Shareholding and Financial Advisory Division (SFAD)
Fact Book: H1 2020
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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3 An Roinn Airgeadais | Department of Finance
Shareholding and Financial Advisory Division
SFAD Roles & ResponsibilitiesSF
AD
Developing and recommending to the Minister strategies for returning the banks to private ownership Realising value for the taxpayer by executing share disposals Monitoring bank performance and stock market trends through regular interaction with management,
investors and market participants Protecting and exercising the Minister’s rights while respecting bank Relationship Framework
Agreements
1. Oversight of State ownership in Irish banks
2. Advisory and policy development
3. Oversight of NAMA and HBFI
6. Liquidation of IBRC
4. Oversight of Credit Union Sector
5. Market Interaction
Utilisation of expertise within the Division to provide financial advisory services and input to policy options across the Department of Finance Manage and co-ordinate the Blockchain & Virtual Currencies Working Group Provide insight and objective analysis on emerging areas of financial services and technology
Responsible for representing the Minister’s interests in relation to the liquidation of IBRC
The Shareholding and Financial Advisory Division (SFAD) consists of a team of c. 20 professionals with a mix of capital markets, accounting, corporate finance, legal and investment backgrounds. This team has a blend of both private sector expertise and experienced civil servants and has a number of roles and responsibilities:
Responsible for the management of the Minister’s shareholding in the National Asset Management Agency (NAMA) and Home Building Finance Ireland (HBFI)
Policy oversight for the Credit Union sector Provide advice to the Minister on developments in the sector
Daily two-way interaction with analysts, investors, investor relation teams and investment banks
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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4 An Roinn Airgeadais | Department of Finance
A Track Record of Delivery
A number of significant milestones have been achieved:
2015
2016
2017
• Recapitalisation, restructuring and deleveraging was undertaken across the sector
• Elimination of promissory notes programme, ELA and liquidation of IBRC
• Sale of Bank of Ireland CoCos (€1bn) and Preference Shares (€2bn)
• State disposal of Irish Life for €1.3bn
• Establishment of NAMA
• Troika programme commitments met and programme exited
• PTSB raised €525m of capital to address stress test shortfall, while the State retained a 75% stake
• AIB capital reorganisation returned €1.6bn to the State
• AIB CoCo redemption of €1.6bn
• IBRC paid first interim dividend of 25% to all admitted creditors
• AIB resumed dividend repayment: €250m and Initial Public Offering (IPO) raised €3.4bn for the State (the second largest IPO globally in 2017)
• Completion of ReBo activity: 82 mergers concluded, involving 156 individual credit unions with total assets in excess of €6.7bn
• NAMA repaid 100% of its senior debt
• IBRC paid second interim dividend of 25% to all admitted unsecured creditors
2010 to
2014
2018
• BOI announced the re-commencement of dividends
• Eligible Liability Guarantee (ELG) eliminated
• PTSB completed the sale of Project Glas and Project Glenbeigh. This saw its NPL ratio reduce to 10%, from 26% at the start of the year
• Launched an intra-Departmental working group on virtual currencies & blockchain technology
• IBRC paid final dividend of 50% to all admitted creditors
• Anglo Irish Bank assessor appointed pursuant to the Anglo Irish Bank Corporation Act 2009
2019
• Home Building Finance Ireland (HBFI) officially launched in January 2019 to finance housing construction
• Hosted the first Government services blockchain hackathon in the Trinity Innovation Centre in January 2019
• Permanent TSB exited its restructuring plan
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
2020
• Ongoing efforts to address the numerous challenges posed by Covid-19 to the Irish banking sector and the wider economy
• NAMA redeemed final debt and equity obligations and commenced return of surplus to the State - €2bn to transfer in June
• Final report of the Anglo Irish Bank Assessor published in April 2020
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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6 An Roinn Airgeadais | Department of Finance
EconomyThe Irish economy experienced robust economic growth prior to
the outbreak of Covid-19; expected to return to growth in 2021
Commentary 2021 Forecast Real GDP Growth (%)2
1. Central Statistics Office (CSO) - GNP at Constant linked to 2017) Market Prices (Seasonally Adjusted) (€ million)2. European Commission Spring 2020 Economic Forecast 23rd April 2020
3. Personal Consumption Expenditure (PCE) is the market value of all goods and services, including durable products, purchased by households (excluding purchases on dwellings)
4. Source: CSO Retail Sales Index Value Adjusted – (Base 2015=100)
GDP and GNP (€bn)1
Retail Sales Index: Seasonally Adjusted4
(2015 base = 100)
Ireland’s Gross Domestic Product (GDP) grew by 5.5% in 2019 to €339 billion. This compares with growth of 3.3% in Gross National Product (GNP).
European Commission forecasts suggest that Ireland’s economy will recover in line with the wider EU in 2021 following a pan-European recession in 2020
Consumer spending growth (as represented by the Retail Sales Index) has experienced steady growth since 2015.
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
111.2
90
95
100
105
110
115
April 2015 base
2008€198
2019€339
2008€170
2019€258
€100 €125 €150 €175 €200 €225 €250 €275 €300 €325 €350 €375
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
GDP €bn (Seasonally Adjusted) GNP €bn (Seasonally Adjusted)
-9.7 -8
.2
-9.4
-7.2
-7
-9.5
-7.7
-7.4
-7.9 -6
.5
-6.8 -5
.4
-5.9
-6.8 -5
.5
-6.1
-6.3
7.9
7.4 7
6.7
6.7
6.5
6.3
6.1
6.1
5.9
5.8
5.7
5.1 5 5
4.3
3.7
-10
-8
-6
-4
-2
0
2
4
6
8
Gre
ece
Fran
ce
Spai
n
Bel
giu
m
Slo
ven
ia
Ital
y
Euro
Are
a
EU
Irel
and
Ge
rman
y
Po
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gal
Luxe
mb
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rg
Den
mar
k
Ne
the
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ds
Au
stri
a
Swed
en
Fin
lan
d
2020
2021
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Commentary Ireland’s Purchasing Manager’s Index (PMI)1
Composite Purchasing Managers Index – Western European countries1
The Covid-19 lockdown has temporarily brought the construction and services sectors largely to a halt in Q1 2020.
Ireland's manufacturing PMI remained more resilient than in most other Western European countries resulting in a higher composite PMI in April-20 (17.3 vs. 13.6 for the wider Eurozone).
1. Bloomberg / NTMA Investor Presentation April-2020
Economy: Covid-19 ImpactsIreland’s Purchasing Managers Index declined sharply in Q1 2020, but with greater resilience than most Western European peers
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
CompositeFeb-20
56.7
CompositeApr-20
17.3
Manufacturing36
Services13.9
Construction4.5
0
10
20
30
40
50
60
70
Composite Manufacturing Services Construction
50
.7
56
.7
53
.0
51
.6
52
.0
50
.7
51
.8
35
.0
37
.3
36
.0
29
.7
28
.9
20
.2 2
6.7
17
.4
17
.3
13
.8
13
.6
11
.1
10
.9
9.2
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Germany Ireland UK EuroZone France Italy Spain
Jan-20 Feb-20 Mar-20 Apr-20
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8 An Roinn Airgeadais | Department of Finance
Covid-19 Fiscal Response €6.5 billion of business supports announced since beginning of the
epidemic
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
A range of measures have been announced to help meet the capital requirements (including working capital, and short and long term debt) for small, medium and large businesses:
1. Credit Guarantee Scheme for COVID-19: in partnership with AIB, Bank of Ireland and Ulster Bank, this scheme supports loans of up to €1 million to Small to Medium Enterprises (SMEs).
2. The COVID-19 Business Loan scheme is designed for Microenterprises that wish to access loans of up to €50,000 over 3 years. This is administered by Microfinance Ireland.
3. The €450m SBCI COVID-19 Working Capital Scheme is designed for eligible businesses loans from €25,000 up to €1.5 million with a maximum interest rate of 4%.
4. The SBCI Future Growth Loan Scheme was granted an additional €200 million in supplementary funding to provide longer-term loans to COVID-19 impacted businesses.
5. The Sustaining Enterprise Fund is a €180 million scheme aimed at firms with 10 or more employees impacted by COVID-19 that are vulnerable but viable.
6. The Pandemic Stabilisation and Recovery Fund will make up to €2 billion of capital available to medium and large enterprises through a dedicated fund operated by the Irish Strategic Investment Fund (ISIF).
Increasing the availability of capital to Irish businesses3
Tax Measures1
1. Tax repayments and refunds: the Revenue Commissioners have indicated that it will expedite refunds to taxpayers with regard to: VAT, personal services withholding tax, and excess R&D tax credits.
2. Interest suspension: the charging of interest on the late payment of VAT has been suspended by Revenue for March/April, while interest on PAYE employer liabilities has been suspended for April.
3. Debt Enforcement: All debt enforcement activity by Revenue remain suspended until further notice.
Sources:1. More measures can be found on https://www.revenue.ie/en/corporate/press-office/press-releases/2020/pr-020420-revenue-update-advice-to-smes-experiencing-
cashflow-difficulties-arising-from-covid-19.aspx2. https://www.gov.ie/en/service/578596-covid-19-wage-subsidy/
3. Department of Business Enterprise and Innovation
1. Temporary COVID-19 Wage Subsidy Scheme: employers that have lost 25% or more of their revenue as a result of Covid-19 can apply to have 70-85% of their employees’ wages temporarily subsidised by the State.
Income Supports2
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9 An Roinn Airgeadais | Department of Finance
€702 €711
€718
€732
€757
€784
€660
€680
€700
€720
€740
€760
€780
€800
Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019(est.)
Labour Force: Prior to Covid-19, Ireland experienced a sharp reduction in
unemployment; increase in reported figures in Q1 2020Commentary Unemployment Rate1
Youth employment amongst under 25s as a % of Active Population (2008 – 2019)3
1. CSO and Eurostat, Note2. CSO. Preliminary figures for Q4 2019
3. Eurostat, seasonally adjusted, not calendar adjusted4. https://www.cso.ie/en/releasesandpublications/er/lr/liveregisterapril2020/ Seasonally adjusted
Wage increases: Average Weekly Earnings2
Unemployment rate amongst under 25s as a % of Active Population (Q1 2020)3
Seasonally adjusted unemployment rate stood at 16% in 2012. This fell to 4.8% in February 2020 before rising to 5.4% following the outbreak of Covid-19. Unemployment figures are expected to rise further in the next statistical release as a result of the pandemic.
As of April 2020, 602,170 people were in receipt of the Government’s Pandemic Unemployment Payment (PUP). This is in addition to the 216,900 citizens already on the Live Register.4
Falling unemployment has helped drive wage growth of c.12% between 2014 and Q4 2019
With the exception of March 2020, youth unemployment in Ireland has declined each year since 2012. It now stands at 13%, below the EU19 average of 16%
+12%
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
16%
Mar-20, 5.4%
Mar-20, 7.4%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
Hu
nd
red
s
Ireland Euro Area 19
Mar-2013%
Mar-2015.8%
0%
5%
10%
15%
20%
25%
30%
35%
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
Ireland EU 19
33
%
28
%
20
%
20
%
20
%
18
%
16
%
15
%
13
%
11
%
9%
8%
6%
6%
0%
5%
10%
15%
20%
25%
30%
35%
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State Finances: Economic growth has helped drive down borrowing costs however
Covid-19 will increase the need for additional borrowing in 2020Commentary Government Debt to GDP % (2006 – 2019)2
Government Budget Surplus (Deficit) Q4 2019 (%)3
1. Central Bank of Ireland and CSO2. Europa.eu
3. Europa.eu: Government deficit(-) or surplus(+) (as % of GDP)4. Bloomberg: As of May 2020
5. https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond
Government Net Worth (2014 to 2019)1
European 10 Year Bond Yields % (May 2020)4
Levels of government indebtedness remain high relative to pre-2007 levels, however, the sustainability and affordability of this is reinforced by strong economic growth and low borrowing costs
Covid-19 will increase the need for additional government indebtedness. In April 2020, the NTMA raised €6 billion through the syndicated sale of a 7-year Treasury Bond. The funds were raised at a yield of 0.242%.
(€bn)
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
24
%
24
%
42
%
62
%
86
%
11
0% 12
0%
11
9%
10
5%
77
%
73
%
68
%
64
%
59
%
84%
0%
20%
40%
60%
80%
100%
120%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
Ireland (%) Euro Area 19 (%)
Q4 20190.4%
Q4 2019-0.6%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
Q1
200
6Q
3 2
006
Q1
200
7Q
3 2
007
Q1
200
8Q
3 2
008
Q1
200
9Q
3 2
009
Q1
201
0Q
3 2
010
Q1
201
1Q
3 2
011
Q1
201
2Q
3 2
012
Q1
201
3Q
3 2
013
Q1
201
4Q
3 2
014
Q1
201
5Q
3 2
015
Q1
201
6Q
3 2
016
Q1
201
7Q
3 2
017
Q1
201
8Q
3 2
018
Q1
201
9Q
3 2
019
Ireland (%) Euro Area 19 (%)2
.1%
1.8
%
1.3
%
0.8
%
0.8
%
0.7
%
0.1
%
0.0
%
-0.1
%
-0.1
%
-0.1
%
-0.2
%
-0.3
%
-0.5
%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
€177 €182 €184 €191 €211 €213
-€237 -€234 -€231 -€228 -€244 -€241
-€61 -€52 -€47 -€37 -€33 -€28
-€250
-€150
-€50
€50
€150
€250
2014 2015 2016 2017 2018 2019
Liabilities at market valueFinancial & Non-Financial Assets at market valueNet worth at market value, excluding pension liabilities
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11 An Roinn Airgeadais | Department of Finance
Debt Servicing (1/2): stabilisation leading to better credit ratings
and falling yields – Irish government continues to secure cheap
long term funding
[xx]
Source:1. Moody (Sept-17), S&P (Nov-19), Fitch (Dec-17)
2. NTMA: https://www.ntma.ie/business-areas/funding-and-debt-management/investor-relations/credit-ratings3. Bloomberg
4. NTMA April 2020. Data excludes programme loans.
Rating Agency Long-term Short-termOutlook
/trend
Date of
updateLong-term Short-term
Outlook
/trend
BBB+ A-2 Negative WatchDec
2011AA- A-1+ Stable
BBB+ F2 Negative WatchApr
2011A+ F1+ Stable
MOODY’S Ba1 Not Prime NegativeJul
2011A2 P-1 Stable
N/a A (high) R-1 (middle) Stable
R&I N/a A a-1 Stable
20111
20202
Improved fundamentals helping reduce Irish Government Bond Yield (Weighted Avg. 10 year yield % Jan 2011 – May 2020)
3:
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
In Nov-2019, S&P upgraded Ireland’s long term rating to AA
13%
0.2%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Jul-
19
Jan
-20
Uncertainty as a result of Covid-19
led to yields turning positive in Q2 2020
Weighted average maturity of Irish government debt exceed Euro Area peers (years):
4
10
.4
10
.3
10
.1
10
.1
8.0
7.8
7.7 7.8
6.9
6.4
0.0
2.0
4.0
6.0
8.0
10.0
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Debt Servicing (2/2): Long term sustainability of debt profile helped by Ireland’s proportionally
young population
Commentary Old Age Dependency Ratio (Individuals aged 64+ as a % of those between the ages of 15-64)1
Fertility Rate In Ireland (2017)2
1. 2018 Worldbank.org. 2. WorldBank.org: Fertility rates relate to the number of children born per family
3. April Central Statistics Office. 2019 figures are preliminary.
Favourable demographics reinforce Ireland’s relative debt sustainability in the long run, while also continuing to make Ireland an attractive destination for Multinational Corporations (MNCs). However, like other European countries, Ireland’s ageing population is expected to result in increased age-related expenditure over time.
Net migration turned positive in 2016 for the first time since 2009. Continued to grow in 2019 with net migration of 34,000 versus 20,000 in 2017.
Net Inward Migration (Thousands)3
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
20 20 21 23 2
6 28 29 29 29 30 30 30 31 31 32 32 32 33 34 34 35 36
0
5
10
15
20
25
30
35
40
Cyp
rus
Luxe
mb
ou
rg
Irel
and
Slo
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Rep
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Po
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Au
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Un
ited
Kin
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Bel
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Cze
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Den
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Euro
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1.3
1.3 1.4 1.4 1.4 1.4 1
.5 1.5 1.6 1.6 1
.7 1.7 1
.8 1.8 1.9 1
.9
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Ital
y
Spai
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Po
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gal
Gre
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Po
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Euro
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Den
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Swed
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Fran
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72
105
64
2
-28 -27 -26 -19-9
616 20
34 34
-100
-50
0
50
100
150
Ap
r-0
6
Ap
r-0
7
Ap
r-0
8
Ap
r-0
9
Ap
r-1
0
Ap
r-1
1
Ap
r-1
2
Ap
r-1
3
Ap
r-1
4
Ap
r-1
5
Ap
r-1
6
Ap
r-1
7
Ap
r-1
8
Ap
r-1
9
Immigrants Emigrants Net migration ('000)
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Housing (1/2): 2008 Financial crisis saw a collapse in the Irish housing market. Covid-19 has
resulted in a halt in construction activity, expected to resume in June 2020
Commentary Market-based Purchases of Residential Dwellings2
1. CSO.ie: The primary data source used for the New Dwellings Completions series is the ESB Networks new domestic connections dataset wherethe date that the connection is energised determines the date of completion. It is accepted that the ESB domestic connections dataset is
overestimating new dwellings and the CSO has adjusted for this overcount by using additional information from the ESB and other data sources2. Central Statistics Office (Market-based Household Purchases of Residential Dwellings)
3. Central Statistics Office
Ireland’s housing market recovered well following the collapse in 2007
Rising level of house completions with metrics showing increases across registrations, commencement notices, planning permissions and ESB connections/New Dwelling Completions
The closure of construction sites as a result of Covid-19 will impact on the number of completions in 2020
Nationally, residential property prices have recovered since the financial crisis in 2013, and remain nearly 20% below their 2007 peak.
Residential Property Price Index (Base Jan ‘05 = 100)3
Introduction of Irish Central Bank Macro prudential rules in 2015 slowed the growth in property sales
Central Bank macro-prudential rules increase the resilience of the banking sector
First time buyers can borrow up to 90% of the value of a home (i.e. 10% minimum deposit). Only 5% of new lending to first time buyers will be allowed above the 90% Loan to Value (LTV) limit
For second and subsequent buyers, banks must restrict lending for primary dwelling purchase above 80% LTV to no more than 20% of their new lending.
Bank must restrict lending for primary dwelling purchase above 3.5 times Loan to Income (LTI) to no more than 20% of that aggregate value
Banks must limit Buy-to-Let loans (BTL) above 70% LTV to 10% of all BTL loans
Estimated New Dwelling Completions (2011 –1Q2020)1
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
163
75
135
125
183
145
40
60
80
100
120
140
160
180
200
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
National - all residential propertiesDublin - all residential propertiesNational excluding Dublin - all residential properties
13,113 12,675 18,088
21,634
30,855 34,822 34,309 35,872 35,859 36,489
4,820 2,351
2,666
2,944
4,402
4,563 5,465 7,312 8,538 8,650
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Existing New
6,994 4,911 4,575 5,518
7,219
9,889
14,358
17,946
21,138
4,986
-
5,000
10,000
15,000
20,000
25,000
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14 An Roinn Airgeadais | Department of Finance
Government has undertaken a number of steps to increase the supply of housing:
Open up land supply & low-cost State lands
Local Infrastructure Housing Activation Fund - €200m
NTMA financing of large-scale “on-site” infrastructure
Deliver 50,000 units of social housing in the period to 2021
Lay foundations for a more vibrant and responsive private rented sector
Housing (2/2):Residential property will continue to be a large contributor to
volume growth in the Irish banking sector over the medium term
Commentary
Government Targets1
Measures
Planning Reforms
Larger housing proposals (+100 homes) to go directly to An Bord Pleanála (ABP)
Prioritisation of ABP appeals (18 weeks)
More Strategic Development Zones (SDZs)
Optimal utilisation of existing housing stock
Rent-a-room tax relief programme that provides home owners with up to €14,000 of tax free rental income
Macro-prudential rules limiting Loan to Value and Loan to Income multiples for home buyers
Home Building Finance Ireland (HBFI) established to increase the supply of finance for viable residential developments
1. Action Plan for Housing & Homelessness: http://rebuildingireland.ie/Rebuilding%20Ireland_Action%20Plan.pdf2. Planning permission statistics: execution of planning permission for houses and apartment units. Source: CSO
Planning Permissions granted for new apartments and houses (number)2
The 2008 financial crisis resulted in a large decrease in construction activity, and led to a reduction in the number of residential properties available on the market. Covid-19 will reduce construction activity throughout 2020
Government has set specific targets and implemented a number of measures to increase the volume of new residential properties on the market
2019 saw for the first time more apartments than houses granted planning permission
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
6,626 10,250 12,318 15,440
19,964 19,670 785
2,794 3,632
5,336
9,138
20,582
7,411
13,044 15,950
20,776
29,102
40,252
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2014 2015 2016 2017 2018 2019
Houses Apartments Total
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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16 An Roinn Airgeadais | Department of Finance
State Exit
Government policy is not to hold these
investments long term and, subject to
market conditions, is willing to exit in a
manner that generates value for the
taxpayer
State Bank Investments: Core objective is to return banks to private ownership
Investor appetite and market conditions
Valuation
Irish economy
Global economy
Financial performance
How we look at the State’s bank investments:
Value For Taxpayers Monetise through sales &
income
Rational Investor
State priority is to engage with the market
in a sensible, orderly and professional
manner
Disposals since Summer 2017 hampered by
numerous factors including poor markets.
In times of depressed valuations, income
return in dividends and return of any
excess capital becomes very important.
1 2 3
Multiple considerations to take into account:
Government authorisation
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
• Irish State still “owns”: c. 41% of the combined assets of AIB/BOI/PTSB (translates to 35% of assets of five retail banks)
• c. 50% of the combined market value of AIB/BOI/PTSB
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17 An Roinn Airgeadais | Department of Finance
State bank investments Overview – strong financial performance in recent years
pre-Covid-19
PTSB 2019 FY results saw thebank record a profit for thethird successive year.
Key financial metricsincluded a profit beforeexceptional items of €74mwith NIM of 1.80% (2018:1.78%). New lending of€1.7bn increased by 14% y-o-y with mortgage marketshare of 15.5% (2018:15.1%). The bank continuedto generate capital with fullyloaded CET1 increasing by100bps to 15.0%.
On NPLs, the bank showedfurther progress with loanbalances down to €1.05bn, areduction of c. 37% in theyear. The NPL ratio at year-end was 6.4% (Dec 2018:10%).
AIB issued its FY 2019 results inMarch 2020. The bank continued todeliver sustainable underlyingprofitability while maintaining arobust capital position. Proposeddividend was subsequentlycancelled on the instruction of theRegulator.
Key financial metrics included a pre-exceptional profit before tax of€1,091m for the full year. Total newlending was up 2% YoY. Irishmortgage lending increased 8% also.
AIB continued to demonstratesignificant capital generation. Thebank’s fully-loaded CET1 ratio at theend of 2019 was 16.4%, substantiallyin excess of their regulatory capitalrequirements.
Impaired loans continued to declineat pace with a 45% reduction in2019 and down to €3.3bn (areduction of €27.7bn since the peakin 2013).
BOI announced anunderlying profit of €758mfor FY 2019 with the bankcontinuing to meet its costtarget. Net lending growthwas €2bn.
The bank had proposed adividend of €189m (+9% on2018) which wassubsequently cancelled.
The fully loaded CET1 ratio of13.8% increased 60bps inthe year.
NPLs reduced by €1.5bn to€3.5bn with the NPL ratiostanding at 4.4% (Dec 2018:6.3%).
BOI revised a number of itsmedium term targets toreflect the lower for longerinterest rate environmentand increased capitalrequirements.
Commentary
The state has reduced its ownership in all three banks since 2013
Strong capital generation to support growth and payouts while helping to withstand regulatory headwinds
Impact of Covid-19 uncertain but strong capital and liquidity positions going into the crisis.
Department as shareholder keen to see any surplus capital returned as soon as possible
99.9% 99.9%
2013
29% 86% 25%
71%
14%
75%
May 2020
% State
Owned
% Privately
Owned
The State holds investments in three Irish banks:
Recent Highlights
85%
15%
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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18 An Roinn Airgeadais | Department of Finance
State bank investmentsTransformational change in underlying financial metrics of State
bank investments between 2010 and 2019
Commentary State bank investments: change in selected metrics (2010 to 2019)
Transformational change across all three State bank investments between 2010 and 2019
Recovery in all covered metrics including: profitability, capital, new lending volumes, Loan to Deposit Ratios, and non-performing loans
EU restructuring plans exited by all three banks
AIB BOI PTSB
Metric €bn/% Year FY 2019 €bn/% Year FY 2019 €bn/% Year FY 2019
Underlying profit/(loss) before tax
(€10.4bn) 2010 €1.1bn (€3.5bn) 2010 €758m (€1bn) 2012 €74m
NIM 1.03% 2011 2.37% 1.25% 2012 2.14% 0.72% 2013 1.80%
New lending1 €7bn 2013 €12.3bn €6.6bn 2013 €16.5bn €0.1bn 2012 €1.7bn
NPL / NPL Ratio2
€29bn/35%
2013€3.3bn/
5.4%€18bn/
18%2013(June)
€3.5bn/4.4%
€8.6bn/28%
2013€1.1bn/
6.4%
Loan to deposit ratio 165% 2010 85% 175% 2010 95% 227% 2011 91%
Monetary authority funding
€31bn 2011 Nil €33bn 2010 €1.7bn €19.5bn 2011 Nil
Fully loaded CET13 4.0% 2010 16.4% 6.3% 2013 13.8% 11.3% 2013 15.0%
EU Restructuring Plan
Entered 2011 Exited Entered 2010 Exited Entered 2015 Exited
1. New lending - BOI & AIB did not disclose pre-2013
2. 2018 values reflect the Non-Performing Exposure (NPE) balance for AIB and BOI, and the NPL Balance for PTSB
3. AIB 2019 is pro-forma allowing for TRIM. BOI 2013 excludes the preference shares.
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
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19 An Roinn Airgeadais | Department of Finance
€14.1€10.2
€6.1€3.3
€9.4
€6.5
€5.0
€3.5
€5.8
€5.3
€1.7
€1.1
€29.3
€22.0
€12.8
€7.9
17%
14%
8%
4.9%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
€0.0
€5.0
€10.0
€15.0
€20.0
€25.0
€30.0
€35.0
2016 2017 2018 2019
AIB (NPEs) BOI (NPEs)PTSB (NPL) NPE Ratio % (Implied)
€8.6€8.3
€6.6
€5.8€5.3
€1.7€1.1
26% 26% 26%27%
26%
10%
6.4%
0%
5%
10%
15%
20%
25%
30%
€0.0
€1.0
€2.0
€3.0
€4.0
€5.0
€6.0
€7.0
€8.0
€9.0
€10.0
2013 2014 2015 2016 2017 2018 2019
PTSB (NPL) NPL Ratio (%)
€9.4
€6.5
€5.0
€3.5
11%
8%
6%
4%
0%
2%
4%
6%
8%
10%
12%
€0.0
€2.0
€4.0
€6.0
€8.0
€10.0
2016 2017 2018 2019BOI (NPEs) NPE Ratio %
€30.7
€26.2
€18.0
€14.1
€10.2
€6.1 €3.3
37%35%
26%
22%
16%
10%
5.3%
0%
5%
10%
15%
20%
25%
30%
35%
40%
€0.0
€5.0
€10.0
€15.0
€20.0
€25.0
€30.0
€35.0
2013 2014 2015 2016 2017 2018 2019
AIB (NPEs) NPE Ratio %
Drivers of Falling
NPEs
State bank investments: improved risk profile Combined NPE ratio for AIB, BOI and PTSB fell to 4.9% as of
December 2019
Commentary AIB Non-Performing Exposures (NPEs)
Significant reduction in Non-Performing Exposures across all three State Bank Investments. c.90% reduction in AIB and c. 87% for PTSB between 2013 and 2019. Bank of Ireland meanwhile reduced NPEs by c. 63% between 2016 and 2019.
A combination of rising property prices, a growing economy, and measures taken by Irish banks to address non-performing loans have all contributed to the decline in balances.
Improved Collateral
Improved borrower
repayment capabilities
Portfolio Sales
Loan Treatment
1. Company Accounts / Central Bank of Ireland / DoF Analysis.
NPE = NPL + eligible forborne loans + other exposures
NPL = Impaired + debtors deemed unlikely to pay
Permanent TSB - Non-Performing Loans (NPLs)
Bank of Ireland Non-Performing Exposures (NPEs)
Combined 3 Banks Non-Performing Exposures
-90%
-87%
-63%
(€bn)
(€bn) (€bn)
(€bn)
-73%
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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20 An Roinn Airgeadais | Department of Finance
Min.
11
1%
11
9%
12
3%
12
5%
12
9%
12
0%
12
2%
12
7%
13
0%
13
1%
92
% 10
5% 11
4%
12
0%
13
8%
0%
20%
40%
60%
80%
100%
120%
140%
2015 2016 2017 2018 2019
AIB BOI PTSB
State bank investments: capital, liquidity & funding (1/2)
From too little funding to too much
Commentary Falling Loan to Deposit Ratios % (2012 - 2019)1
Net Stable Funding Ratio % (2015 – 2019)1,3
Household deleveraging (€bn)2
Reduced loan to deposit ratios (LTDs) across all three State bank investments as households and businesses deleverage. Provides capacity for additional lending
A combination of falling household liabilities and increasing asset values has led to aggregate nominal household net worth exceeding pre-crisis levels
Quality of funding remains high, exceeding the Basel III net stable funding ratio minimum requirements (100%)
1. Published financial accounts & Pillar III disclosures2. Central Bank of Ireland: Quarterly Financial Accounts
3. Net Stable Funding Ratio (NSFR) seeks to calculate the proportion of long-term assets which are funded by long-term, stable funding. The NSFR limits overreliance on short-term wholesale funding. Soruce: Annual accounts & Pillar 3 Disclosures
4. The LCR is calculated by dividing a bank's stock of high-quality liquid assets by its total net cash outflows over a 30-day stress period
Household Deposits
Liquidity Coverage Ratio % (2015 – 2019)1,4
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
11
5%
10
0%
99
%
10
0%
95
%
93
%
90
%
85
%
12
3%
11
4%
11
0%
10
6%
10
4%
10
0%
97
%
95
%
19
1%
15
1%
13
8%
12
5%
11
1%
10
8%
93
%
91
%
0%
50%
100%
150%
200%
2012 2013 2014 2015 2016 2017 2018 2019
AIB BOI PTSB
11
6% 12
8%
13
2%
12
8%
15
7%
10
8%
11
3%
13
6%
13
6%
13
8%15
3% 16
6%
16
5%
16
0%
17
0%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
2015 2016 2017 2018 2019
AIB BOI PTSB
100%
120%
140%
160%
180%
200%
220%
€0
€50
€100
€150
€200
€250
20
03
Q1
20
04
Q1
20
05
Q1
20
06
Q1
20
07
Q1
20
08
Q1
20
09
Q1
20
10
Q1
20
11
Q1
20
12
Q1
20
13
Q1
20
14
Q1
20
15
Q1
20
16
Q1
20
17
Q1
20
18
Q1
20
19
Q1
Household Debt (€ billion) Debt to Disposable Income(%)
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21 An Roinn Airgeadais | Department of Finance
State bank investments: capital, liquidity & funding (2/2) Crisis impacted RWAs mean leverage ratios show true capitalisation
Commentary Core Equity Tier 1 Capital ratios % (Dec 2019)1,2
Core Equity Tier 1 Capital Ratios by Country (Fully Loaded: Q4 2019)2,3
Total Regulatory Capital ratios % (Dec 2019)1,2
Leverage Ratios by Country (Fully Loaded: Q4 2019)2,3
State bank investments now well capitalised relative to EU peers on a fully loaded basis
RWAs partly responsible for the relatively high levels of capitalisation at Irish banks
According to the EBA (Dec-2018), risk weighted assets for Irish residential mortgages (based on IRB models) were 38%. This is 2.5x the European median of 15%, and the third highest in Europe behind Hungary and Romania4.
Leverage ratios offer the best look through view on Irish capital levels
1. Published annual reports2. “Transitional” refers to the transitional Basel III required for CET1 ratios which came into effect Jan-14. “Fully loaded” refers to the actual Basel III basis for CET1 ratios.
3. EBA Dashboard (Includes 3 domestic Irish banks plus Ulster Bank, DEPFA & Citibank)4. “Risk Weighted Assets in Ireland” Department of Finance: https://assets.gov.ie/6836/664f5174ebd34f7e938aea654bed6757.pdf
Basel III Leverage Ratio Rule:
Tier 1 Capital ≥ 3%
Total Exposure
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
23
.3%
20
.5%
18
.6%
17
.4%
19
.1%
16
.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Total capital % (Transitional) Total capital % (Fully loaded)
AIB BoI PTSB
20
.3%
17
.3%
15
.0%
13
.8%
17
.6%
14
.6%
0.0%
5.0%
10.0%
15.0%
20.0%
CET1 (Transitional) CET1 (Fully loaded)
AIB BoI PTSB
9.3
%
9.3
%
7.4
%
6.8
%
6.3
%
6.0
%
5.7
%
5.6
%
5.5
%
5.3
%
5.3
%
4.8
%
4.8
%
4.7
%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
IE GR PT
AT
LU BE IT ES EU GB FR DE
NL
DK
19
.1%
17
.9%
17
.8%
16
.5%
16
.2%
15
.3%
14
.9%
14
.8%
14
.5%
14
.4%
13
.5%
13
.5%
13
.2%
11
.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
LU DK IE NL
BE
GB FR EU DE
AT
GR PT IT ES
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22 An Roinn Airgeadais | Department of Finance
€2.8€4.2 €5.0 €5.4 €5.7 €6.0 €6.0 €6.3 €6.6 €6.6€0.5€0.5
€5.0 €5.0€7.4
€9.2
€12.6 €12.6 €12.6 €12.6
€7.7€8.0
€11.6€13.3
€13.9 €11.6
€10.6 €7.1 €6.0
€1.8
€14.3
€17.7
€23.1
€25.5
€29.9 €28.8
€31.1
€27.2€26.3
€21.4
€0.0
€5.0
€10.0
€15.0
€20.0
€25.0
€30.0
€35.02
00
9-2
01
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
May
-20
Fees and Income (accumulated) Disposals (accumulated) AIB Valuation BOI Valuation PTSB Valuation
State bank investments:Expected value attributable to taxpayers
Value of State’s Shareholding (May-2020)
€1.8bn
€0.2bn
€0.15bn
Total €2.2bn
Reduction in bank valuations has impacted on €29.4bn investment (€bn)1,2,3,4:
€29.4bn State Investment
(€bn)
1. Disposals comprise sale/redemption of debt instruments, AIB and PTSB IPOs, and the sale of Irish Life. 2. Fees and income comprise interest coupons, recap fees, and CIFS/ELG fees.
3. Bank valuations based on ISE closing prices, May-20.4. The result of AIB IPO reflected above does not include value of Government owned warrants.
Cash Realised (€19.2bn)
Market value of State holdings
(€2.2bn Un-realised)
€21.4bn market value of State investments + realised cash(as at May-20)
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
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23 An Roinn Airgeadais | Department of Finance
Long Only
Funds66%
Hedge Funds23%
Sovereign Wealth Funds 12%
State bank investments
€3.4bn1 IPO of AIB
1. No valuation ascribed to state warrants2. Bloomberg
3. Valuation as of May 2020
Pricing Date 22-Jun-17
ListingOfficial List of the Irish Stock Exchange (Primary Listing) and London Stock Exchange Main Market (Premium Listing)
Offer Price €4.40
Offer Size €3,433.7m (incl. greenshoe)
Residual Shareholding c.71.25%
Retail Offer 10% of base offering
Implied Market Cap €11,943m
Lock-Up 180 days for Minister and AIB
Allocationby geography:
Allocationby fund type:
UK35%
US25%France
8%
Ireland2%
RoW31%
(€bn) (€bn)
AIB State Aid Repayments (€bn)AIB Valuation & Redemption (€bn)3
Key Offering Statistics Transaction Highlights
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
• Largest listing in EMEA and second largest worldwide in 2017. Largest IPO in the UK since Glencore in 20112
• Second largest European Bank IPO since 20072
• More than 250 investors in the allocated order book• Top 50 allocations accounted for c.75% of the order book• Quality of allocation: more than 30% of the order book received zero allocation
€6.1 €6.4
€10€11.7 €12.3 €11.3 €10.6
€7.1 €6.0
€1.8
€1.2 €1.7
€2.0€2.3
€4.6 €6.4€10.1
€10.3€10.6
€10.6
€20.75bn
€7.3€8.1
€12.1
€13.9
€16.8€17.7
€20.7
€17.4€16.6
€12.4
€0.0
€5.0
€10.0
€15.0
€20.0
Valuation Cumulative Repayments State Aid Injected
€0.2 €0.6€1.2
€1.7 €2.0 €2.3
€4.6
€6.4
€10.1 €10.3 €10.6 €10.6
€0.0
€2.0
€4.0
€6.0
€8.0
€10.0
€12.0
ELG Fees Interest Payments
Capital Redemptions Dividends
Cumulative Repayments
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State bank Investments Banks trading at a large discount to book value
Commentary % Change in Listed Share Prices (Jan 2018 – May 2020)1
Price to Book Ratios (Jan 2018 – May 2020)2
Irish bank shares have fallen by c.80% since December 2017. This compares with a fall of 60% for the EuroStoxxindex of European Banks
European banks trading at a heavy discount to book value with the EuroStoxx Bank Index trading at 0.3X times book value as of May 2020
Irish banks have suffered disproportionately more due to a variety of factors including unfavorable regulatory capital requirements and an inquiry relating to tracker mortgages that resulted in the banks incurring related costs.
1. Source: Based to 100 as of August 2018. Bloomberg May-20202. Bloomberg May 2020. The EuroStoxx Bank Index tracks the share price performance of the European banking sector
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
(x)
0.1x
0.2x0.2x
0.3x
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
AIB Permanent TSB Bank of Ireland EuroStoxx Banks
21
40
0
20
40
60
80
100
120
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Jan
-19
Feb
-19
Mar
-19
Ap
r-1
9
May
-19
Jun
-19
Jul-
19
Au
g-1
9
Sep
-19
Oct
-19
No
v-1
9
Dec
-19
Jan
-20
Feb
-20
Mar
-20
Ap
r-2
0
May
-20
AIB Permanent TSB Bank of Ireland EuroStoxx Banks
P/B = 1.0x
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Irish banking sector overview (1/2):
Ireland compares favorably against European peers…
Commentary % Reduction in NPE ratio: Q1 2016 – Q4 20191
Net interest margins Q4 2019 (%)1
Cost/income ratios Q4 2019 (%)1
CET1 fully loaded Q4 2019 (%)1
According to the EBA, Ireland was the fastest country in Europe at reducing its Non-Performing Exposure ratio (NPE) amongst comparable countries between March 2016 and December 2019 (-73%)
Ongoing cost management, and strong net interest margins, helped Irish banks reduce cost to income ratios to below the European average
Irish banking sector well capitalised relative to European peers.
Sources: 1. EBA Dashboard (Includes 3 domestic Irish banks plus Ulster Bank, DEPFA & Citibank)
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
-3%7%17%
29%29%
36%39%
43%44%
48%51%
57%60%
73%
-20% 0% 20% 40% 60% 80%
LUGRNLFRBEGBESEUDKDEIT
ATPTIE
49
% 53
% 58
%
59
% 62
%
62
%
63
%
64
%
64
%
65
% 68
%
68
% 71
%
84
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
GR ES NL
PT
GB BE
AT
EU DK IT IE LU FR DE
2.8
%
2.4
%
2.0
%
1.9
%
1.7
%
1.6
%
1.5
%
1.5
%
1.4
%
1.4
%
1.2
%
1.1
%
0.9
%
0.8
%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
GR ES IE AT
PT
NL IT EU BE
GB FR DE
LU DK
19
.1%
17
.9%
17
.8%
16
.5%
16
.2%
15
.3%
14
.9%
14
.8%
14
.5%
14
.4%
13
.5%
13
.5%
13
.2%
11
.9%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
LU DK IE NL
BE
GB FR EU DE
AT
GR PT IT ES
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26 An Roinn Airgeadais | Department of Finance
Commentary Return on Equity Q4 2019 (%)
Return on Assets Q4 2019 (%)
Higher net interest margins need to be seen in the context of the highest equity requirements in Western Europe
Hence a more favourable return on assets profile than for return on equity
RWAs at Irish banks very high relative to European averages. As such, leverage is a useful barometer of the true capital strength of the banks.
Sources:1. EBA Interactive Dashboard
Irish banking sector (2/2):… including high returns on assets1
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
8.9
%
8.7
%
7.7
%
7.1
%
7.0
%
6.5
%
5.8
%
5.8
%
5.6
%
5.5
%
5.0
%
3.9
%
1.0
%
-0.2
%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
AT DK NL BE ES FR LU EU IT IE GB PT GR DE
0.8
%
0.7
%
0.5
%
0.5
%
0.5
%
0.5
%
0.4
%
0.4
%
0.4
%
0.4
%
0.4
%
0.3
%
0.1
%
0.0
%
-0.1%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
AT IE BE ES DK NL IT FR EU LU PT GB GR DE
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27 An Roinn Airgeadais | Department of Finance
Irish banking sector 2020 outlook:… Banks are well positioned to support the recovery
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
The membership of the Banking & Payments Federation Ireland (BPFI) have delivered a range of measures and supports in response to Covid -19.
Payment breaks for mortgage customers approving c. 19k payment breaks, equating to c. €2.6bn or c. 9% of the portfolio
Payment breaks for SME customers approving c. 13k payment breaks, equating to c. €0.5bn or c. 13% of the portfolio
To protect customer credit profile, as agreed with the Central Bank of Ireland, payment breaks are not adversely reported on Central Credit Register
Customers Employees Communities
Over 7,000 of c. 9,500 staff are working remotely using remote, secure controlled services. This has been achieved with minimal operational disruption
Implemented multiple-location Treasury teams as a contingency to ensure the smooth operation of payments and money transmission systems
The branch network remains open to serve the community
Partnered with Trinity College Dublin by pledging €2.4 million to the dedicated AIB COVID-19 Research Laboratories Hub at the University to accelerate the college's immunology project to tackle Covid 19
Making up to €2 million available to community investment partners Food-Cloud and Soar, as well as a number of local charities that provide critical services
Focus is on delivering fair, practical and sustainable solutions for Mortgages, SME and Personal loans…
For personal customers, payment breaks and flexible arrangements on mortgages and loans put in place totalling 18k/12% of portfolio in ROI & 20K/14% of portfolio in the UK
For business customers in the Republic of Ireland - 11K payment breaks representing 26% of the portfolio rolled out in addition to the emergency working capital, and FX products provided
70% staff working from home; prior rollout of Agile working supported increased capacity and ways of working
Staff supports include mental and physical wellbeing app, 24/7 health support line, and COVID-19 communications hub
Supports in place for staff required to provide childcare or family support
Temporarily closed smaller branches reflecting reduced footfall; enabling staff to be reallocated to services most in demand, and to support social distancing
Donated €1 million in emergency funding for communities with urgent needs, with 13 projects fast-tracked
‘Cocooning’ support for older customers and those in vulnerable situations – to access cash
All 76 branches remain open to meet customer needs
Priority banking in branch and over the phone for our elderly and vulnerable customers
Operationally resilient with over 1,200 colleagues working remotely.
Payment breaks for both mortgage and term loan customers; approving c. 10k payment breaks, equating to c. €1.5bn or c. 9% of total gross loans
Redeployment of over one hundred staff to contact centres to support in answering customer queries.
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28 An Roinn Airgeadais | Department of Finance
Commentary
Q1 Trading Statement from each of the banks show a material turnaround from the strong financial performance of recent years
Common themes included:
1. Reductions in all income lines expected from lower lending and lower general economic activity
2. Significant impairment charges expected
3. Continued focus on NPE reduction strategies and cost management
4. Strong capital and liquidity positions entering the crisis.
Source:Bank Trading Statements
Irish banking sector Q1 2020 trading update:… Covid 19 is having a material impact on 2020 results
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
A small loss recorded mainly due to aCovid-related impairment charge of€210m (136bps annualized). Non-interest income -21% from valuationmoves on customer derivative positions.Management reiterated its 2022 costtarget of €1.5bn
Mixed new lending which was 12%lower. However, within this, ROImortgage lending was +11%
Increase in NPEs from €3.3bn to €3.6bndue to a regulatory change in definitionof default. Management re-emphasizedfurther reductions in NPES remains akey focus
Capital and liquidity remain strong.Including relief measures taken by theregulator in response to the crisis,Transitional CET1 ratio of 18.7%represents a buffer of 770bps overminimum requirements of 11.0%
On outlook, management commentedthat recent guidance issued for 2020was not now applicable. An update willbe provided at H1 once there is a betterunderstanding of how the crisis mayunfold
Loss of €235m versus profit of €143m inQ1 2019 mainly due to two Covid-related items – a managementimpairment overlay of €250m (133bpsannualized); and valuation losses of€155m due to changes in market prices.NII and business income stable withcosts reducing by a further 3%
New lending not impacted in Q1 (+17%)but month of April down 37% y-o-y
NPEs reduced a further 20bps with ratioof 4.2% at end-March
Capital and liquidity remain strong withmanagement guiding to CET1 headroomof c. 510bps to end-2020 (includingrelief measures announced by theregulator)
On outlook, management commentedthat new lending could be within arange of 50-70% of 2019 levels. Incomeis also expected to be significantlyimpacted with business income down30-40%. In addition, impairmentcharges are expected to increase over2020
Income statement broadly flat withstable NII supported by management ofcost of funds. Non-interest income inline with 2019 other than lower gainsfrom sale of properties in possession
Although the bank did not record aCovid-related impairment charge,management guided to an annualizedcharge of €50m (60bps).
Total new lending of €350m up 1% y-o-ywith mortgages of €300m up 4%
NPEs broadly in line with end-2019 withnew defaults being offset by cures
CET1 of 17.7% represents a buffer of c.880bps above minimum requirement of8.9% (after regulatory relief measures)
On outlook, management commentedthat new lending could reduce 40-50%y-o-y. NIM is expected to reduce from180bps to mid-170bps reflectinginterest rate environment and higherliquid assets. Although challenging,management confirmed itscommitment to deliver cost savings inthe medium term.
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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30 An Roinn Airgeadais | Department of Finance
NAMA Objectives & Section 227 Review
NAMA seeks to make a positive social and
economic contribution across
the broad range of its activities, subject to
the primacy of its commercial mandate
and often complementing it.
Repay 100% senior debt by year end 2017 and all sub-debt by March 2020
Senior debt fully repaid and has redeemed the final €1.1bn of sub-debt in March 2020. This leaves NAMA debt free
Facilitate delivery of key Grade A office space in the Dublin Docklands Strategic Development Zones (SDZ)
All of the sites NAMA originally had an interest in are either completed, under construction, received planning, or have been sold with planning permission
Facilitate delivery of up to 20,000 residential units by end 2020
From 2014 to end 2019, NAMA has directly funded the construction of 11,000 new residential units in Ireland. In excess of 2,500 homes have been delivered for social housing use by NAMA
1
2
3
Objective Achievements to date
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
In July 2019 Minister published the second report into NAMA under Section 227 of the NAMA Act. The review reflects the exceptionalprogress that NAMA has made in achieving its overall objectives since 2014 during which time NAMA has repaid all of its €30.2 billionsenior debt and now expects to be in a position to return €4 billion of a surplus to the Exchequer subject to market conditions.
The review recognised the potential for NAMA to exceed its expectations should it be permitted additional time to work out a smallnumber of residual loans beyond its expected end date of 2021. The loans concerned represent less than 1% of NAMA’s originalportfolio.
On receipt of DG Comp approval in July 2019, the Minister announced an extension of NAMA to realise this additional value. WhileNAMA is permitted to continue until end 2025 at the latest, NAMA has been requested to provide the Minister with a detailed windup plan for its ultimate dissolution by the end of 2021.
As part of the review the Minister has also decided to direct NAMA to retain its social housing vehicle, NARPS, in long term Stateownership. This decision was taken in recognition of the important role it makes to the social housing sector.
NAMA Section 227 Review1
1. https://www.gov.ie/en/publication/41970e-nama-section-227-review-2014-2018/
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31 An Roinn Airgeadais | Department of Finance
2010 - 2013
• Strategic focus on UK disposals during 2010 – 2013. UK market had remained comparatively buoyant
• 73% UK sales: London assets accounted for 60% of total NAMA sales proceeds, rest of Britain - 13%
• Irish assets, by contrast, accounted for just 16% of total sales proceeds in the same period
• By end-2012 NAMA had sold less than €1bn in Ireland – a deliberate action
2014
• Improving market conditions, increased institutional investor appetite - NAMA took strategic decision to steadily increase the volume of available supply from 2013 onwards
• Step change seen in total NAMA sales proceeds: €7.8bn in 2014 - increase of €4.1bn on 2013
• Of the €7.8bn, 44% or €3.7bn generated from the sale of Irish properties
2015/2016
• In 2015, two-thirds of disposals were in Ireland - strong domestic and international investor appetite
• Total NAMA sales proceeds: €8.5bn in 2015 - increase of €0.7bn on 2014
• 2016 total NAMA sales proceeds of €5.1bn -64% or €3.3bn generated from the sale of Irish assets
• Cumulative Irish sales at €14.4bn at YE 2016
2017/2018
• Few large portfolio sales remain in pipeline
• End-2017 carrying value of NAMA’s loan portfolio was €3.7bn –down to €2.4bn by end of September 2018
• Majority of portfolio relates to residential delivery and Dublin Docklands SDZ programmes –increased focus from 2017 onwards
• Increased its projected lifetime surplus to €3.5bn
2019/2020
• Publication of Section 227 Review in 2019 outlining NAMA’s wind-down strategy
• Redemption of €1.1bn remaining sub-debt by March 2020
• Repayment of private investors and delivery of €3.5bn surplus
• The first €2bn of expected €4bn surplus to be transferred to the Exchequer in June 2020.
NAMA’s Phased Disposal Strategies
NAMA: Timeline of Events
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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32 An Roinn Airgeadais | Department of Finance
€8.1
€0.3
-€8.1
-€0.3
-€0.5
€2.7
€1.6
€1.1
€1.6
€4.2
€0.1
€0.1
€0.0
€2.0
€4.0
€6.0
€8.0
€10.0
€12.0
2015 Senior BondRedemption
Decrease inother
liabilities
Decrease inSub -Debt
Increase inRetainedEarnings
Sep-19
Government Guaranteed Senior Bonds Other Liabilities
Subordinated Bonds Retained Earnings
Non-Controlling Interests
NAMA: Surplus Generation
NAMA Funding Structure 2016 – September 2020 (€bn)1,2:
Source:1. NAMA Q3 Report 2019
2. As the subordinated notes contain no contractual obligation to make payments, it has been classified as equity in the statement of financial position, with any coupon payments classified as dividend payments
NAMA held just under €4.2bn of retainedearnings attributable to shareholders at end ofSeptember 2020.
Final debt redeemed (€1.1bn) in March 2020and private investors to be repaid in June 2020.
NAMA will commence repayment of its surplusin late June with the return of the first €2bntransferred to the Exchequer.
It is currently estimated that the residualsurplus of €1.7bn (excluding NARPS) will bepaid to the Exchequer during 2021 and 2022subject to market conditions.
It is likely that COVID-19 will have some impacton the timing and amount of forecastedpayments beyond 2020 however it is too earlyto estimate what the overall impact may be.
(€bn)
Commentary
c.€4.2bn (as at end-Sept 2019) of retained earnings attributable
to shareholder
€11.6
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
€1.1 billion of subordinated bonds redeemed in March
2020
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33 An Roinn Airgeadais | Department of Finance
Home Building Finance Ireland (‘HBFI’)
Home Building Finance Ireland (“HBFI”) was announced as part of Budget 2018 to increase the availability of debt funding to commercially viable residential development projects in the State.
HBFI has been established to provide senior debt funding on a commercial basis to small and medium size residential development projects (circa €2m to €35m) throughout the Irish State.
The Home Building Finance Ireland Act was commenced on 5 December 2018 and HBFI was formally launched in January 2019. HBFI has an independent board and is wholly owned by the Minister for Finance.
In May 2020, in response to COVID-19, HBFI launched a series of new measures to extend its presence throughout the housebuilding finance market to support the resumption of construction activity.
Further information in relation to HBFI and its application process can be found at https://www.hbfi.ie.
HBFI Funding
HBFI Indicative Lending Criteria
Overview
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
To end January 2020, HBFI has approvedlending facilities worth €114 million which canfacilitate the construction of over 600 newhomes across 12 counties.
The average facility size to date is €6.4m
61 full applications (160 EOI) have beenreceived by HBFI since its inception.
From May 2020 HBFI announced the followingnew products;
Provide new “step-in” funding for house builderswhere funding from banks may not be available toenable them to commence new housingdevelopments
Allow a bigger range of housebuilders (both largeand small) to access HBFI’s €750m funding
Fund major apartment developments for the firsttime
Latest Update
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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35 An Roinn Airgeadais | Department of Finance
Minister For Finance
241 registered credit unions in the Republic of Ireland serve the needs of 3.4
million members 1
The role of Minister for Finance is to ensure that the legal framework for credit
unions is appropriate.
The Registrar of Credit Unions at the Central Bank of Ireland is the independent
regulator for credit unions in Ireland.
The main representative bodies are:
ILCU (creditunion.ie) - 355 credit union's affiliated to League in the
Republic of Ireland and Northern Ireland.
CUDA (cuda.ie) – represents 16 credit unions and also provides affinity
membership for 34 additional credit unions.
CUMA (cuma.ie) – represents credit union managers in Ireland.
NSF (nsf.ie) - supports board oversight committees in the Republic of
Ireland and supervisory committees in Northern Ireland.
CUAC is a statutory body providing advice to the Minister for Finance on credit
union matters.
Credit Union stakeholders
Average New Loan Average Savings
€3,400
Members Credit Unions
Registrar of Credit Unions
CUACCREDIT UNION ADVISORY
COMMITTEE
ILCUIrish League of Credit Unions
Key Stakeholders Sector Overview1
Source: 1. As of September 2019 (Central Bank – Financial Conditions Report)
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
Recent Actions
CUAC published a report in February 2020 which examined the role of theDirector and set out a number of recommendations for consideration.
The Central Bank published revised lending regulations, which provide creditunions with increased capacity for mortgage lending from 1 January 2020.
ICURN published a peer review in January 2020 of the Central Bank’s performanceof its functions, concluding that the Central Bank is effective in performing itsfunctions in relation to credit unions.
Credit unions are designated as an ‘essential service’ under the Governmentissued public health guidelines in response to COVID-19.
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36 An Roinn Airgeadais | Department of Finance
Credit Unions: background
Total assets have grown from €14bn in 2011 to €18.3bn as at 2019. 55 credit unions with over €100 million in assets control 59% of sector assets (having risen
from 41% of sector assets in 2015). Credit unions of < €20 million asset size have reduced by 58% since 2015
Loan balances had been increasing, rising from €3.9bn in 2015 to €5.1bn in 2019. Loan To Asset (LTA) ratio has remained broadly static at 28%, primarily as a
result of continuing growth in member savings matching loan growth
Reserves averaged 16.5% in September 2019
The average sector return on assets has fallen from 1.4% in 2015 to 0.7% in 2019 due to falling investment yields and rising overheads
The Sector in Numbers
%
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
€13 €13 €12 €13 €12 €12 €12 €12 €12
€13 €13
€14 €15
€15
€7 €7 €7
€7 €6
€6 €5
€4 €4.0 €3.9 €4.1 €4.5 €4.8 €5.1
0
0.1
0.2
0.3
0.4
0.5
0.6
€0
€2
€4
€6
€8
€10
€12
€14
€16
€18
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sep-19
Savings (€bn) Loans (€bn) Reg Cap (%) Arrears (%) Loans to Total Assets (%)
These figures predate the onset of the COVID-19, which is likely to impact the majority of credit unions negatively through increased arrears, reduced lending and rising savings.
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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38 An Roinn Airgeadais | Department of Finance
2009
•Following consultation with Central Bank and Department of Finance, the ‘Anglo Irish Bank Corporation Act 2009’ was passed to take Anglo Irish Bank into public ownership
•€4bn in ordinary shares invested in Anglo Irish Bank and €100m in Irish Nationwide (INBS)
2010
•€30.6bn additional capital injections in the form of promissory notes
•Brings total invested to €34.7bn across Anglo and INBS
2011
•Majority of deposits held in Anglo Irish Bank and INBS are merged to form Irish Bank Resolution Corporation (IBRC)
2013
•Following discussions between Irish Authorities and the ECB, the IBRC promissory notes are exchanged for long-term government bond
•Improves Ireland’s debt profile and decreases near team borrowing requirements
•IBRC placed into liquidation
2014/2015
•Liquidation generated €16.5bn of cash inflows to date
•Allows for payment of €14.7bn toIBRC’s creditors, including full repayment of €12.9bn of debt owed to NAMA
2016-2020
•All admitted unsecured creditors and subordinated creditors have been paid 100% of what they were owed at the date of the liquidation.
•The State has received the full amount owed as the owner of the Preference Shares.
•Assessor appointed pursuant to the Anglo Irish Bank Corporation Act 2009 with his final report published in April 2020.
IBRC: Overview
IBRC: Timeline of Events
Established: • July 2011 following the merger of Anglo Irish Bank and Irish Nationwide Building Society
Purpose: • To manage the orderly wind down of the merged entity
Government Support: • Total invested in IBRC (Dec-2010): €34.7bn
Progress to date: • IBRC was placed in special liquidation in February 2013• Loans with a par value of €21.7bn have been prepared, brought to the market and sold• Liquidation generated €17.1bn of cash inflows to date• All admitted unsecured creditors have been paid 100% of the principal that was owed to them at the date of liquidation.
Overview
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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39 An Roinn Airgeadais | Department of Finance
IBRC Progress Update Report
Sales process by numbers
€21,700,000,000
64 15,900
>130,000 355
755,000
3,500 241 100%
174
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
22
• The IBRC loan portfolio was supported by collateral based in 22 different jurisdictions worldwide
• 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 portfolios.
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 Evergreen Irish originated Corporate
Loans
■ Ireland (93%)
■ UK (7%)
Project SaltUK originated CRE Loans
■ Germany (60%)
■ UK (30%)
■ Poland (7%)
■ Europe: other (3%)
Project RockUK originated Commercial
Real Estate (“CRE”) Loans
■ UK (89%)
■ US (7%)
■ Germany (3%)
■ Europe: Other (1%)
Project StoneIrish originated CRE Loans
■ Ireland (46%)
■ United Kingdom (33%)
■ Continental Europe (18%)
■ Other (3%)Project Quartz
Irish originated CRE loans
■ Ireland (97%)
■ UK (1%)
■ Other (2%)
Project Amber / Amethyst
Corporate and CRE loans
■ UK (78%)
■ Ireland (22%)
Source: 1. IBRC Progress Update Report
Collateral was based
in 22 different jurisdictions
Sales Processes
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
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40 An Roinn Airgeadais | Department of Finance
The most recent special liquidation progress update report was published in [June 2020] giving acomprehensive overview of the work completed to date. It is available on the Department of Financewebsite www.finance.gov.ie.
Asset realisation workstream largely complete. At this stage, loans with a par value of €21.7bn havebeen prepared, brought to the market and sold
All admitted unsecured creditors and subordinated creditors have been paid 100% of what they wereowed at the date of the liquidation.
The State has received the full amount owed as the owner of the Preference Shares.
In 2018, an assessor was appointed pursuant to the Anglo Irish Bank Corporation Act 2009 to determinethe fair and reasonable aggregate value of the transferred shares and extinguished rights and theconsequent amount of compensation (if any) that may be payable to the previous shareholders. Thefinal report of the assessor was published on the Department of Finance website in April 2020 whichconcludes that no compensation is payable to former shareholders of any class or to former rightsholders.
On 2nd April 2019 the Special Liquidators announced the successful agreement of the largest remainingpiece of litigation impacting the liquidation of IBRC.
As a result of Covid-19, the expected timeline for completion of the liquidation has been extended toend-2022 (from end-2021) which allows for delays in court proceedings and asses realization strategies.
IBRC Liquidation Update
Recent Developments
Ongoing
Tasks
Liquidation update
Continued management of c. 50 legal cases
Completion of the creditor adjudication process
Management of the remaining loan book of c. €3.4bn
Realisation of all remaining assets
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit UnionsIBRC
Financial Advisory
Section 1: Introduction
Section 2: Economic Update
Section 3: State Bank Investments
Section 4: NAMA / HBFI
Section 5: Credit Unions
Section 6: IBRC
Section 7: Financial Advisory
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42 An Roinn Airgeadais | Department of Finance
Financial AdvisoryAnalysis, insight and building connections
Insight Objective Analysis
Building Connections
Financial Advisory
Key objectives
The Financial Advisory team provides insight and analysis into emerging technologies and financial services, while helping to build connections between academia, public bodies, and private institutions
Blockchain & Virtual Currencies
Analysis & Insight
Conduct research into new developments in the financial services sector and nascent technologies. Research areas include: crowdfunding, seed & venture capital funding, blockchain and fintech
Co-hosted a conference with the European Investment Bank (EIB) that focused on improving access to finance for Irish companies (December 2018)
Hosed the first ‘Institutional Investment in Private Capital’ event in June 2019 to explore how greater levels of institutional investment can be allocated to Irish businesses.
About
Coordinate and manage the Department’s Blockchain & Virtual Currencies Working Group
Regular engagement with academia, Enterprise Ireland, the IDA and private sector via the ‘Blockchain Ireland’ initiative
Authors of the Department’s discussion paper on blockchain & virtual currencies
Co-founded the BlockW initiative (women in blockchain forum)
Provide input at an EU and OECD level. In particular, at the EU Blockchain Observatory & Forum and the EU Blockchain Partnership
Hosted Ireland’s first Government Blockchain Hackathon (Blockathon Ireland) in January 2019
Completed the Department’s response to the European Commission’s public consultation on cryptoassets
Introduction
Economic Update
State Bank Investments
NAMA / HBFI
Credit Unions
IBRC
Financial Advisory
43 An Roinn Airgeadais | Department of Finance
Contacts
Head of Shareholding and Financial Advisory Division
Shareholding and Financial Advisory Division Contacts
Department of Finance Press Office
Des CarvilleEmail: [email protected]: +353 1 604 5326
Aidan MurphyEmail: [email protected]: +353 1 604 5531
AIB, BOI & PTSB Credit Unions Scott Rankin(Deputy Head) Brian CorrEmail: [email protected] Email: [email protected]: +353 1 604 5469 Phone: +353 1 604 5064
Financial Advisory NAMA, IBRC & HBFIMai Santamaria Gary HyndsEmail: [email protected] Email: [email protected]: +353 761007728 Phone: +35316045308
www.gov.ie