NON-CONFIDENTIAL VERSION

STANDARD FORM FOR NOTIFICATION OF STATE AIDS

PURSUANT TO ARTICLE 88 (3) EC TREATY
AND FOR THE PROVISION OFINFORMATION ON UNLAWFUL All

NOTIFICATION

DATED 8tn JANUARY, 2009

-BY-
c
IRELAND

TO

THE EUROPEAN COMMISSION

PURSUANT TO

COUNCIL REGULATION (EC) No 659/1999 (AS AMENDED)

IN RELATION TO

THE PROPOSED CAPITAL INJECTION BY THE STATE OF €1.5 BILLION INTO

ANGLO IRISH BANK CORPORATION PLC

Department of Finance
Government Buildings
Upper Merrion Street
Dublin 2
Ireland
 PART I. GENERAL INFORMATION

STATUS OF THE NOTIFICATION

Does the information transmitted on this form concern:

a notification pursuant to Article 88 (3) EC Treaty?

[~~| a possible unlawful aid1?

If yes, please specify the date of putting into effect of the aid. Please complete this
form, as well as the relevant supplementary forms.

I | a non-aid measure which is notified to the Commission for reasons of legal certainty?

Please indicate below the reasons why the notifying Member State considers that the
measure does not constitute State aid in the meaning of Article 87(1) EC Treaty.
Please complete the relevant parts of this form and provide all necessary supporting
documentation.

A measure will not constitute State aid if one of the conditions laid down in Article
87(1) EC Treaty is not fulfilled. Please provide a full assessment of the measure in the
light of the following criteria focusing in particular on the criterion which you
consider not to be met:

According to Article l(f) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1) (hereinafter "Procedural
Regulation"), unlawful aid shall mean new aid put into effect in contravention of Article 88(3) of the EC-
Treaty.
 No transfer of public resources (For example, if you consider the measure is not
imputable to the State or where you consider that regulatory measures without
transfer of pub lie resources will be put in place)

No advantage (For example, where the private market investor principle is

respected}

No selectivity/specificity (For example, where the measure is available to all

enterprises, in all sectors of the economy and without any territorial limitation and
without discretion)

No distortion of competition / no affectation of intra-community trade (For

example, where the activity is not of an economic nature or where the economic
activity is purely local)

OVERVIEW

This notification concerns the proposed capital injection by the Irish State of €1.5 billion
(the "State investment") into Anglo Irish Bank Corporation pic ("Anglo Irish Bank" or
the "Bank") under the Irish Government's bank recapitalisation programme. The State
investment will be made pursuant to the Credit Institutions (Financial Support) Act
2008 (the "Act"). A copy of the Act is contained in Annex 1.

Following on from Government announcements on 28th November, 2008 and 14th

December, 2008, on 21st December, 2008, the Irish Government issued an announcement
on its bank recapitalisation programme which included details of the State investment in
Anglo Irish Bank. Copies of the Government's announcements of 21st December, 2008,
14th December, 2008 and 28th November, 2008 are attached in Annex 2. The State
investment in Anglo Irish Bank will be in the form of €1.5 billion of Core Tier 1 non-
cumulative perpetual preference shares in the Bank with a fixed annual dividend of
10% (the "Shares"). The Shares will carry 75% of the voting rights in Anglo Irish Bank.
An Extraordinary General Meeting ("EGM") of the Bank in relation to the State
investment is scheduled to take place on 16th January, 2009 and, subject to shareholder
approval at the EGM, the State investment is anticipated to take place on 20th January,
2009.
3
The decision by the Irish Government to make the State investment in Anglo Irish Bank
was taken in light of the impact of the current global financial crisis on Anglo Irish Bank
and recent corporate governance developments at Anglo Irish Bank, which are outlined
in further detail below. In summary, the objectives of the State investment are to ensure
that Anglo Irish Bank is adequately capitalised to preserve financial stability, to ensure
that the Bank's capital ratio levels meet the expectations of international investors and
to facilitate lending to the real economy. Further details of the background to and
objectives of the State investment are set out below in the section entitled "Background".
Further details of the parties are set out below in the section entitled "Parties". Further
details of the terms and conditions of the State investment are set out below in the
section entitled "The State investment".

BACKGROUND

The decision by the Irish Government to make the State investment in Anglo Irish Bank
was taken in light of the impact of the current global financial crisis on Anglo Irish Bank
and recent corporate governance developments at Anglo Irish Bank, which together
have led to a serious deterioration in the financial position of the Bank.

The current global financial crisis has led to a sudden and dramatic increase in the
market's perception of the risks contained in banks' balance sheets. Consequently,
international capital market expectations in relation to capital levels for financial
institutions have risen significantly. In particular, markets and rating agencies have
increasingly focussed on the adequacy of Tier 1 capital and Core Tier 1 capital.

Market perceptions concerning the inadequacy of Anglo Irish Bank's capital ratio levels
have led to a deterioration in investor sentiment with regard to Anglo Irish Bank. As at
31st December, 2008, Anglo Irish Bank's shares traded at €0.171, with a market
capitalisation of €129.95 million. Over the previous 12 months, the Bank traded as high
as €10.94, with a market capitalisation of €8,327.74 million. As a result, Anglo Irish
Bank's shares have lost more than 98% of their value over the last 12 months.
Anglo Irish Bank is one of the financial institutions covered by the Irish Guarantee
Scheme for financial institutions2 (the "Guarantee Scheme"), which was adopted under
the Act, and approved by the Commission under European Community Rules on State
aid on 13th October, 2008. The liabilities covered under the Guarantee Scheme were
those liabilities existing at close of business on 29th September, 2008 or at aay time
thereafter, up to and including 29th September, 2010, in respect of the following: (i) all
retail and corporate deposits (to the extent not covered by existing deposit protection
schemes in the State or any other jurisdiction); (ii) interbank deposits; (iii) senior
unsecured debt; (iv) asset covered securities; and (v) dated subordinated debt (Lower
Tier 2), excluding any intra-group borrowing and any debt due to the European Central
Bank arising from Eurosystem monetary operations. It is estimated that the total
covered liabilities under the Guarantee Scheme amount to approximately £65 bn
[Confidential - not in the public domain] [Department to confirm].

Despite its coverage under the Guarantee Scheme, the Bank's shares have experienced a
significant deterioration in value from around €5 in early October, 2008 to the position
of €0.171 on 31st December, 2008.

The primary objective of the Guarantee Scheme was to address the loss of confidence in
interbank lending markets that led to liquidity difficulties for even fundamentally sound
banks. The Guarantee Scheme was successful in stabilising the liquidity position of
Anglo Irish Bank which, along with the other main banks in Ireland, was at the time at
substantial risk of liquidity runs. However, the Guarantee Scheme, which addresses
liquidity difficulties, is not designed to address market perceptions concerning the
adequacy of capital ratio levels of banks. [The market perception of Anglo Irish Bank is
that, notwithstanding increased provisioning, it has underprovided for its loan risks in
the light of the significant deterioration in the property market, and the share price has
fallen sharply accordingly.] [Department to consider whether this should be removed on
the ground that it is commercially sensitive for An difficult to argue this as
market views are, by their nature, in the public domain]

In terms of its business model, Anglo Irish Bank can be categorised as

bank specialising in commercial and real estate lending. Its funding mode

2
The Credit Institutions (Financial Support) Scheme 2008, S.I. No 411 of 2008.

5
reliant on wholesale lending, the availability of which has diminished very substantially
on account of the dislocation of international credit markets. Anglo Irish Bank has
approximately €6 billion [Confidential - business .secret}; [We could not find the in the
Preliminary Results 2008 - Department to confirm whether this is in the pubic tomain]
of term debt maturing in 2009. Anglo Irish Bank's loan book is approximately €72
billion and it is heavily exposed to commercial investment property (c. €40 billion
[Confidential - business secret] [We could not find this in the Preliminary Results 2008 -
Department to confirm whether this is in the pubic domain]) and, more crucially, to the
development sector (c. €20 billion {Confidential - business secret] [We could |pt find
this in the Preliminary Results 2008 - Department to confirm whether this is in tie pubic
domain]).

Anglo Irish Bank results were a profit before tax of €784 million for 2008, but included
significantly increased collective and specific impairment provisions, totaling €724
million. Treasury losses account for a further €155 million impairment provision. Anglo
Irish Bank reported actual impaired loans of €957 million (131 basis points) for 2008.
[The market views these provisions as too conservative and the market consensus
estimate is an average of 200 basis points (€1.4 billion per annum)] [Departfnent to
consider whether this should be removed oh the ground that it is commercially sensitive
for Anglo. May be difficult to argue this as market viewsrare, by their nature^ in the
public domain], whereas the maximum Anglo Irish Bank guide to is 120 basis points.
However, according to a report on the financial position of the six main domestic
institutions participating in the Guarantee Scheme (the "PwC Report") carried out by
PricewaterhouseCoopers for the Irish Financial Regulator (the "Financial Regulator"),
Anglo Irish Bank's current capital position could withstand provisions substantially in
excess of market estimates. Profits before impairments in 2069 are projected by Anglo
Irish Bank at approximately €1.6 billion.

The Financial Regulator has stated that the key risk currently faced by Anglo Irish
Bank is liquidity risk, which the Financial Regulator is closely monitoring on a daily
basis. Since the end of November 2008, Anglo Irish Bank has experienced outflows both
in terms of corporate and retail deposits. Accordingly, the Bank has had to increase its
level of borrowing from the interbank market and also from the ECB to manage this
funding gap. [Confidential - commercially sensitive for Anglo Irish Bank] [Department
to confirm] However, in addition to the €1.5 billion Government injection, other
6
measures being put in place to enhance the liquidity position of the bank going forward
include the approval of an asset covered securities bank, which will increase its access to
ECB borrowings, and additional undrawn committed facilities from two credit
institutions.

According to the Financial Regulator, Anglo Irish Bank is currently fully in compliance
with regulatory capital requirements - its current Tier 1 capital amounts to c. €7.2
billion, which is more than 8% of risk assets - but it has a strong requirement for
additional Core Tier 1 capital in order to reassure the market regarding its capacity to
fully provide for anticipated losses on its loan book. Market feedback is that there would
be little if any private investment in an ordinary share rights issue or preference share
issue by Anglo Irish Bank. [Confidential - commercially sensitive for Anglo Irish Bank] t
[Department to confirm!

In addition to difficulties caused by the global financial crisis, the deterioration in the
financial position of the Bank has been accelerated by recent corporate governance
developments at the Bank. On 18th December, 2008, the chairman of the bank (Mr. S.
FitzPatrick) tendered his resignation as chairman with immediate effect. At the same
time, a non-executive director (Mr. L. Bradshaw) also tendered his resignation. The
following day, the chief executive of Anglo Irish Bank (Mr. D. Drumm) tendered his
resignation. On 7th January, 2009, the finance director and chief risk officer of Anglo
Irish Bank (Mr. W. McAteer) tendered his resignation. The chairman's decision to
resign is based on the fact that, over a period of eight years to 2007, he temporarily
transferred loans he had with Anglo Irish Bank to another bank prior to Anglo Irish
Bank's year end. The statement from the board of directors of Anglo Irish Bank on 18l
December, 2008 stated that this transfer of loans did not breach banking or legal
regulations. It was, however, considered as inappropriate from a transparency point of
view. Mr. Bradshaw's decision to resign was based on the fact that a loan, which he held
jointly with the chairman, was temporarily transferred to another bank prior to year
end. The Financial Regulator has launched an inquiry into the events surrounding the
corporate governance developments at Anglo Irish Bank and has instigated a review of
the treatment of directors' loans in the financial institutions covered by the Guarantee
Scheme.
In these circumstances, the Irish Government, in consultation with the Governor of the
Central Bank of Ireland (the "Governor") and the Financial Regulator, decided that it
was necessary for the State to take measures in relation to Anglo Irish Bank in order to
avoid further deterioration in the market investor sentiment in relation to the Bank,
which, in turn, would represent a threat to the stability of both the financial system in
the State and the wider economy. In particular, a loss of confidence in Anglo Irish Bank
could undermine confidence in the Irish financial sector as a whole, which is very
dependant upon international funding through wholesale money markets. This
constitutes a serious risk of a systemic crisis in the Irish financial system, which, in turn,
would have significant negative spill-over effects into the wider economy. For these
reasons, on 21st December, 2008, the Irish Government announced the decision to make
the State investment. The objectives of the State investment are to ensure that Anglo
Irish Bank is adequately capitalised to preserve financial stability and to ensure that the
Bank's capital ratio levels meet the expectations of international investors.

A further objective of the State investment in Anglo Irish Bank is to facilitate lending t
the real economy. The State investment is part of a wider Government recapitalisation
programme, the object of which is to ensure that the financial system in Ireland is
capitalised to meet the everyday financial needs of individuals, businesses and the
overall economy. In the Government announcement on 21st December, 2008, the
Minister for Finance (the "Minister") stated:

"The provision of credit to the economy is the most immediate and pressing issue for
business and for the Government. The future health of our economy is inextricably
linked with the supply of credit and a situation where banks are unwilling or are
perceived to be unwilling to lend is damaging not only for the economy but also for
the banks themselves. Banks have an important part to play in addressing this issue
and a key objective of the Government's recapitalisation initiative is to ensure the
continued flow of funds through the banks to individuals and businesses in the real
economy.

In response to my earlier meetings with the banks many had already announced
specific programmes to boost lending to small and medium enterprises. AIB and
Bank of Ireland have announced new business support and start up funds and have
provided commitments to support first time buyers and consumers. While these
8
 announcements are welcome the Government believes that it is appropriate as part
of the agreed recapitalisation programme that the banks should further build on the
commitments given in the banks guarantee scheme through specific credit policies
targeted at small medium enterprises, first time buyers and consumers generally.

The recapitalisation announced today will provide the banks with the stability
required to continue to lend to meet the needs of the Irish economy. The banks will
be expected to contribute to the economy in a verifiable manner in relation to credit
and in relation to the maintenance of a payments system, which is socially inclusive.
They will be expected to adopt an approach to customer relationships in a way
which recognises that customers need support through difficult as well as good
times."

In furtherance of these objectives, the banks have agreed to a credit package, whose
details are set out in the section below entitled "Behavioural Conditions".

THE PARTIES

It is anticipated that the Shares will be acquired by the Minister acting through the
National Treasury Management Agency ("NTMA"), which would act under delegation
from, and on behalf of, the Minister in acquiring the Shares. The NTMA is the asset and
liability management arm of the Irish Government. Its fundamental role is that of
borrowing for the Government and managing the National Debt. The NTMA was
established in 1990 under the National Treasury Management Agency Act, 1990 (the
"NTMA Act"). Under the NTMA Act, the Government may by order delegate to the
NTMA certain functions of the Minister, including those relating to the management of
the national debt or the borrowing of moneys for the Exchequer, subject to the control
and general superintendence of the Minister, and to be performed subject to such
directions or guidelines as the Minister may give. A function of the Minister delegated
by the order shall be vested concurrently in the Minister and the NTMA so as to be
capable of being performed by either the Minister or the NTMA. Any obligation or
liability undertaken by the NTMA consequent upon the performance by the NTMA of a
function to which the delegation or declaration relates shall be of the same force and
effect as if the obligation or liability had been undertaken by the Minister.

9
Anglo Irish Bank is a focused business bank with a private banking arm. Tfe Bank
provides business banking, treasury and wealth/managementservices. It is not a
universal bank and its stated strategy ikniche rather than broad marketSEach of its
Wstomers deals directly with a dedicated relationship manager and a product specialist,
s
The Bank's main strategy is to lend on a senior first secured basis to clients against
investments and development property assets in each of its three core markets: Ireland,
the UK and the US. Lending comprises approximately €73 billion of the Bank's total
assets of approximately €100 billion. These lending assets are split geographically as
follows: 57% in Ireland, 29% in the UK and 13% in the US.

Anglo Irish Bank's shares are quoted on the Dublin and London stock exchanges. The
Irish Financial Regulator is the lead regulator. According to its preliminary results for
the year ended 30th September, 2008, the Bank had a balance sheet total of €101,321
million. Anglo Irish Bank has locations in Ireland, the UK, the United States, Jersey and
the Isle of Man. Further details on Anglo Irish Bank can be found at
www.angloirishbank.com.

THE STATE INVESTMENT

The main terms and conditions of the State investment, which are unchanged from those
that were communicated to the Commission on 21st December, 2008, are as follows:-

• Form of Security: Core Tier 1 non-cumulative preference shares with voting

rights

Size: EUR 1.5 billion

• Transferability: Non-transferable

• Dividend:

• Fixed dividend of 10% payable, at the discretion of the bank, annually on

16 January

• Dividends payable in cash. If not able to pay in cash then paid in the form
of ordinary shares. Calculated on the basis of unpaid dividend divided by
the share value. Share value is calculated based on the average daily
10
 closing price over the 30 trading days preceding the dividend declaration
date

• Payment of dividends made in priority to dividends on ordinary shares

Term: Perpetual, no step-up

Redemption:

• Redemption at the Bank's option

• Anglo Irish Bank can repurchase at par for 5 years and thereafter at
125% of par, subject to replacement of capital and Irish Financial
Regulator approval

• Replacement capital needs to be Core Tier 1

Ranking: Pari passu to ordinary share capital on liquidation and with other
preference shares/securities for dividends

Dividend Stopper. Yes, if cash preference share dividend is unpaid

Voting rights:

• Full voting rights as long as preference shares outstanding

• Voting rights to represent 75% of total voting rights

Other Items:

• Management and board change

• Board will have Government representation

• Submission of restructuring plan after six months in line with European

Commission Recapitalisation Communication

Proposed Timetable:

• Sunday, 21st December, 2008: Government announcement of capital

injection

11
 • Tuesday, 23rd December, 2008: Anglo Irish Bank published a
shareholders' circular

• Friday, 16th January, 2009: Anglo Irish Bank EGM to be held to approve
the capital increase

• Tuesday, 20th January, 2009: the Shares to be issued to the Minister (or
the NTMA on behalf of the Minister)

The Financial Regulator has confirmed that the Shares will be treated as Core Tier 1
Capital for regulatory capital purposes. The State investment will boost Anglo Irish
Bank's Core Tier 1 capital ratio from 5.9%3 to 7.7%4. The remuneration level and the
redemption terms are designed to encourage Anglo Irish Bank to redeem the Minister's
investment as soon as market circumstances permit.

A copy of an Anglo Irish Bank circular to shareholders that was issued by Anglo Irish
Bank on 23rd December, 2008 in relation to the State investment is attached in Annex 3.
An agreement will be entered into by the Minister (or the NTMA acting on behalf of the
Minister) and Anglo Irish Bank in relation to the State investment.

3
Source: Merrill Lynch. Basis:
Current CT1: €5,068m (incl. €371m prefs)
Current RWA: €85,798m
==> Current CT1 ratio of 5.9%
4
Source: Merrill Lynch. Basis:
After €1.5bn additional CT1
Pro forma CT1: 66,568m
==> Pro forma CT1 ratio of 7.7%

12
BEHAVIOURAL CONDITIONS

Management and Board changes

The terms and conditions of the State investment envisage management and board
changes at Anglo Irish Bank and Government representation on the Board of Directors
of the Bank.

In addition, it will be a condition for the State investment in Anglo Irish Bank that the
Bank will not use the fact that it has received the capital injection for advertisement or
promotion purposes. J ^\l[^ (ZP^U^

Lending to the real economy

As stated above, as part of the Government's recapitalisation programme, Anglo Irish

Bank, together with other banks that may be recapitalised under the Government's
recapitalisation programme (together the "Recapitalised Banks"), will be expected to
contribute to the economy in a verifiable manner in relation to credit and in relation to
the maintenance of a payments system which is socially inclusive.

In furtherance of these objectives, the Recapitalised Banks have assured the

Government that they will continue to grow lending to small and medium sized
enterprises ("SMEs")5 and have agreed to a credit package, details of which are set out
in Annex 6. In summary, the undertakings in the credit package include increased
capacity for lending to SMEs and first time buyers, a new code of practice for business
lending and increased assistance for householders in arrears on mortgage repayments,
including a commitment not to seek enforcement action or repossession for at least six
months.

On account of Anglo Irish Bank's specific business model, which is specialised in

commercial property lending and property development finance, not all of the elements
of the agreed credit package will directly impact on Anglo Irish Bank, at least initially.
However, given the requirement to prepare a restructuring plan within a six month
period as part of the recapitalisation initiative, future changes in the business model and
strategic direction of Anglo Irish Bank are likely to bring about a closer alignment
between the lending activities of the Bank and the credit needs of the real economy. As a

5
SMEs are to be defined in accordance with the requirements under EU State aid Regulations.

13
 r-it is aDticipa-ted that in-time farther elements of the gydit package will become /
applicable—te—Anglo—Irish—Bank—accordingly. [Confidential - business^- secret]!
[Department to confirm]. Moreover, notwithstanding that the Bank will be operated on
an arms-length basis from the State, it is expected that the public policy objectives
underlying the Government's decision to recapitalise systemically important banks in
Ireland will guide and inform the lending activities of Anglo Irish Bank, subject, of
course, to the requirement to safeguard its financial position and long-term commercial
sustainability.

Behavioural conditions under the Guarantee Scheme

As noted above, Anglo Irish Bank is a participant in the Guarantee Scheme. A copy of
the Guarantee Scheme is attached in Annex 4. Therefore, in addition to the behavioural
conditions referred to above, Anglo Irish Bank continues to be subject to the
behavioural conditions and transparency and reporting conditions that may be imposed
under paragraphs 24 to 50 of the Guarantee Scheme6, including in relation to the
following:

• balance sheet growth constraints (paragraph 36 of the Guarantee Scheme);

• compliance with directions given by the Governor and the Financial Regulator
on consultation with the Minister concerning: (i) the management of its balance
sheet; (ii) structures to improve long-term stability of funding; (iii) executive
management and corporate governance; (iv) liquidity, solvency and capital
ratios; and (v) minimising any risk of recourse to the guarantee (paragraph 37 of
the Guarantee Scheme);

• controls over acquisition of shares in other financial institutions, establishing

subsidiaries and/or entering into new business (paragraph 38 of the Guarantee
Scheme);

• compliance with targets on assets and liabilities set by the Financial Regulator on
consultation with the Minister, including in relation to loan/deposit ratio,

6
The Credit Institutions (Financial Support) Scheme 2008, S.I. No 411 of 2008, which was brought into force
pursuant to the Act.

14
 wholesale funding/total liabilities ratio, deposit growth and maximum loan-to-
value on new loans (paragraph 39 of the Guarantee Scheme);

• compliance with liquidity, solvency and capital ratios set by the Financial
Regulator on consultation with the Minister (paragraph 41 of the Guarantee
Scheme);

• limitations on dividends (paragraph 42 of the Guarantee Scheme);

• controls on executive remuneration (paragraphs 46-49 of the Guarantee

Scheme);

• reporting and compliance obligations (paragraphs 24-27 and 29 of the Guarantee

Scheme);

• controls on board representation and executive management (paragraphs 32-34

of the Guarantee Scheme); and,

obligation to draw up a restructuring plan in certain circumstances (paragraph

s
^m^~~--^4e^i/^^te/: \Jc> oQ»
There has been very close engagement and liaison between the Department of Finance
(the "Department") and Anglo Irish Bank on an ongoing basis since it executed the legal
instruments required to join the Guarantee Scheme in order to ensure that Anglo Irish
Bank conforms fully to the objectives of the Guarantee Scheme and all relevant elements
ic Guarantee Scheme are appropriately implemented by the Bank on a timely basis.

Anglo Irish Bank, in common with all the covered institutions, has been required to
prepare and submit a strategic report to the Department setting out how it proposes to
align the future direction of the Bank to meet the objectives of the Guarantee Scheme.
In the report the bank describes the measures already taken and those planned for the
future in relation to the following:-

• Promotion of sustainable lending practices;

• Controlling asset growth;

• Securing long-term funding;

15
• Improving capital ratios;

• Updating the valuation of assets;

• Ensuring that the cost of the guarantee will not be passed on to customers;

• Controlling exposures to customers or asset classes; and

• The strengthening of management capacity and corporate governance.

Anglo Irish Bank is required to provide regular reports to the Department that describe
progress made in complying with the principles and objectives of the Guarantee
Scheme, and any specific directions issued by the Minister in connection with the
Guarantee Scheme.

Specific progress in relation to the main elements under the Guarantee Scheme is as
follows:-

Board of Directors: Anglo Irish Bank has appointed two directors representative of the
public interest nominated by the Minister to its board.

Remuneration Arrangements: Anglo Irish Bank has provided a plan for review by the
Covered Institutions Remuneration Oversight Committee (CIROC) under the
Guarantee Scheme on the proposed structure of the remuneration packages of the
directors and executives of the bank so as to take into account the objectives of the Act
and in order to comply with the requirements of the Guarantee Scheme.

Dividends; Anglo Irish Bank has been informed that it cannot declare or pay dividends
until further notice.

Buy-Backs: Anglo Irish Bank has been advised that it should not buy-back any of the
securities (either debt or equity), which form part of its capital without the prior
approval of the Financial Regulator after consultation with the Minister.

Funding: Anglo Irish Bank has been notified that it cannot undertake any funding
programme, publish a prospectus, or instruct corporate finance advisors or other
financial advisers in connection with a fundraising without prior consultation with the
Department and the Financial Regulator. Anglo Irish Bank has also been notified that it

16
must comply with the terms of any guidance issued by the Financial Regulator in
relation to prospectuses and offer documents.

Public Disclosure: Anglo Irish Bank has been directed that it must consult with the
Department and the Financial Regulator in advance of any public disclosure as regards
its assets, (including valuations, write-downs or write-offs) and/or liabilities other than
those required in the ordinary course of business.

Advertising; Without prejudice to disclosures made in prospectuses and other offering

documents, Anglo Irish Bank has been prohibited from explicitly promoting itself on the
basis of the Guarantee Scheme.

Corporate Social Responsibility (CSR): Anglo Irish Bank has been instructed to initiate
arrangements with the Irish Banking Federation ("IBF") for the submission of the bi-
annual report on progress in relation to CSR objectives under the Guarantee Scheme.

Interbank deposits: Anglo Irish Bank has been told that its recourse to interbank
deposits with a maturity up to three months must be balanced and proportionate with
overall funding needs so as to ensure consistency with the management of liquidity by
the Eurosystem and compatibility with the operational framework of the Eurosystem.

Compliance Certificate: Anglo Irish Bank must provide quarterly certificates to the
Financial Regulator from (i) its auditors and (ii) its chairman and chief executive jointly,
confirming compliance with all of the terms and objectives of the Guarantee Scheme.

Risk management of the Guarantee: Anglo Irish Bank has been asked to review and
monitor the risk management arrangements in place to guard against a technical default
event ever occurring.

EXISTENCE OF STATE AID

The Government accepts that, in the current market circumstances, the State
investment may contain elements of State aid. However, for the reasons set out in
Section 10 below, the Government is of the view that the State investment is compatible
with the Common Market on the basis of Article 87(3)(b) of the EC Treaty as it is
necessary in order to remedy a serious disturbance in the Irish economy. Please refer to
Section 10 below for further details.

17
 1. IDENTIFICATION OF THE AID GRANTOR

1.1. Member State concerned

Ireland.

1.2. Region(s) concerned (if applicable)

Not applicable.

1.3.

Responsible contact person:

Name : Mr William Beausang

Address : Banking, Finance and International Division

Department of Finance
Government Buildings
Merrion Street
Dublin 2
Ireland

Telephone : +353 1 604 55 61

Fax : +353 1 678 5272

E-mail : wiliiam.beausang(Sfinance.gov.ie

1.4. Responsible contact person at the Permanent Representation

18
Name : Mr Fred Cooper

Telephone : + 32 2 230 8580

Fax : +32 2 231 0504

E-mail ;iFrecl.caoper(§ld:fa.ie

1.5. If you wish that a copy of the official correspondence sent by the Commission to the
Member State should be forwarded to other national authorities, please indicate here their
name and address:

Name : Not applicable

Address :

1.6. Indicate Member State reference you wish to be included in the correspondence from the
Commission

F9/2/09

1.7. Please indicate the name and the address of the granting authority:

The Minister, acting on behalf of the Government, in accordance with the Act.

Department of Finance
Government Buildings
Upper Merrion Street
Dublin 2
Ireland

19
 2. iDEiNTIFICATION OF THE AID

2.1. Title of the aid (or name of company beneficiary in case of individual aid)

As stated above, this notification concerns the proposed capital injection by the Irish
State of €1.5 billion into Anglo Irish Bank under the Irish Government's bank
recapitalisation programme.

The beneficiary is Anglo Irish Bank.

The Government accepts that, in the current market circumstances, the State
investment may contain elements of State aid. However, for the reasons set out in
Section 10 below, the Government is of the view that the State investment is compatible
with the Common Market on the basis of Article 87(3)(b) of the EC Treaty as it is
necessary in order to remedy a serious disturbance in the Irish economy. Please refer to
Section 10 below for further details.

2.2. Brief description of the objective of the aid.

For the reasons set out above, the State investment is required in order to preserve
financial stability, to safeguard the Irish financial system and to remedy a serious
disturbance in the Irish economy caused by the impact of the ongoing global financial
crisis and recent corporate governance issues on the financial position of Anglo Irish
Bank. In particular, the objectives of the State investment are to ensure that Anglo Irish
Bank is adequately capitalised to preserve financial stability, to ensure that the Bank's
capital ratio levels meet the expectations of international investors and to facilitate
lending to the real economy.

Please indicate primary objective and, if applicable, secondary objective(s) :

20
 Primary objective Secondary objective7
(please tick one only)

•S Regional development D
•S Research and development ||
•S Innovation n
v' Environmental protection [~1 n
•S Energy saving ||
S Rescuing firms in difficulty Q
S Restructuring firms in difficulty Q n
•/ Closure aid || n
S SMEs D
•S Employment [ |
S Training Q
^ Risk capital [~] n
•^ Promotion of export and I I
internationalisation
•/ Services of general economic | | n
interest
S Sectoral development8 Q n
v^ Social support to individual I I
consumers
v' Compensation of damage caused Q
by natural disasters or exceptional
occurrences
•S Execution of an important project I I n
of common European interest
•S Remedy for a serious disturbance [X] n
in the economy

7
A secondary objective is one for which, in addition to the primary objective, the aid will be exclusively
earmarked. For example, a scheme for which the primary objective is research and development may have as a
secondary objective small and medium-sized enterprises (SMEs) if the aid is earmarked exclusively for SMEs.
The secondary objective may also be sectoral, in the case for example of a research and development scheme in
the steel sector.
8
Please specify sector in point 4.2.

21
 S Heritage conservation Q |[
v' Culture O D

2.3. Scheme - Individual aid9

2.3.1. Does the notification relate to an aid scheme?

D yes [X] no

^ If yes, does the scheme amend an existing aid scheme?

I I yes I 1 no

> If yes, are the conditions laid down for the simplified notification procedure
pursuant to Article 4(2) of the Implementation Regulation (EC) N° (...) of (...)
fulfilled?

CH yes [H no

> If yes, please use and complete the information requested by the simplified
notification form (see Annex II).

> If no, please continue with this form and specify whether the original
scheme which is being amended was notified to the Commission.

D yes D no

> If yes, please specify:

Aid number:

Date of Commission approval (reference of the letter of the

Commission (SG(..)D/.. .):

9
According to Article l(e) of Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed
rules for the application of Article 93 of the EC Treaty (OJ L 83, 27.3.1999, p. 1), individual aid shall mean
aid that is not awarded on the basis of an aid scheme and notifiable award of aid on the basis of a scheme.

22
 Duration of the original scheme:

Please specify which conditions are being amended in relation to

the original scheme and why:

2.3.2 Does the notification relate to individual aid?

[X] yes [~~| no

> If yes, please tick the following appropriate box

I | aid based on a scheme which should be individually notified

Reference of the authorised scheme:

Title :

Aid number :

Letter of Commission approval:

[XI individual aid not based on a scheme

2.3.3. Does the notification relate to an individual aid or scheme notified pursuant to an
exemption regulation? If yes, please tick the following appropriate box:

Not applicable.

23
 Commission Regulation (EC) No 70/2001 on the application of Articles 87 and
88 EC Treaty to State aid to small and medium-sized enterprises10. Please use
the supplementary information sheet under part III, 1

Commission Regulation No 68/2001 on the application of Articles 87 and 88

EC Treaty to training aid11. Please use the supplementary information sheet
under part III, 2

Commission Regulation (EC) No 2204/2002 on the application of Articles 87

and 88 EC Treaty to State aid for employment12. Please use the supplementary
information sheet under part III, 3

Commission Regulation (EC) No 1628/2006 on the application of Articles 87

and 88 of the Treaty to national regional investment aid13.

Commission Regulation (EC) No 1857/2006 on the application of Articles 87

and 88 of the Treaty to State aid to small and medium-sized enterprises active
in the production of agricultural products and amending Regulation (EC) No
70/200114

10
Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the
EC Treaty to State aid to small and medium sized enterprises, OJ L 10, 13.1.2001, p. 33, as amended by
Commission Regulation (EC) 364/2004, OJ L 63, 28.2.2004, p. 22, Commission Regulation (EC) No
1857/2006 OJ L 358, 16.12.2006, p. 3. and Commission Regulation EC No 1976/2006, OJ L 368,
23.12.2006, p. 85.
11
Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the
EC Treaty to State aid to training aid, OJ L 10, 13.1.2001, p. 20, as amended by Commission Regulation
(EC) 363/2004, OJ L 63, 28.2.2004, p. 20 and Commission Regulation EC No 1976/2006, OJ L 368,
23.12.2006, p. 85.
12
Commission Regulation (EC) No 2204/2002 of 12 December 2002 on the application of Articles 87 and 88 of
the EC Treaty to State aid for employment, OJ L 337, 13.12.2002, p. 3 and OJ L 349, 24.12.2002, p. 126 as
amended by Commission Regulation EC No 1976/2006, OJ L 368, 23.12.2006, p. 85.
13
Commission Regulation (EC) No 1628/2006 of 24 October 2006 on the application of Articles 87 and 88 of
the Treaty to national regional investment aid, OJ L 302 of 01.11.2006, p. 29.
14
Commission Regulation (EC) No 1857/2006 of 15 December 2006 on the application of Articles 87 and 88 of
the Treaty to State aid to small and medium-sized enterprises active in the production of agricultural products
and amending Regulation (EC) No 70/2001, OJ L 358, 16.12.2006, p. 3.
24
 3. NATIONAL LEGAL BASIS

3.1. Please list the national legal basis including the implementing provisions and their
respective sources of references:

Title: The Credit Institutions (Financial Support) Act 2008

Reference (where applicable): Number 18 of 2008

3.2.Please indicate the document(s) enclosed with this notification:

P<] A copy of the relevant extracts of the final text(s) of the legal basis (and a web
link, if possible)

| | A copy of the relevant extracts of the draft text(s) of the legal basis (and a web
link, if existing)

A copy of the Act is attached in Annex 1.

3.3. In case of a final text, does the final text contain a clause whereby the aid granting body
can only grant after the Commission has cleared the aid (stand still clause)?

| | yes IXI no

3.4. Access to full text of schemes - in case of an aid scheme please:

Not applicable.

undertake to publish the full text of the final aid schemes on the internet.

D yes

25
Please provide the internet address:

confirm that the scheme will not be applied before the information is published on the
internet.

D yes

26
 4. BENEFICIARIES

4.1. Location of the beneficiary(ies)

[~~l in (an) unassisted region(s):

|~~] in (a) region(s) eligible for assistance under Article 87(3)(c) EC Treaty(specify at
NUTS-level3 or lower):

I | in (a) region(s) eligible for assistance under Article 87(3)(a) EC Treaty (specify at
NUTS-level 2 or lower):

[X] mixed: specify

Anglo Irish Bank has locations in Ireland, the UK, the United States, Jersey and
the Isle of Man. Its head office is located in Dublin, Ireland.

4.2. Sector(s) of the beneficiary(ies):

I I Not sector specific

[X] Sector specific, please specify according to NACE rev. 2

classification15:
Section K — Financial and insurance activities, Division 64
(Financial service activities, except insurance and pension funding).

4.3. In case of an individual aid:

Name of the beneficiary : Anglo Irish Bank Corporation pic

Type of beneficiary :

NACE is the Statistical Classification of Economic Activities in the European Community. See Regulation
(EC) No 1893/2006 of 20 December 2006 establishing the statistical classification of economic activities NACE
Revision 2, OJL393 of 30.12.2006, p. 1. NACE Revision2 comes into force on 1 January2008.

27
 D SME

Number of employees
Annual turnover
Annual balance-sheet
Independence

(please attach a solemn declaration in line with the Commission Recommendation on

SME16 or provide any other evidence to demonstrate the above criteria):

[X] large enterprise

I I firm in difficulties17

4.4. In case of an aid scheme: Not applicable.

Type of beneficiaries:

I I all firms (large firms and small and medium-sized enterprises)

f~| only large enterprises

I | small and medium-sized enterprises18

16
Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized
enterprises, OJ L 124, 20.5.2003, p. 36 and Commission Regulation (EC) No 364/2004 amending
Regulation (EC) No 70/2001 as regards the extension of its scope to include aid for research and
development, OJ L 63, 28.2.2004, p. 22; or any subsequent legislation replacing it.

As defined in Community guidelines on State aid for rescuing and restructuring firms in difficulty
OJ C 244, 01.10.2004, pages 2.
18
As defined by Commission Recommendation of 6 May 2003 concerning the definition of micro, small and
medium-sized enterprises, OJ L 124, 20.5.2003, p. 36 and Commission Regulation (EC) No 364/.2004
amending Regulation (EC) No 70/2001 as regards the extension of its scope to include aid for research and
development,, OJ L 63, 28.2.2004, p. 22; or any subsequent legislation replacing it.

28
 5. AMOUNT OF AID /.ANNUAL EXPENDITURE19

In case of an individual aid, indicate the overall amount of each measure concerned:
The State investment involves the proposed capital injection by the Irish State of €1.5
billion into Anglo Irish Bank.

In case of a scheme, indicate the annual amount of the budget planned and the overall
amount: Not applicable.

For tax measures, please indicate the estimated annual and overall revenue losses due to tax
concessions for the period covered by the notification:
Not applicable.

If the budget is not adopted annually, please specify what period it covers:
Not applicable.

If the notification concerns changes to an existing scheme, please give the budgetary effects
of the notified changes to the scheme:
Not applicable.

1
All data should be provided in national currency.

30
 6. FORM OF THE AID AND MEANS OF FUNDING

Specify the form of the aid made available to the beneficiary (where appropriate, for each
measure):

Direct grant
[~~| Reimbursable grant
I | Soft loan (including details of how the loan is secured)
Interest subsidy
I | Tax advantage. Please specify:
I I Tax allowance
I | Tax base reduction
Tax rate reduction
C~l Tax deferment
D Other:
I 1 Reduction of social security contributions
Provision of risk capital
Other forms of equity intervention. Please specify:
D Debt write-off
|~~1 Guarantee (including amongst others information on the loan or other financial
transaction covered by the guarantee, the security required and the premium to be
paid)

EX] Other. Please specify:

The State investment in Anglo Irish Bank will be in the form of €1.5 billion of
Core Tier 1 non-cumulative perpetual preference shares in the bank with a fixed
annual dividend of 10%. The Shares will carry 75% of the voting rights in Anglo
Irish Bank. Further details of the terms and conditions of the State investment,
including details of the instruments used, are set out above in the section entitled
"Part One: General Information".

For each instrument of aid, please give a precise description of its rules and conditions
of application, including in particular the rate of award, its tax treatment and whether
31
 7. DURATION

7.1. In the case of an individual aid:

Indicate the planned date to put into effect the aid If the aid will be granted in tranches,
indicate the planned date of each tranche)

The proposed timetable for the State investment is as follows:

• Sunday, 21st December, 2008: Government announcement of capital

injection

• Tuesday, 23rd December, 2008: Anglo Irish Bank published a

shareholders' circular

• Friday, 16th January, 2009: Anglo Irish Bank EGM to be held to approve
the capital increase

« Tuesday, 20th January, 2009: the Shares to be issued to the Minister (or
the NTMA on behalf of the Minister)

Specify the duration of the measure for which the aid is granted, if applicable

The remuneration level and the redemption terms are designed to encourage Anglo Irish
Bank to redeem the Minister's investment as soon as market circumstances permit.

7.2. In the case of a scheme: Not applicable.

Indicate the planned date from which the aid may be granted

Indicate the planned last date until which aid may be granted

33
If the duration exceeds six years, please demonstrate that a longer time period is indispensable
to achieve the objective(s) of the scheme:

8. CUMULATION OF DIFFERENT TYPES OF AID

Can the aid be cumulated with aid received from other local, regional, national or Community
schemes to cover the same eligible costs?

D yes no

If so, describe the mechanisms put in place in order to ensure that the cumulation rules are
respected:

Not applicable.

34
 9. PROFESSIONAL CONFIDENTIALITY

Does the notification contain confidential information which should not be disclosed to third
parties?

[X] yes I I no

If so, please indicate which parts are confidential and explain why:

The confidential sections of the notification will be identified in a version of the

notification which will be provided to the European Commission shortly, together with
the grounds for confidentiality.

Does the Member State submit a non confidential version of the notification on a voluntary
basis?

0*0 y£s I I no

A non-confidential version of the notification will be submitted shortly.

If yes, the Commission may publish this version without further asking the Member State to
confirm its content.

35
 10. COMPATIBILITY OF THE AID

10.1 Please identify which of the existing Regulations, frameworks, guidelines and other
texts applicable to State aid provide an explicit legal basis for the authorisation of the
aid (where appropriate please specify for each measure) and complete the relevant
supplementary information sheet(s) in part III

Please refer to Section 10.2 below.

D SME aid

n Notification of an individual aid pursuant to Article 6 of Regulation (EC) No

70/2001 as amended by Regulation (EC) No 364/2004

|~~1 Notification of an individual aid or an aid scheme pursuant to Article 6a of

Regulation (EC) No 70/2001 as amended by Regulation (EC) No 364/2004

|~1 Notification for legal certainty

I | Aid for SMEs in the agricultural sector

Training aid

0 Notification of an individual aid pursuant to Article 5 of Regulation (EC) No

68/200las amended by Regulation No (EC) 363/2004

| | Notification for legal certainty

I | Employment aid

1 | Notification of an individual aid pursuant to Article 9 of Regulation (EC) No

2204/2002

I | Notification of a scheme pursuant to Article 9 of Regulation (EC) No

2204/2002

36
 I I Notification for legal certainty

I | Regional aid

I | Notification of aid pursuant to Guidelines on national regional aid for 2007-

201320

I | Notification of aid pursuant to point 64 of Guidelines on national regional aid for

2007-2013 (large investment projects)

D Notification of aid pursuant to Article 7 of Regulation (EC) No 1628/2006

I | Notification for legal certainty

Research and development and innovation aid

I I Aid for rescuing firms in difficulty

I I Aid for restructuring firms in difficulty

I I Aid for audio-visual production

Environmental protection aid

I I Risk capital aid

I I Aid in the agricultural sector

I I Aid in the fisheries sector

I [ Aid in the transport sector

Shipbuilding aid

10.2 Where the existing Regulations, frameworks, guidelines or other texts applicable to State
aid do not provide an explicit basis for the approval of any of the aid covered by this
form, please provide a fully reasoned justification as to why the aid could be considered
as compatible with the EC Treaty, referring to the applicable exemption clause of the
EC Treaty (Article 86(2), Article 87(2) (a) or (b) , Article 87(3) (a), (b), (c) or (d)) as
well as other specific provisions relating to Agriculture and Transport.

20
Guidelines on national regional aid for 2007-2013, OJ C 54, 0403.2006, p. 13.

37
INTRODUCTION

The Irish Government is committed to ensuring that any measure that it takes to
support financial institutions in the context of the current global financial crisis is
consistent with EC State aid rules.

The Government accepts that, in the current market circumstances, the State
investment may contain elements of State aid. However, for the reasons set out in
this section, the Government is of the view that the State investment is compatible
with the Common Market on the basis of Article 87(3)(b) of the EC Treaty as it is
necessary in order to remedy a serious disturbance in the Irish economy.

ARTICLE 87(3)(B) OF THE EC TREATY

Article 87(3)(b) provides that the following aid may be considered to be compatible
with the Common Market:-

"aid to promote the execution of an important project of common European

interest or to remedy a serious disturbance in the economy of a Member State"

The following Commission Communications provide guidance on the application of

State aid rules, in particular Article 87(3)(b) of the EC Treaty, to measures taken
for financial institutions in the context of the current global financial crisis:

• the Communication from the Commission on the application of State aid

rules to measures taken in relation to financial institutions in the context
of the current global financial crisis of 13th October, 2008 (the "Banking
Communication"); and,

• the Communication from the Commission on the recapitalisation of

financial institutions in the current financial crisis: limitations of the aid
to the minimum necessary and safeguards against undue distortions of
competition of 5th December, 2008 (the "Recapitalisation
Communication").

38
CQMPATABILITY OF THE MEASURE UNDER ARTICLE 87(3)(B)

The terms and conditions of the State investment have been designed to be
consistent with the Banking Communication and the Recapitalisation
Communication. In particular, the State investment is:

• well-targeted to its objective, which is to remedy a serious disturbance in

the economy;

• limited to the minimum amount necessary and takes the form most
appropriate to remedy the disturbance; and,

• designed to minimise any negative spill-over effects on competitors, other

sectors and other Member States.

An assessment of how the State investment fulfils these conditions is set out below.

Well-targeted

Anglo Irish Bank is considered a fundamentally sound institution. [Confidential -

commercially sensitive] [Department to confirm] Following the introduction of the
Guarantee Scheme, the Financial Regulator commissioned
PricewaterhouseCoopers to prepare a report on the financial position of the six
main domestic institutions participating in the Guarantee Scheme (the PwC
Report). The PwC Report concluded that the capital positions of each of the
institutions reviewed, including Anglo Irish Bank, was in excess of regulatory
requirements as of 30th September, 2008 and that, under a number of stress
scenarios, capital levels in each of the institutions will remain above regulatory
minimum levels in the period to 2011. A copy of a letter from the Central Bank and
Financial Regulator to the Minister dated 18th November, 2008 summarising and
commenting on the conclusions of the PwC Report is attached in Confidential
Annex 5.

In addition, on 19th December, 2008, the Department of Finance (the

"Department") provided the Commission with an assessment carried out by its
financial advisers, Merrill Lynch, concerning the risk profile of Anglo Irish Bank
based on the criteria contained in Annex 1 to the Recapitalisation Communication.
T-he-assessffl&nt-by Merrill Lyaeh supports the position that Anglo Irish Bank is
39
fundamentally sounA [Confidential - commercially sensitive]' [Department to
confirm]A copy of the correspondence from the Department to the Commission
dated 19th December, 2008 setting out the assessment by Merrill Lynch is attached
in Confidential Annex 7, together with updated information on CDS spreads as at
8ithtn January, 2009.

Despite—being—fundamentally—sound [Confidential - commercially sensitive]

[Department to confirm], the difficulties faced by Anglo Irish Bank due to the
current exceptional market circumstances have led to a significant deterioration in
the financial position in the Bank. In particular, as noted above, the current global
financial crisis has led to a significantly raised level of capital deemed adequate for
financial institutions. Market perceptions concerning the inadequacy of Anglo Irish
Bank's capital ratio levels have led to a deterioration in investor sentiment with
regard to Anglo Irish Bank. As a result, Anglo Irish Bank's shares have lost more
than 98% of their value over the last 12 months.

In addition, as noted above, corporate governance issues at Anglo Irish Bank have
accelerated the deterioration in the financial position of the Bank recently and
exposed specific vulnerabilities for the Bank.

Anglo Irish Bank is of key importance to the maintenance of stability of the Irish
financial system. Anglo Irish Bank is one of the six core banks in the State. Anglo
Irish Bank has a balance sheet size in excess of €100 billion (approximately 50% of
GDP) and accounts for a significant share of customer deposits and lending in the
Irish economy. As noted above, further deterioration in market investor sentiment
in relation to Anglo Irish Bank would represent a threat to the stability of both the
financial system in the State and the wider economy. In particular, a loss of
confidence in Anglo Irish Bank could undermine confidence in the Irish financial
sector as a whole, which is very dependant upon international funding through
wholesale money markets. This constitutes a serious risk of a systemic crisis in the
Irish financial system, which, in turn, would have significant negative spill-over
effects into the wider economy. In a letter dated 8th January, 2009, the Governor
has confirmed the systemic importance of Anglo Irish Bank to maintaining the
stability of the financial system in the State. A copy of the Governor's letter is
attached in Confidential Annex 8.
40
In these circumstances, the objectives of the State investment are to ensure that
Anglo Irish Bank is adequately capitalised to preserve financial stability and to
ensure that the Bank's capital ratio levels meet the expectations of international
investors. It is envisaged that this, in turn, should facilitate private sector
investment in Anglo Irish Bank, which has been negatively affected by the
deterioration in the financial position of the Bank.

A further objective of the State investment is to facilitate lending to the real

economy, which may be negatively impacted by the difficulties caused by the
current financial crisis. As noted above, in the context of the Government's
recapitalisation programme, the Recapitalised Banks (including Anglo Irish Bank)
have agreed to contribute to the economy in a verifiable manner in relation to
credit and to the maintenance of a payments system which is socially inclusive. For
this purpose, the Recapitalised Bank have agreed to a series of conditions in
relation to lending to the real economy. These conditions are considered in more
detail below.

For these reasons, the State investment is well-targeted to its objective, which is to
remedy a serious disturbance in the economy.

Necessary

As noted above, in their letter dated 18th November, 2008, the Central Bank and the
Financial Regulator stand over the conclusion in the PwC Report that, under a
number of stress scenarios, capital levels in each of the institutions will remain
above regulatory minimum levels in the period to 2011. However, the Central Bank
and the Financial Regulator comment that the assumptions underlying the
conclusions in the PwC Report arc challenging and that "an even more pessimistic
economic outturn cannot be ruled out". For this reason, the Central Bank and the
Financial Regulator go on to recommend that: "bearing in mind the volatility of the
economic and financial environment, the Board and the Authority are of the view that
urgent steps should be taken to strengthen the capital positions of the Covered
Institutions. Such action would put the Covered Institutions in a stronger position to

41
 support the needs of the economy and satisfy market demands for higher capital
ratios."- [Confidential - commercially sensitive] [Department to confirm]

In a letter dated 8th January, 2009, the Governor has confirmed that a capital
injection of €1.5 billion into Anglo Irish Bank is fully consistent with the Central
Bank's advice to Government on the need to strengthen the capital position of the
Bank in order to maintain its credit standing in the continuing very difficult market
conditions. A copy of the Governor's letter is attached in Confidential Annex 8. In
its announcement of 21st December, 2008, the Government stated that it would
continue to reinforce the position of Anglo Irish Bank and would make further
capital available if required so that Anglo Irish Bank remains a sound and viable
institution. A minimum capital injection of €1.5 billion into Anglo Irish Bank is
fully consistent with the advice of the Governor and is based on the systemic
importance of Anglo Irish Bank to maintaining financial stability and on a number
of other factors, including:-

• The need to boost Anglo Irish Bank's Core Tier 1 capital ratio, in light of
the change in market and investor expectations and to address concerns
about the Bank's financial stability, as noted above. The State investment
71
will boost Anglo Irish Bank's Core Tier 1 capital ratio from 5.9% to
7.7%22.

• The results of a recent detailed review of the Bank's loan book carried out
on behalf of the Financial Regulator.

• The assessment that there was a low likelihood that Anglo Irish Bank
would be successful in raising additional equity from existing shareholders
and new private investors. [Confidential - commercially sensitive for
Anglo Irish Bank] [Department to confirm]

Source: Merrill Lynch. Basis:

Current CT1: €5,068m (incl. €371m prefs)
Current RWA: 685,798m
==> Current CT1 ratio of 5.9%
22
Source: Merrill Lynch. Basis:
After €1,5bn additional CT1
Pro forma CT1: 66,568m
==> Pro forma CT1 ratio of 7.7%

42
 • The need to reassure investors, bondholders and the public market of the
Government's commitment to support the Bank in light of the disclosures
regarding failures in corporate governance in the Bank.

As stated above, the instruments that will be used to make the State investment are
non-cumulative perpetual preference shares in the Bank with voting rights. The
Financial Regulator has confirmed that the Shares will be treated as Core Tier 1
Capital for regulatory capital purposes.

The Shares have a fixed dividend of 10% payable annually at the discretion of the
Bank and in priority to dividends on ordinary shares. Dividends on the Shares are
payable in cash, or if not able to pay in cash, in ordinary shares on the basis of the
average daily closing price over the previous 30 trading days.

The Shares are a hybrid form of Core Tier 1 capital. While they are deeply
subordinated, non-cumulative and only have a discretionary dividend, they are also
non-dilutive and, in relation to dividends, they rank in priority to ordinary shares.
In its Recapitalisation Communication, the Commission accepts a minimum price
corridor for fundamentally sound banks of 7% to 9.3%, depending on the
instrument used. It is submitted that, given the characteristics of the Shares, a
discretionary remuneration of 10% per annum, which is above the minimum price
corridor for fundamentally sound banks, is consistent with the Recapitalisation
Communication.

In addition to an adequately high remuneration level, the terms and conditions of

the State investment contains other incentives for State capital redemption as soon
as market circumstances permit. Redemption is at Anglo Irish Bank's discretion.
While the Bank can repurchase the Shares at par for up to five years, after that
period, Shares can be repurchased at 125% of par. This provides an incentive for
Anglo Irish Bank to redeem the Shares during the initial five year period. In
addition, replacement capital must be Core Tier 1, which ensures that the State
investment is replaced with private equity investment in Anglo Irish Bank.

Finally, there is a restrictive dividend policy while the State holds the Shares:
dividends on ordinary shares are not allowed where a dividend on the Shares is not
paid to the State. This encourages the Bank to redeem the State capital injection as
soon as possible, while also providing the Bank with the flexibility to incentivise
43
private equity investment through the payment of dividends on ordinary shares
where a dividend is paid to the State on the Shares.

On the basis of the above, the State investment is limited in scope and duration to
what is strictly necessary to achieve its objective.

Proportionate

The terms and conditions of the State investment, together with the terms and
conditions already imposed on Anglo Irish Bank under the Guarantee Scheme,
contain an extensive range of safeguards against possible abuses and distortions of
competition.

First, the terms and conditions of the State investment envisage management and
board changes at Anglo Irish Bank and Government representation on the Board of
Directors of the Bank. In addition, it will be a condition for the State investment in
Anglo Irish Bank that the Bank will not use the fact that it has received the capital
injection for advertisement or promotion purposes.

Second, in the context of the Government's recapitalisation programme, the

Recapitalised Banks (including Anglo Irish Bank) have agreed to a series of
conditions in relation to sustaining lending to the real economy and the
maintenance of a payments system which is socially inclusive. These conditions are
focussed on SMEs and individuals. These conditions are set out in more detail
above in the section entitled "Behavioural Conditions". In particular, they include
increased capacity for lending to SMEs and first time buyers, a new code of
practice for business lending and increased assistance for householders in arrears
on mortgage repayments, including a commitment not to seek enforcement action
or repossession for at least six months.

As noted above, on account of Anglo Irish Bank's specific business model, which is
specialised in commercial property lending and property development finance, not
all of the elements of the agreed credit package will directly impact on Anglo Irish
Bank, at least initially. However, given the envisaged future changes in the Bank's
business model and strategic direction under its restructuring plan, it is anticipated
that in time further elements of the credit package will become applicable to Anglo

44
Irish Bank accordingly^ [Confidential — commercially sensitive for Anglo Irish
Bank] [Department to confirm]

As will be the case for all credit institutions participating in the Government's
recapitalisation programme, credit granted by Anglo Irish Bank under the credit
package will be issued on a commercial basis and will not involve any aid to
businesses. If in any circumstances it does involve any element of aid, it will be
notified to the Commission for approval under State aid rules.

Third, Anglo Irish Bank continues to be subject to the behavioural conditions and
transparency and reporting conditions that may be imposed under paragraphs 24
to 50 of the Guarantee Scheme. These behavioural conditions are set out in more
detail above in the section entitled "Behavioural Conditions". In summary, they
include conditions relating to:

• balance sheet growth constraints (paragraph 36 of the Guarantee

Scheme);

• controls over acquisition of shares in other financial institutions,

establishing subsidiaries and/or entering into new business (paragraph 38
of the Guarantee Scheme);

• compliance with targets on assets and liabilities, including in relation to

loan/deposit ratio, wholesale funding/total liabilities ratio, deposit growth
and maximum loan-to-value on new loans (paragraph 39 of the Guarantee
Scheme);

• compliance with liquidity, solvency and capital ratios (paragraph 41 of the

Guarantee Scheme);

• limitations on dividends (paragraph 42 of the Guarantee Scheme);

• controls on executive remuneration (paragraphs 46-49 of the Guarantee

Scheme);

• reporting and compliance obligations (paragraphs 24-27 and 29 of the

Guarantee Scheme); and,

45
 • controls on board representation and executive management (paragraphs
32-34 of the Guarantee Scheme).

As noted above in the section entitled "Behavioural Conditions", Anglo Irish Bank
has been required to prepare and submit a strategic report to the Department
setting out how it proposes to align the future direction of the Bank to meet the
objectives of the Guarantee Scheme. In addition, Anglo Irish Bank is required to
provide regular reports to the Department that describe progress made in
complying with the principles and objectives of the Guarantee Scheme, and any
specific directions issued by the Minister in connection with the Guarantee Scheme.
As noted above, Anglo Irish Bank has made specific progress in relation to
compliance with a range of elements under the Guarantee Scheme. In summary,
these are:

• public interest nominations to the Board of Directors;

• remuneration arrangements for directors and executives;

• ban on dividends until further notice;

• prohibition of buy-backs without prior approval;

• prohibition of funding initiatives without prior consultation;

• prior consultation in relation to public disclosures concerning its assets;

• prohibition on advertising on the basis of the Guarantee Scheme;

• Corporate Social Responsibility arrangements;

• controls over recourse to interbank deposits;

• requirements for quarterly compliance certificates in relation to the terms

and objectives of the Guarantee Scheme; and

• risk management arrangements to guard against technical default under

the Guarantee.

Together, this extensive range of behavioural conditions under both the terms and
conditions of the State investment and the Guarantee Scheme ensure that any
negative spill-over effects on competitors, other sectors and other Member States, if
any, are limited to the minimum necessary to achieve the objectives of the State
investment.

46
 Restructuring plan

Under the terms and conditions of the State investment, Anglo Irish Bask has
committed to draw up and submit within six months a restructuring plan to restore
the long-term viability of the Bank within a reasonable timescale. The restructuring
plan will be submitted to the Commission for assessment and approval.

CONCLUSION

On the basis of the above assessment, it is submitted that the terms and conditions
of the State investment are consistent with the guidance issued by the Commission
in its Banking Communication and Recapitalisation Communication for measures
taken for financial institutions in the context of the current global financial crisis.
On this basis, it is submitted that the State investment is compatible with the
Common Market on the basis of Article 87(3)(b) of the EC Treaty as it is necessary
in order to remedy a serious disturbance in the Irish economy.

10.3 Where the existing Regulations, frameworks, guidelines or other texts applicable to State
aid do not provide an explicit basis for the approval and in so far that it is not requested
by the relevant supplementary information sheet(s) in part III, please provide the
following information concerning the likely impact of the notified measure on
competition and trade between Member States.

This information is necessary to complete the assessment made by the Commission

which balances the positive impact of the aid measure (reaching an objective of
common interest) against its potentially negative side effects (distortions of trade and
competition).

10.3.1 For individual aid:

A) Impact on competition: Please specify and describe the product markets on which
the aid is likely to have a significant impact, the structure and dynamics of those
markets and the indicative market share of the beneficiary:

Please refer to Section 10.2 above.

B) Impact on trade between Member States. Please provide information on the effects
on trade (shift of trade flows and location of economic activity)
47
Please refer to Section 10.2 above.

10.3.2 For aid schemes:

A) Impact on competition: Please specify and describe the product markets on which
the aid scheme is likely to have a significant impact, the structure and dynamics of
those markets:

Not applicable.

B) Impact on trade between Member States. Please provide information on the effects
on trade (shift of trade flows and location of economic activity)

Not applicable.

48
 11. OUTSTANDING RECOVERY ORDERS

11.1. In the case of individual aid:

There are no outstanding orders for recovery of previous State aid to the Bank pending
the implementation of which the State investment would have to be suspended.

The authorities of the Member State commit to suspend the payment of the notified aid if the
beneficiary still has at its disposal an earlier unlawful aid that was declared incompatible by a
Commission Decision (either concerning an individual aid or an aid scheme), until that
beneficiary has reimbursed or paid into a blocked account the total amount of unlawful and
incompatible aid and the corresponding recovery interest.

CH yes EH no

11.2. In the case of aid schemes: Not applicable.

The authorities of the Member State commit to suspend the payment of any aid under the
notified aid scheme to any undertaking that has benefited from earlier unlawful aid declared
incompatible by a Commission Decision, until that undertaking has reimbursed or paid into a
blocked account the total amount of unlawful and incompatible aid and the corresponding
recovery interest.

D yes D no

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 12. OTHER INFORMATION

Please indicate here any other information you consider relevant to the assessment of the
measure(s) concerned under State aid rules.

The Government will provide any further information which is required for the
Commission's assessment.

50.
 13.,; ATTACHMENTS

Please list here all documents which are attached to the notification and provide paper copies
or direct internet links to the documents concerned.

A copy of the Credit Institutions (Financial Support) Act 2008 is attached in Annex 1.

Copies of the Government announcements on recapitalisation dated 21st December,

2008,14th December, 2008 and 28th November, 2008 are attached in Annex 2.

A copy of the Anglo Irish Bank circular to shareholders issued on 23rd December, 2008
is attached in Annex 3.

A copy of the Credit Institutions (Financial Support) Scheme 2008 is attached in Annex
4.

A copy of a letter dated 18th November, 2008 from the Central Bank and Financial
Regulator to the Minister in relation to the PwC Report is attached in Confidential
Annex 5.

The details of the credit package under the Government's recapitalisation programme
are attached in Annex 6.

A copy of correspondence dated 19th December, 2008 from the Department to the
Commission setting out the assessment by Merrill Lynch concerning the risk profile of
Anglo Irish Bank and updated information on CDS spreads as of 8th January, 2009 are
attached in Confidential Annex 7.

A copy of a letter dated 8th January, 2009 from the Governor to the Minister concerning
the systemic importance of Anglo Irish Bank and the necessity for the State investment
is attached in Confidential Annex 8.

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52
 14. DECLARATION

I certify that to the best of my knowledge the information provided on this form, its annexes
and its attachments is accurate and complete.

Date and place of signature

Signature :

Name and position of person signing.

53