UK originated Commercial Real Estate (“CRE”) Loans■ UK (89%)■ US (7%)■ Germany (3%)■ Europe: Other (1%)

Project Stone 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)(a)

58

20

31

13

11

4

26

9

48

35

6

4

Evergreen Rock Salt Sand/Pearl 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 9 portfolios.

Executive summary

Project Amber/Project AmethystCorporate and CRE loans■ UK (78%)■ Ireland (22%)

Project QuartzIrish originated CRE loans■ Ireland (97%)■ UK (1%)■ Other (2%)

23

10

Quartz

38

12

Amber

Note:(a) 7 indicative bids and 3 binding bids were received for Project Opal (sale of IBRCAC) have not been included in the table above.

174NON DISCLOSURE AGREEMENTS (“NDA”)

SIGNED WITH INTERESTED PARTIES


9

Tasks to completion

Manage remaining loan book of €3.6

billion

Liquidity management of

€1.85 billionSet up SMU by 1 July

2015

Since the start of the Special

Liquidation in 7 February

2013, the SLs have made

significant process in

deleveraging the loan books

of IBRC and managing other

aspects of the liquidation.

Some of the more pertinent

tasks to completion are

presented opposite.

Sell remaining IBRC assets

Continue to manage on-going litigation

Liquidate / sell remaining

subsidiaries

Clear remaining deposit accounts for

paymentComplete creditor

adjudication process


10

Area Summary

Outcome ■ NARL facility fully repaid in October 2014.■ Agreement and payment of €17.1 million to preferential creditors.■ Sale of IBRCAC completed. ■ Cash balance on hand of approximately €1.85 billion as at 6 February 2015.■ Remaining loan book of €3.6 billion and other assets to be managed/sold.■ Approval from CBI for permission to carry on with certain excluded activities granted to 31 March 2015. A further extension to 30 June 2015 has

been requested.■ A new IBRC SL Supervisory Committee has been proposed to the CBI to replace the existing Corporate Governance structures. This is currently

subject to CBI approval.

Employees ■ All IBRC offices closed with the exception of Stephen Court. ■ There are currently 157 employees remaining as at 1 March 2015. Staff levels are being monitored to ensure that adequate staffing levels are

maintained as the SL progresses.■ A further 121 employees will leave IBRC by 30 June 2015.■ To support on-going activities, a Service Management Unit (“SMU”) will be put in place. This will comprise IBRC and KPMG staff and personnel

supported by external service providers where necessary i.e. IT, HR, Legal. This unit will formally operate from 1 July 2015 until the liquidation is concluded. It is envisioned that 36 IBRC employees will form part of the SMU.

■ 188 of the 222 employees entitled to a payment under the Irish Bank Officials' Association (“IBOA”) associated termination scheme have been paid through a scheme devised by Kieran Mulvey, who acted as mediator between IBRC and IBOA.

■ The three existing pension schemes are in wind down and should be closed by 31 December 2015.

Legal ■ Section 56 report completed and submitted to the Office of the Director of Corporate Enforcement.■ On-going management of over 700 litigation proceedings.■ Litigation remains a key risk to be managed in the SL to ensure that contingent liabilities are appropriately managed.■ Complied with Banking Inquiry Direction issued by the Joint Committee of Inquiry into the Banking Crisis.

Executive summary


11

Area SummaryCreditor adjudication process

■ The creditor adjudication process began in September 2014 and is tailored to qualify and quantify unsecured creditors claims.■ There are presently approximately 1,400 claims being reviewed. ■ Advertisements for creditor claims were made in Irish, UK and US newspapers. ■ Creditors in the Ireland, UK and the rest of Europe have until 31 March 2015 to submit their claims, while US creditors have until 31 May 2015.

The difference arises due to difference in provisions governing the process in the US.

Dividends ■ As at 6 February 2015, IBRC had cash balances of approximately €1.85 billion. Surplus funds from the liquidation will be available for distribution to unsecured creditors.

■ The dividend payable to unsecured creditors cannot be estimated at this time. This is due to the following uncertainties:- Future level of realisations from assets remaining in IBRC;- The level of creditor claims which will ultimately be admitted as valid claims against IBRC;- The level of future recoveries from plaintiff litigation taken by IBRC; and- The level of future potential liabilities arising from litigation where IBRC is a defendant.

■ We hope to be in a position to make an interim dividend to unsecured creditors in Q4 2015.

Tasks tocompletion

■ Complete the sales process for residual assets including the execution of remaining purchaser TSAs and migration and close out activity of all loan data, including physical files.

■ Manage remaining loan book of c. €3.6 billion and realise other assets.■ Preparation for post wind down operational infrastructures and implementation on 1 July 2015.■ Liquidation or sale of remaining subsidiary interests.■ Management and unwind of hedging positions.■ Complete creditor adjudication process.■ Resolve outstanding tax issues in Ireland and the UK.■ Continue to manage on-going litigation and any new litigation which may arise.■ Finalise revised governance structures with CBI and ensure that IBRC maintains its regulatory obligations until all assets have been sold.■ Continue to liaise with the CBI and NTMA to clear the remainder of the deposit accounts for payment.■ Complete all statutory liquidation matters.

Executive summary


12

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 €60.6 million which should be considered in the context of operational cost savings of €41.4 million over the same period.

– Sales costs are €90.4 million for successfully disposing of c. €21.7 billion of loans, or 0.4% of the value of loans sold.

– Total sales and liquidation costs are 0.9% of total cash receipts generated during the period.

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

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

Costs summary

The SLs have continued to review and monitor 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.

SL related professional and legal fees to 31 December 2014 159.0Rebate obtained (8.0)Fee relevant to the sale of €21.7 billion of loans (90.4)Liquidation specific 60.6On-going cost reduction in IBRC during same period 41.4

Cost reduction achieved at IBRC was greater than liquidation specific fees (excluding loan sales)

23 month period to

31 December 14(a)

Deal workstream


14

IBRC sales process by numbers

€21,700,000€21,700,000

6464

15,90015,900

2222

>130,000>130,000

355355

755,000755,000

3,5003,500

241241

100%100%

€21.7 billion of loans prepared and brought to market

64 loan sales processes conducted

Loans consisted of over 15,900 different borrower groups

Collateral was based in 22 different jurisdictions

More than 130,000 letters issued to borrowers and guarantors

355 interested parties across 13 countries

Over 755,000 documents were reviewed and uploaded to virtual data rooms (“VDRs”)

3,500 property valuations were obtained

241 indicative bids were received across 9 portfolios and for the stake in IBRCAC

100% of the loan book transacted

174174 174 Non Disclosure Agreements (“NDAs”) signed with interested parties


15

Borrower Groups

SalesTranches

Gross Loan Balance (€bn) Status

Remaining loan book

Project Quartz

■ Commercial real estate loans; originated in Ireland primarily secured by Irish properties.

919 5 1.1 Contracted and completed.

Project Amber

■ Irish originated corporate loans, secured by primarily UK properties.■ Commercial real estate loan portfolio primarily secured UK

properties.


Project Pearl

■ Residential mortgage loan portfolio originated in Ireland 6,300 2 0.7 Contracted and completed.

Project Amethyst

■ Commercial real estate loans; originated in Ireland primarily secured by Irish properties.


Project Opal

■ Sale of 100% stake in IBRCAC. Contracted and completed.

Project Jade

■ Sale of IBRC’s holding of NAMA subordinated bonds. Contracted and completed.

The Wave 2 sales process for the final €2.5 billion worth of loans left unsold following the Wave 1 loan sales as well as the sale of IBRC’s stake in IBRCAC and the NAMA subordinated bonds was initiated in August 2014.

An overview of the IBRC Wave 2 sales process

Loan Management workstream


17

Loan Management workstream: key highlights

Considered a further 962 applications at residential credit committees, bringing the total since the SL to 3,877.

Considered a further 632 applications at commercial credit committees, bringing the total since the SL to 3,805.

Continue to align with the Deal workstream to support the TSAs for the Wave 2 sales process.

Continue to manage the remaining loan book of c. €3.6 billion through the normal course of business.

The reconstituted credit committee continues to function to support the management of remaining loans.


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Loan Management workstream

Key actions/achievements

■ The reconstituted credit committee continues to function to support the management of remaining loans. Credit committee activity for IBRC in SL can be summarised as follows:

■ Following the Sand portfolio sale, the Loan Management team was reduced to 40 full time employees (from 80 previously reported) to support full service proposition of residential borrowers until the conclusion of the Pearl portfolio sale.

■ Successful delivery of TSA services for 2 purchasers following the completion of the Sand portfolio sale.

■ Successful migration of portfolios to 2 purchasers in the Sand sales portfolio.

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

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

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

■ Delivery of TSA services for 2 purchasers following the completion of the Pearl portfolio sale.

Work remaining/Key future actions

■ Continue to manage the remaining loan book of c. €3.6 billion. This loan book contains a small number of connections which remain with IBRC primarily due to on-going litigation proceedings.

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

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

■ Continue to maintain compliance with regulatory requirements.

■ Continue to manage remaining 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.

Number of applications considered

Commercial Credit Committee 632Residential Credit Committee 962Residential Credit Committee Appeals Board 8

Credit Committee activity: 20 May 2014 to 31 December 2014

Finance workstream


20

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.

Management of IBRC finance team of 20 employees in Dublin. Closure of the London Finance function on 30 September 2014.

Liquidity management of €1.85 billion.

Repayment of the NARL facility in October 2014.

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

Manage hedging of Sterling and US dollar.

Loan sale transfers completed and removed from the IBRC system.


21

Finance workstream


■ The NARL facility was fully repaid in October 2014.

■ Agreement and payment of €17.1 million of preferential creditors.

■ Management of the IBRC finance team of 20 employees in Dublin.

■ The London Finance function closed on 30 September 2014.

■ Liquidity management of €1.85 billion.

■ Loan sale transfers completed and removed from the IBRC system.

■ Continue to provide liquidity and statistical returns on a monthly/quarterly basis for submission to the CBI.

■ Continue to prepare and submit monthly updates and other ad hoc reports to DOF.

■ Continue to manage the derivative valuation and settlement process of terminated trades.

■ Continue to manage settlements involving closing out valuation differences, rights of set-off and guarantee claims. These derivatives were terminated by inter-bank counterparties following IBRC entering SL.

■ The creditor adjudication process was initiated in September 2014, tailored to quantify and qualify unsecured creditors. Please refer to pages 23 to 25 for further details.

Cash inflow and outflow summary

€mPeriod to 6

February 2015

InflowsOpening cash 241

Net customer loan and derivative receipts 13,936

Distributions from subsidiaries 930

Sale of bonds 777

NAMA funding 511

Fee income 60

Tax refund 30

Fixed and other asset sale 28

Other miscellaneous receipts 12

Total Inflows 16,525

OutflowsNARL repayments (13,202)

Settlement of hedging derivative contracts (316)

NAMA repayment (512)

CBI repayment (196)

Administrative expenses (247)

Liquidation fees (86)

Liquidation legal fees (89)

Other liquidation costs (30)

Total outflows (14,678)

Cash balance at 6 February 2015 1,847


22

Finance workstream (continued)


■ Continue to review the monthly accounts for completeness and ensure that loan sales are correctly recorded.

■ Continue to review and reassess the scope of financial reporting requirements as the loan sales progress and the scale and complexity of the remaining business reduces.

■ Continue to 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.

■ 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.

■ Continue to review the finance staffing requirement and backfill where necessary for critical roles.

■ Continue to monitor the cash flows and ensure that excess monies are placed on deposit to maximise returns.

■ Continue to 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 hedging activities.

■ Effect dividend payments to unsecured creditors and target Q4 2015 for the first interim dividend.

Creditor adjudication process


24

Creditor adjudication process: key highlights

Letters have been sent to all known creditors. In addition to this, advertisements for claims have been placed in newspapers in Ireland, the UK and the US.

A team was set up to adjudicate on claims with dedicated helpline and email.

Approximately 1,400 claims have been received to date.

The creditor adjudication process which began in September 2014, is tailored to quantify and qualify unsecured creditors.

1,010 claims are in the final stages of being accepted, rejected or disputed.


25

Creditor adjudication process: overview

Workstream overview

■ It was confirmed during mid 2014 that there would be a surplus available for distribution for unsecured creditors. Therefore, a creditor adjudication process was initiated.

■ The creditor adjudication process is tailored to quantify and qualify unsecured creditors.

■ Potential unsecured creditors must submit their claim along with supporting documentation before 31 March 2015 in respect of creditors in Ireland and the UK and by 31 May 2015 in respect of US creditors.


■ Letters were sent to all known unsecured creditors of IBRC seeking claims.

■ Advertisements were placed in newspapers in Ireland, the UK and the US.

■ A dedicated helpline and email box was set up to deal with queries and accept supporting documentation.

■ Every claim submission is reviewed by the Unsecured Creditor team. Given the diversity in the nature of claims, the unsecured creditor team consult widely with relevant IBRC staff to get further information and confirmations necessary in relation to claims.

■ IBRC systems are utilised to obtain any available background documentation in support of the claim.

■ Employee files were reviewed and details of employee unsecured claims were agreed for admission as unsecured creditors.

■ Time was expended on calling up and reviewing historic/closed IBRC files in order to obtain information where claimant correspondence /documentation submitted was incomplete.


■ Continue to review of claims received to date, liaising with relevant IBRC staff members to obtain all relevant information.

■ Receipt, log and timely review of new claims up to the deadlines outlined opposite.

■ The SL’s have finalized their view on the impact of a recent High Court decision regarding interest overcharging and whether arising from that judgment any similar type claims are properly a matter for IBRC or for other third parties. This work will be co-ordinated with the process for adjudicating unsecured creditor claims.

■ Notification of acceptance of claims to creditors where claims have been agreed by the unsecured creditors review team.

■ Notification of rejection of claims where entitlement cannot be proven or the figure claimed has not been substantiated by the claimant.

■ Continue to contact claimants for further information to substantiate claims being considered for acceptance.

■ Continue to deal with requests for information and other enquiries received into the unsecured creditors e mail address and on the helpline.

■ Continue to liaise with ALG and other professional advisors as required for advice and assistance in correct adjudication of claims.

■ Extraction of available information from the UK and ongoing review of UK claims with UK professional advisors and any other UK resources available.

■ Continue to liaise with relevant state/governmental/regulatory bodies as appropriate in relation to claims.

■ Liaising with directors of subsidiary companies in order to identify potential debts/unsecured claims for inclusion in unsecured claims process.

■ Complete distribution to unsecured creditors when all other matters in relation to the special liquidation have been concluded.

Legalworkstream


27

Legal workstream: key highlights

Defendant Litigation Case Management Team managing 260 cases taken against IBRC/INBS.

On-going management of over 700 sets of legal proceedings.

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

Over 65 substitution applications on Stone portfolio.

Dealt with over 90 data access requests since April 2014.

Approximately 27 new sets of proceedings noted since April 2014 – significant reduction since 2013.


28

Legal workstream: overview

Legal

Defendant Litigation

Independent Review

New Proceedings

Data Access Request

Group Legal Staff Count

Data Access Requests

Conduct of Directors

■ The SLs have established the Defendant Litigation Case Management Team to exclusively manage 260 cases against IBRC/INBS.

■ The SLs assess the merits of litigation cases being pursued and develop appropriate strategies taking into account the commercial benefit, legal costs, public interest considerations.The SLs are managing over 260 defendant

litigation cases.

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

■ The SLs have also instructed BDO Accountants in London to carry out a peer review of KPMG’s role.

Independent review of legal advice and peer review.

■ The SLs 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 submitted their report on the conduct of the directors of IBRC to the ODCE.

The SLs investigated the conduct of the directors of IBRC and reported to ODCE.

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

■ There has been a significant reduction in the number of new proceedings noted since 2013.

■ Approximately 27 new proceedings noted since April 2014.

■ This fall off in new litigation by and against IBRC in SL has been expected.

Significant reduction in new cases noted.

■ IBRC in SL remains party to over 700 legal cases.

■ The figure above does not take account of all Quinn related litigation; miscellaneous financial leasing litigation and US foreclosure proceedings to which IBRC currently remains a party.

Ongoing management of over 700 legal cases.

■ At April 2014, Group Legal staff count stood at 12. This comprised 10 solicitor qualified staff, 1 legal secretary and 1 paralegal.

■ This has now reduced to 5 in order to manage the on-going litigation.

Group Legal staff count reduced to 5.

■ The SLs have dealt with over 330 data access requests since appointment.

■ 90 of those data access requests were dealt with since April 2014.

The SLs have dealt with over 90 data access requests since April 2014

Regulatory and Compliance workstream


30

Regulatory and Compliance workstream: Key highlights

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

Preparatory work on new corporate governance and delegated authority frameworks to support SMU on-going. Submission made to the CBI.

Administration of the Investor Compensation Scheme.

CBI permission to carry on with certain excluded activities to 31 March 2015 granted with a further request to carry on certain activities to 30 June 2015 submitted.

Supervision of ongoing reporting obligations to CBI.

Complied with Banking Inquiry Direction issued by the Joint Committee of Inquiry into the Banking Crisis.


31

Regulatory and Compliance workstream

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.


■ AML remediation of loan files continuing.

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

■ Preparatory work on new corporate governance and delegated authority frameworks to support SMU.

■ Notification of intention to close UK branch issued and acknowledged by regulatory authorities.

■ Investor Compensation Scheme claims submitted.

■ Banking Inquiry Direction issued by the Joint Committee of Inquiry into the Banking Crisis (the “JCBC”) :

- The JCBC issued a ‘Notice of Intention to Issue a Direction Order’ (the “Direction”) to the SLs on 18 December 2014. The notice directed the SLs to provide certain information, outlined in 21 categories on or before 28 January 2015.

- Subsequently, an extension period was granted to 13 February 2015 to provide outstanding information that had not been delivered in the initial submission.

- The SLs have sought to comply fully with the Direction on a best endeavours basis.

Work remaining/Key future actions■ Ensure that IBRC maintains its regulatory obligations until all assets have

been sold.■ Application made to the CBI for permission to carry on with certain

excluded activities to 30 June 2015.■ Liaise with CBI to agree appropriate regulatory and compliance

framework for SMU.

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.


32

Regulatory and Compliance workstream: Revised governance structure

Revised governance structure■ As the level of operational activity will reduce in line with loans and asset volumes, many of the current governance structures are no longer appropriate and will

be transformed in advance of the set-up of the SMU.■ Subject to CBI approval we propose that the IBRC SL Supervisory Committee will replace all of the existing committees (i.e. Credit Committees, Equity

Investment, ALCO, etc.).

■ The Supervisory Committee will assume responsibility for: – Credit Reviews;– Credit Sanctioning – i.e. protected advances as required; – Restructuring arrangements; – Disposal of remaining assets;– Enforcement actions;– Liquidity Management; and – Oversight of legal function, to include oversight of key legal risk mitigation initiatives; legal strategy in respect of material litigation (plaintiff and defendant);

key decisions regarding legacy matters and consideration of other important legal issues as they arise.

■ Please refer to the Operations section of this report for further details on the SMU.

Risk Management and Control Framework■ Based on the reduced level of assets, business activity and staffing levels, we propose to put in place a revised risk based Management and Control Framework

that will be overseen by IBRC SL Supervisory Committee.

Primary focus will be to ensure oversight on the following key activities: ■ Management of restructuring plan; ■ Credit Risk Management;■ Operational Risk Management; ■ Financial Risk Management; and ■ Reporting to CBI and DOF as required.

Operations workstream


34

Operations workstream: key highlights

Accommodated over 20 weekends for the set up and exit from TSA, migration of customer related information to purchasers/service providers for Wave 1 and Wave 2.

We have completed the work required for NAMA to release IBRC SL from over 1,500 undertakings relating to Deeds held for NAMA PI.

A new IBRC SL Supervisory Committee has been proposed to the CBI to replace the existing Corporate Governance structures. This is currently subject to CBI approval.

Delivered 11 successful TSA/Data migrations for Wave 1 sales process.

Currently working with NAMA to close out c. 800 queries relating to NAMA Managed legacy deeds.

Managed Section 11 requirements for 16 purchasers’ LSAs through to completion dates.

Post migration to Capita, dealt with an average of 1,500 Section 95 requests, plus another 1,500 business related requests per month. This has now reduced significantly.

On track to deliver 2 TSA servicing arrangements for Pearl. Wave 2 completions are on track to exit TSAby 31 March 2015.


35

Operations workstream

Key actions/achievements -NAMA

■ We continue to work with NAMA to finalise transfer of remaining customer records and data in advance of PI status expiring on 30 June 2015.

■ We have completed the work required for NAMA to release IBRC SL from over 1,500 undertakings relating to Deeds held for NAMA PI.

■ Currently working with NAMA to close out c. 800 queries relating to NAMA Managed legacy deeds.

■ Post migration to Capita, we were dealing with an average of 1,500 Section 95 requests, plus another 1,500 business related requests per month. This has now reduced significantly and we await updates from NAMA, following their decision to accelerate sale of all the PI Books.

■ At this time we await formal update from NAMA in relation to Section 95 requirements, Legacy Documents and Data, Release of Prior Charges solution and Section 93 submissions.

■ Fortnightly meetings continue with NAMA to manage through Legal Exit Services and the above items.

Key actions/achievements – Non NAMA■ Identify and manage issues arising from daily/weekly meetings and

working groups regarding day to day operations and planned operations during the TSAs and transfer of operations to the individual purchasers.

■ Delivered 11 successful TSA/Data migrations for Wave 1 sales process, on track to deliver 2 TSA servicing arrangements for Pearl.

■ Wave 2 completions completed on 13 February 2015 and all on track to exit TSA by 31 March 2015.

■ TSA and Migration teams worked very effectively to manage multiple migration projects with multiple SPVs and their service providers.

■ Managed Section 11 requirements for 16 purchasers’ LSAs through to completion dates.

■ Accommodated over 20 weekends for the set up and exit from TSA, migration of customer related information to purchasers/service providers for Wave 1 and Wave 2.

Work remaining/Key future actions■ Focus has now moved to wind down planning activities and preparation

for post wind down operational infrastructures.■ Major project identified to return a significant level of deeds and other

collateral to customers before June 2015. This security was not returned to/taken back by customers when loans were repaid previously.

■ Development of post wind down capability, processes and procedures to manage residual loans and other assets from 1 July 2015.

■ Finalise revised governance structures with CBI.


36

Operations workstream: establishment of a SMU structure

SMU overview

■ While there will be much work in the coming weeks and months related to the completion of loan sales, provision of transitional servicing and migration of data to purchasers, we are also working towards putting in place the infrastructure to support the key activities outlined below.

■ These include:

- Management and control of residual loans and other assets;

- Management of residual litigation matters (primarily existing known defendant litigation and potential new litigation);

- Management of Discovery requests arising from Court Orders, Banking Inquiry etc;

- Management of Data Subject Access Requests from former personal customers (In certain cases, this includes customers of NAMA and IBRCAC);

- Management of Collateral Release (including proactive return of security on previously repaid loans);

- Financial Management and Reporting;

- IT and other services required to support the residual operation;

- Management of Sub Participated Loans and Derivatives on behalf of purchasers – pending consent/maturity;

- Liquidity Management; and

- Agreement and payment of dividends to Unsecured Creditors.

■ To support the above activities, we will put in place a SMU structure comprising IBRC and KPMG staff and personnel supported by external service providers where necessary i.e. IT, HR, Legal. This unit will formally operate from 1 July 2015 until the liquidation is concluded.

■ The required resources, infrastructure and governance of this unit have been defined as part of the restructuring of operations activities.

■ It is envisaged that the numbers required will reduce within a period of two years once the litigation concludes and as residual loans and assets are sold or written off and removed from the balance sheet.


37

Service Management Unit Structure

OperationsKPMG Restructuring

KPMG Restructuring

Finance

Legal KPMG Restructuring

GL Entries/ Consolidation

Regulatory Reporting

Reconciliation/TLM/ Resi Sweeps

GL, Reporting & Accounts Payable Subsidiaries

IT Infrastructure

Technical

IT Applications & Data Support

IT LitigationOperations

Collateral Mgmt

DSAR: eDiscovery Discovery

Physical Records & Facilities

Other Legal

Operations

KPMGRestructuring

Residual Loans

Loan migration workstream


39

Loan migration workstream: key highlights

Establishment of management wind down programme and governance with plan and approach.

Establishment of project for the management of Opal (IBRCAC) sale and segregation.

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 2 TSAs in place for third party purchasers in Ireland.

.

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.

Segregated physical files for onward delivery to third parties.


40

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 Wave 1 and Wave 2 sales to third party purchasers.

■ Design, planning and implementation activity for migration of loan sales data from IBRC systems onto third party purchasers systems and their associated Service Providers for Wave 1 and Wave 2 completions.

■ Planning, design segregation and migration of unstructured data in the form of electronic data (emails and shared drives) and physical files.

■ Segregation, redaction and transfer of Residential files for Sand and Pearl Residential completions.

■ Programme management of Management Wind down activity including the orderly wind down of IT, processes and contracts.

Key issues arising/risks/challenges

■ Co-ordinating with numerous Service Providers 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.

■ Significant volume of physical files which required redaction, review, segregation and transfer to third parties.


■ 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 in June 2014.

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

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

■ Migration and close out activity of all loan data, including physical files for Sand, Stone and Rock and Salt, Quartz Leasing portfolio.

■ Review of Wave 1 sales, transition and migration learnings and implementation of actions accordingly.

■ Establishment of Management Wind down governance, design and planning.

■ Completion of exit services with PTSB through the delivery of data.


■ Execution of Pearl purchaser TSAs including provision of data/reports at start, during and at end of TSAs.

■ Migration and close out activity of all loan data, including physical files Amber, Quartz, Pearl and Opal (IBRCAC).

■ Design, testing and implementation of IT, people and process requirements for the establishment of the Service Management Unit post management wind down.

■ Orderly wind down of functions and rationalisation of IT footprint to support management wind down.

HR workstream


42

HR workstream: key highlights

All statutory redundancy and minimum notice payments in relation to affected ROI and UK employees have been completed.

Management of employee relations and contract extensions as the liquidation and sales processes progressed. There were 206 leavers in the period between 1 April 2014 and 31 December 2014.

Stephen Court is the only remaining office following the closure of the Grand Parade, regional and UK offices.

Continue to ensure that there are adequate staffing levels as the SL progresses. There are 157 employees remaining as at 1 March 2015.

The three existing pension schemes are in wind down and should be closed by 31 December 2015.

188 of the 222 employees entitled to a payment under the Irish Bank Officials' Association (“IBOA”) associated termination scheme have been paid through a scheme devised by Kieran Mulvey, who acted as mediator between IBRC and IBOA.

Payment of redundancies for employees during the liquidation period.


43

HR workstream: overview


■ Continue to oversee the 157 employees remaining as at 1 March 2015. The employees have been issued with new leave dates based on the resources required for the remainder of the wind down. A further 121 employees will leave by 30 June 2015.

■ All UK employees were made redundant and paid statutory redundancy.

■ 188 of the 222 employees entitled to a payment under the The Irish Bank Officials' Association (“IBOA”) associated termination scheme have been paid through a scheme devised by Kieran Mulvey, who acted as mediator between IBRC and IBOA.

■ All statutory redundancy and minimum notice payments in relation to affected ROI and UK employees have been completed.

■ Advised regional management in relation to the closure of the regional offices and provided outplacement support for employees whose contracts were completed as a result of the closure.

■ Negotiated the continuance of main defined contribution pension scheme for the SL period. Also instructed the pension scheme administrator to commence the wind down of three existing schemes. The workstream will continue to monitor the progress of these schemes with the administrators.


■ Continue to manage the monthly payroll for remaining employees.

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

■ Manage staffing levels in the SMU.

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

■ Continued communications to employees on SL progress.

■ Archive of HR files and other documentation.

■ Discharge preferential and unsecured employee claims.

■ Manage exit process for departing employees and complete statutory redundancy and IBOA associated termination scheme payments.

IT workstream


45

IT workstream: key highlights

SMU: IT Staffing requirements to support SMU unit defined and approved by SLs.

Data Centres: Project for migration to one operational Data Centre with required Disaster Recovery solution by June 2015. Approximately 500 terabyte of Data across multiple IT platforms.

IBRC Symantec Clearwell services provisioned for third party Legal entities to service e-Discovery requests. 61 individual cases completed during this period.

Applications: Project initiated to migrate Banking Applications to non-transactional, transactional or archived mode. Approximately 250 applications in scope.

Ongoing Data Segregation projects for the main financial systems to support the loans sale process are currently being executed. 5 individual migrations in this period.


46

IT workstream: overview

Key actions/achievements ■ Review of IBRC in SL key external electronic security threats and

readiness status was completed.■ SMU: IT Staffing requirements to support SMU unit defined and

approved by SLs. ■ Ongoing Data Segregation projects for the main financial systems to

support the loans sale process are currently being executed.■ IBRC Symantec Clearwell services provisioned for third party legal

entities to service e-Discovery requests.■ IBRCAC: Ongoing project to facilitate provision of required IBRCAC IT

Services from new office location. ■ Complete Review of IBRC in SL IT Licencing and Support Costs..Work remaining/Key future actions■ Data Centres: Project initiated for migration to one operational Data

Centre with required Disaster Recovery solution by June 2015. ■ Applications: Project initiated to migrate majority of Applications to “read

only” non-transactional mode.■ SMU: Collating IT support requirements (e.g. Web access, Intranet), in

addition to Applications and Data retention.■ Facilitate closure of remaining IBRC office locations.■ Facilitate SMU Enterprise IT Services.■ Retention and Storage of all IBRC hardware, network kit and data.■ Continued monitoring and assessment of IT resources and risk mitigation

approaches to maintain key individuals and knowledge.■ Continued support for migration programmes including provision of IT

services during TSA periods.

Facilities workstream


48

Facilities workstream: key highlights

Since our previous update, a further 6 former INBS properties have been sold. The sales process of the remaining 7 properties are on-going.

Management of group property requirements: the closures of the regional offices in Waterford, Galway, Limerick, Belfast, Cork as well as the London office have been completed.

Relocated all remaining staff from GP to SC.

Identify new property for SMU from 1 July 2015.

Document management: coordinate transfers of c. 50,000 files to off-site storage facilities.


49

Facilities workstream


■ Former INBS branches. 26 properties have been sold to date. Of the remaining 7 properties:– 3 are currently contracted for sale, – 2 have been sale agreed; and – 2 are being put for auction with Allsop.

■ IBRC and INBS art collections: All 138 lots have been sold.

■ The closures of the regional offices in Waterford, Galway, Limerick, Belfast and Cork as well as the London office have been completed.

■ Staff from GP relocated to SC during January 2015.

Work remaining/Key future actions■ Conclude the sale of the remaining INBS branches.■ Work in conjunction with ALG to progress the recovery of rent arrears

from six tenants where commercially viable.■ Document management: currently assessing requirements to meet the

on-going and increasing Section 93 & 95 requests from NAMA to the Service Delivery Management Team.

■ Circa 1,500 RMI client files, remaining after the completion of the loan sales are currently in the process of being transferred to our off-site storage facility.

■ Circa 1,300 IBRCAC client files, remaining after their move from GP are currently being transferred to our off-site storage facility.

■ The retrieval of circa 40,000 INBS closed residential files from archives is in progress.

■ 1,300 boxes of IBRC client and other files have been brought back from the USA, with inventories checked against box contents before being transferred into our off-site storage facility.

Depositworkstream


51

Deposits workstream: key highlights

To date, payments of €35.9 million and €136.4 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 2,443 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 526 deposit accounts for set-off with a total value of €98.6 million.

We continue to liaise with NAMA on a regular basis in order to complete the reviews and repayments.

We have reviewed and approved 1,663 deposit accounts with a total value of €185.0 million for payment through the DGS/ELG Schemes.

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


52

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 2,443 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.

Key highlights:■ 1,663 acs (€185.0 million) have been marked for payment (4 June 2014 report:

1,797 acs; €215.7 million) of which 1,519 accounts (6 June 2014 report: 1,340 acs) have been paid out by CBI and NTMA. The other 144 accounts will be paid out by CBI on a phased basis/subject to a claim being submitted to NTMA by the account holder.

■ 526 accounts (€98.6 million) marked for set-off: A few of these account set-offs have yet to be completed.

■ 9 accounts (€0.9 million) are under investigation by NAMA. 7 accounts (€1.6 million) are under investigation by IBRC and are being released for payment on a phased basis.

■ No claim is anticipated for 112 accounts (€9.3 million) where the beneficiary is unknown/IBRC or where the amounts are insignificant.

■ 110 claims have been transferred to the unsecured creditor database and will be adjudicated upon because they were either ineligible or the amounts were insignificant and not paid by either scheme.

Number of Accounts Value of Accounts (€m)

Value of Accounts

€m

Accounts payable under DGS - €39.3

Accounts payable under ELG -€150.2

Accounts for set-off -€98.6

Ineligible accounts (i.e. unsecured) -

€38.4

Accounts where no claim is

anticipated -€9.3

Number of

Accounts

Accounts payable under DGS - 1,304

Accounts payable under ELG -443

Accounts for set-off - 526

Ineligible accounts (i.e. unsecured) -

110

Accounts where no claim is anticipated -

112


53


■ 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 €150.2 million and €39.3 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)

Taxworkstream


55

Tax workstream: key highlights

Ongoing engagement with the Irish Revenue in relation to an open tax audit.

Extensive support to the Deal team in relation to the disposal of loan books and IBRCAC.

Advising on various borrower related tax matters.

We have been working to ensure that IBRC’s tax affairs are managed effectively so that all relevant tax obligations are met on a timely basis.

Ongoing engagement with foreign tax authorities in relation to the tax position of the Group.

Analysing the tax implications of winding up various Irish subsidiaries and the repatriation of capital from foreign subsidiaries.

Tax analysis of over 50 mortgagee in possession transactions, engagement with Receivers in respect of over 280 properties and filing of 150 LPT returns and rental returns.


56

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 13 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 for IBRC and 4 of its subsidiaries);

– Operation of the Professional Services Withholding Tax & Relevant Contracts Tax regimes (including related tax filings and payments);

– Preparation and filing of LPT returns and payments for over 150 properties;

– Operation of the PAYE regime;

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

– Dealing with Revenue attachment notices.

IBRC’s US tax obligations

■ Preparation and filing of US federal tax return and 13 state tax returns.

IBRC/INBS UK tax obligations

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

■ Preparation and filing of UK corporation tax returns to date of closure of the UK Branch; and

■ Engagement with HMRC in relation to technical matters relating to prior period tax returns.

Asset recovery

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

■ Addressing the complex tax obligations that arise for IBRC as mortgagee on taking possession of mortgaged property and on their ultimate realisation through sale or “Mortgage to Rent” transactions;

■ Tax input into restructuring proposals;

■ Advising on the tax implications of asset disposals (loans, etc); and

■ Advising on overseas capital repatriation.


57

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; and

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

Other asset disposals

■ Analysis of the tax implications of IBRC realising its interest in IBRCAC;

■ Analysis of the direct and indirect tax implications of surrendering various leased properties;

■ Analysis of the direct and indirect tax implications of disposing of various branch properties;

■ Analysis of the tax implications of US asset disposals; and

■ Analysis of the tax implications of winding down various Irish and foreign subsidiaries and repatriating funds to IBRC.


■ Advising on the disposal of UK/US situate assets and repatriation of proceeds to Ireland;

■ Preparation of tax returns where receivers have been appointed by the bank;

■ Ongoing Irish tax compliance obligations in respect of Corporation Tax, VAT, PAYE, RCT and PSWT;

■ Preparation and filing of US federal returns and advice on cessation of taxable presence in USA;

■ Resolution of UK technical tax issues;

■ Addressing the winding up of Irish and foreign subsidiaries and the distribution of remaining assets to IBRC;

■ Management of tax issues related to assets under enforcement action in a range of countries including the UK, the USA, Russia and the Czech Republic;

■ Engagement with the Irish Revenue in relation to an open tax audit and on historic tax matters; and

■ Advice in relation to various borrower related matters.

Costs and fees


59

Area Summary

Overheads

Fees

Cost and fee summary

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

■ Net of sales related costs, liquidation costs are currently €60.6 million which should be considered in the context of operational cost savings of €41.0 million over the same period.

■ Sales costs are €90.4 million for successfully disposing of c. €21.7 billion of loans, or 0.4% of the value of loans sold.

■ Total net fees are 0.9% of total cash receipts generated during the period.■ Please refer to the following slide on further details of the rebates agreed.

■ Headline overhead costs before SL costs are circa €41.9 million (15%) below budget for the SL period from February 2013 to 31 December 2014. SL costs are shown separately.

■ For the 9 month period to 31 December 2014, administrative costs were higher against budget primarily as a result of higher than anticipated legal fees incurred on on-going litigation cases.

■ 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.

Overhead analysis for the 23 month period to 31 December 2014

€m

14 month period to

31 Mar 14

9 month period to

31 Dec 14

23 month period to

31 Dec 14

14 month period to

31 Mar 14

9 month period to

31 Dec 14

23 month period to

31 Dec 14%

Variance

Staff costs 80.7 29.5 110.2 101.2 29.8 131.0 (15.9%)Administrative costs 71.9 39.6 111.5 93.5 25.0 118.5 (5.9%)Premises costs 10.9 5.3 16.2 17.9 5.4 23.3 (30.5%)Other (0.5) 3.0 2.6 6.6 2.5 9.1 (71.8%)Total 163.1 77.4 240.5 219.3 62.6 281.9 (14.7%)

Actual Budget

Special liquidation professional and legal fees summary

€m

14 month period to

31 Mar 14

9 month period to

31 Dec 14

23 month period to

31 Dec 14

KPMG SL team 48.4 23.0 71.4

KPMG migration 3.9 0.7 4.6

ALG 25.2 7.7 32.9

Linklaters 16.0 2.8 18.8

Other legal advisors 10.8 3.0 13.7

Professional advisors 15.0 2.7 17.6

Total gross fees 119.2 39.8 159.0Less: rebates (7.6) (0.4) (8.0)

Total net fees 111.6 39.4 151.0


60

Area Summary

Rebates ■ The Minister negotiated the agreement of various rebates on the already reduced rates in April 2014 with KPMG, ALG and Linklaters.■ For the 9 month period to 31 December 2014, rebates received totalled c. €0.4 million, bringing the overall rebates received since the start of

liquidation to c. €8.0 million.

Cost and fee summary (continued)

Rebates agreed

Advisor Rebate arrangement

14 months to 31 Mar 2014

(€000)

9 months to 31 Dec 2014

(€000)Total rebate

(€000)

KPMG ■ €5 million for fees related to the period 7 February 2013 to 31 March 2014.

5,000 - 5,000

ALG ■ 10% reduction of fees from pre-agreed NAMA rates for the period 7 February 2013 to 31 May 2014.

2,458 248 2,706

Linklaters ■ 5% reduction of fees from specifically agreed rates effective from 1 February 2014 (on-going).

97 141 239

Total 7,555 389 7,945


61

Special liquidation professional and legal fees (gross fees)

14 month period to

9 month period to

23 month period to

€'000 31 Mar 14(a) 31 Dec 14 31 Dec 14

KPMG SL team- KPMG Ireland 41,807 20,935 62,742- KPMG UK 6,023 1,906 7,929- KPMG other 585 125 710KPMG SL team total 48,415 22,966 71,380

KPMG migration 3,885 675 4,560

ALG 25,164 7,704 32,868

Linklaters 15,959 2,839 18,798

Other legal advisorsArthur Cox 4,075 1,466 5,541

Byrne Wallace 2,768 (87) 2,681

Maples and Calder 2,064 653 2,717

Skadden, Arps, Slate, Meagher & Flom LLP 1,198 910 2,108

RDJ 491 22 513

PJ O'Driscoll 181 4 185Other legal advisors total 10,777 2,968 13,745Professional advisorsPwC 4,648 811 5,459

Valuer A 3,461 284 3,745

Savills 941 25 966

Property valuation fees 4,168 335 4,503

Deloitte 367 68 435

Eastdil 525 6 531

Merrills 800 512 1,312

Goodbody 60 615 675

Professional advisors total 14,970 2,657 17,627

Total 119,170 39,810 158,979

Summary of Special Liquidation fees to 31 December 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 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 €2.7 million which 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. This is before a rebate of €0.2 million which was agreed in April 2014 (covering the months of February to December 2014). This was agreed following discussions with the SLs and DOF.

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 December 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 for the 14 month period to 31 March 2014

and GBP1:€1.2512 for the 9 month period to 31 December 2014. (d) and USD fees have been converted at USD1:€0.7485 for the 14 month period and

USD1:€0.7613 for the 9 month period to 31 December 2014.

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

€00023 month period to

31 Dec 14

SL related professional and legal fees (gross) 158,979 Rebates agreed:- KPMG (5,000)- ALG (2,706)- Linklaters (239)Total rebate (7,945)SL related professional and legal fees (net of rebate) 151,033


62

Overheads analysis from 1 April 2014 to 31 December 2014

€m Notes Actual Budget % VarianceStaff costsSalaries 22.3 21.6 2.9%Pensions 1.8 2.1 (13.9%)Contractors costs 5.2 5.7 (9.2%)Other 0.3 0.4 (28.6%)

29.5 29.8 (1.0%)Administrative costsLegal and professional 2 29.8 16.1 85.5%Computer expense 5.0 5.5 (8.4%)Insurance 3 2.3 0.7 216.1%Other 2.6 2.8 (6.3%)

39.6 25.0 58.6%Premises costsRent and rates 4 3.2 2.8 15.5%Other occupational costs 2.0 2.6 (21.6%)

5.3 5.4 (2.5%)Other 3.0 2.5 23.0%Total before SL related costs 77.4 62.6 23.6%

Actual overheads analysis

Notes

The table opposite details the general overhead costs of IBRC in SL for the period from 1 April 2014 to 31 December 2014. The principal matters to highlight are as follows:

1. Legal and professional fees are €13.7 million more than planned as mainly as a result of higher than anticipated legal fees incurred on:

■ Quinn litigation due to on-going case management as the litigation progresses;

■ Legacy litigation; and

■ Loan management support services as a result of having to complete a Wave 2 sales process on certain loan portfolios.

1. Insurance costs were c. €1.6 million over budget due to the timing on payments of the insurance premium.

2. Actual rental costs are 16% more than budget principally due to timing differences between expected billings and actual invoices received.

■ 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

1

3

2

2

3

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.


63

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 work

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.■ Population of VDR.■ Bidder process meetings and negotiations with successful bidders.■ Other asset sales (including equity, bonds and other interests).

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.

■ Deleveraging of the loan book (other than through loan sales) in an appropriate manner and in line with SL Guidelines.■ Developing an appropriate plan to wind down the Loan Management function in a controlled manner as deleveraging is completed.

Finance, Deposits, 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 and (2) Treasury operations ■ Administration and oversight of the DGS and ELG scheme.■ Liaising with relevant regulatory bodies and ensuring IBRC in SL is compliant with all regulatory and compliance requirements.■ Ensuring appropriate governance structures are in place in accordance with CBI/FCA guidelines.■ Manage creditor adjudication process.

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

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

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.

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


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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 principal 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.

■ Lead transactional legal advisors on sale and transfer structure and principal transaction documents as well as post-transfer matters on the Rock and Salt portfolios.

■ Extensive work on the transfer of each asset in the Rock and Salt portfolios to the relevant purchasers including obtaining any relevant consents and/or waivers to transfer and finalising alternative solutions where necessary, drafting and negotiating transfer documentation (and ancillary documentation), co-ordinating signing, closing and related deliverables and ensuring compliance with conditions precedent to loan sale deed.

■ Competition law advice.■ Managing incumbent law firms during the transfer process and liaising with legal advisers to

IBRC Asset Finance and IBRC Property Lending.■ Post-completion transaction management of the Rock and Salt portfolios, including ensuring

all requisite perfection steps have been taken in the relevant jurisdictions, elevating various connections, advising on the termination of certain derivative transactions and completing a further review to ensure proper transfer of security not specifically listed in original transfer documentation.

■ Assisting with the re-financing of certain connections, including liaising with local counsel where appropriate.

■ Carrying out a review in relation to interest charging provisions on all sub-participated loans.■ Responding to ad hoc queries in relation to Loan Sale Deed and Transitional Services

Agreement and ad hoc information requests from purchaser’s legal advisers.■ Assisting with English law aspects and responding to ad hoc queries in relation to other

portfolios, including post-completion advice (Evergreen, Stone and Sand portfolios).■ Drafting English law transfer documents and reviewing questions raised by prospective

purchasers in respect of English law security (Quartz portfolio).■ Providing Luxembourg law advice on purchaser guarantee, legal opinions and solvency

certificate (Pearl portfolio).

Treasury, General Banking, regulatory

■ Termination of CBI market and borrower hedging arrangements.

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

■ Advice on regulatory matters.

■ 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.■ Reviewing correspondence from and responses to certain borrowers in relation to derivative

related queries and claims regarding disputed matters around derivative transaction terminations.

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

Deposits and ELG

■ ELG Due diligence and claims categorisation work streams.

■ Set-off analysis on claims under ELG.

■ Not applicable.

Legal and litigation

■ Advice on mis-selling/over-charging claims.■ Dealing with all litigation against SLs whether in

relation to the sales process or issued by parties against the SLs.

■ Managing certain existing litigation. ■ Chapter 15 in US and all related applications. ■ Managing and dealing with purchasers in

relation to all applications for substitution and all litigation queries arising from sales process.

■ 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.

■ Ad hoc queries relating to borrower representation letters.■ Advice in relation to closing London branch.■ Advice in relation to funds retained and applied against outstanding debt by an incumbent law firm

during pre-liquidation period.■ Extensive involvement in and providing advice on legal proceedings brought by certain borrowers,

including correspondence with their legal advisers and preparing for and attending all hearings.■ Assisting with English law aspects of swaps mis-selling claims. ■ Assisting with Chapter 15 issues including pleadings relating to Sale Motion, local law transfer issues,

responses to US Assets Questionnaire and ad hoc queries in relation to Chapter 15 proceedings. ■ Reviewing loan sale deed and drafting summary regarding operation of Litigation substitution.

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.

■ Instructed N.I. incumbent firms on Rock/Salt transfer process.■ Advice on UK subsidiaries and discussions with their legal advisers in relation to the sales and transfer

process.

Employment and Pensions

■ Employee termination / retention and related advice.

■ Advice on TUPE.■ Transitional issues.

■ Employee termination/retention and related advice, including drafting and advising on employee compromise agreements.

■ Advice on TUPE.

Advice to SLs on miscellaneous issues and project management

■ On-going advice on foreign recognition.■ On-going 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.■ Advising on and negotiating lease surrenders, including drafting Old Jewry Surrender and Dilapidations

Agreement.


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Principal professional advisors

Special Liquidation – Principal professional advisors

Responsibilities and scope

KPMG ■ Special Liquidators, Taxation Advisors, Deal Advisors and Loan Migration Advisors.

ALG ■ Please refer to pages 64 and 65.

Linklaters ■ Please refer to pages 64 and 65.

Arthur Cox ■ Primary legal advisor on Sand and Pearl. Legal advisors on the Stone and Quartz portfolios. 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 certain Amber and Quartz connections. Also Legal advisor for the Stone portfolio. 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, the Amber and Quartz 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 and Amber 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, Stone, Quartz, Amber and Pearl 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.

Goodbody ■ The sales advisors in relation to the NAMA subordinated bonds.

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


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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 30 April 2015;– 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 30 April 2015 issued to DOF;– costs discussed in update meetings with DOF; and – regular fee update reports issued to DOF.

■ Costs 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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