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Anglo Irish Bank Price Waterhouse Coopers Report

Anglo Irish Bank Price Waterhouse Coopers Report

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Published by James Dwyer
Irish government commissioned report on financial health of anglo-irish bank. Used by government and finance minister Brian Lenihan to justify whatever argument t(he)y wished to proffer in favour of whichever hair brained policy towards anglo irish at any moment he and the government were adopting. Famously Lenihan revealed to much derision in the Dáil that he hadn't even read this report before making decisions.
Irish government commissioned report on financial health of anglo-irish bank. Used by government and finance minister Brian Lenihan to justify whatever argument t(he)y wished to proffer in favour of whichever hair brained policy towards anglo irish at any moment he and the government were adopting. Famously Lenihan revealed to much derision in the Dáil that he hadn't even read this report before making decisions.

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Published by: James Dwyer on Jun 08, 2009
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Project Atlas - Anglo Irish Bank Corporation plc Summary Report Extracts

20 February 2009

Strictly Private and Confidential

Transaction Services

Irish Financial Services Regulatory Authority (“IFSRA”) College Green Dublin 2

20 February 2009 Ladies and Gentlemen

PricewaterhouseCoopers One Spencer Dock North Wall Quay Dublin 1 Telephone +353 (0) 1 792 6000 Facsimile +353 (0) 1 792 6200

This report prepared at your request is a summary of three reports on Anglo Irish Bank Corporation plc (“Anglo” or the “Bank”) (the “Summary Report”), comprising 294 pages, prepared by PwC dated 27 September, 27 November and 17 December 2008 (the “PwC Reports”). The PwC Reports were prepared in accordance with your specific instructions, which required us to focus solely on the largest customer loan exposures (by regulatory grouping) and the main treasury exposures of Anglo as at 31 August 2008 and 30 September 2008 in order to assist you in your review of the financial and capital position of Anglo. These instructions were confirmed in our contracts dated 18 September, 9 October and 25 November 2008 (the “Instructions”). The PwC Reports were prepared for the purposes set out in the Instructions and for no other purpose. We draw your attention to important comments regarding the scope and process of our work, immediately following this letter. We have not sought to update any of our findings since the completion of our fieldwork on 10 December 2008. In particular you have requested that this Summary Report excludes all commercially sensitive information on individual bank customers or loan balances, which remains confidential. Disclosure of this information has already been made to the Board of IFSRA, the National Treasury Management Agency and the Department of Finance. Unauthorised disclosure of any information contained in the PwC Reports remains prohibited under Section 33AK of the Central Bank Act 1942 and the Data Protection Acts 1988 and 2003 (together “the Acts”) . By its nature this is a significantly summarised report which excludes large elements of the PwC Reports, particularly those specific to individual bank customers or loans, due both to their confidential nature and our continuing obligations under the Acts. As a result of the previous two paragraphs, and given that much of this Summary Report has been extracted without adjustment from the original PwC Reports, some of the information presented in this Summary Report may be out of context or out of date. Except as described in the Instructions, we will not accept any duty of care (whether in contract, tort or otherwise) to any other person or body other than you. Yours faithfully

PricewaterhouseCoopers
Ronan Murphy Olwyn Alexander Brian Bergin Alan Bigley Sean Brodie Paraic Burke Damian Byrne Pat Candon Mark Carter John Casey Mary Cleary Siobhán Collier Tom Corbett Andrew Craig Thérèse Cregg Garrett Cronin Richard Day Fíona de Búrca Gearóid Deegan Jean Delaney David Devlin Liam Diamond John Dillon Ronan Doyle John Dunne Kevin Egan Enda Faughnan John Fay Martin Freyne Ronan Furlong Denis Harrington Teresa Harrington Alisa Hayden Paul Hennessy Mary Honohan Ken Johnson Patricia Johnson Paraic Joyce Andrea Kelly Ciaran Kelly Colm Kelly Joanne P. Kelly John Kelly Susan Kilty Anita Kissane Chand Kohli John Loughlin Vincent MacMahon Tom McCarthy Teresa McColgan Dervla McCormack Enda McDonagh Caroline McDonnell Jim McDonnell John McDonnell Ivan McLoughlin James McNally Ronan MacNioclais Robin Menzies Brian Neilan Damian Neylin Andy O'Callaghan Ann O'Connell Jonathan O'Connell Carmel O'Connor Denis O'Connor Marie O'Connor Paul O'Connor Terry O'Driscoll Mary O'Hara Irene O’Keeffe John O'Leary Dave O'Malley Garvan O'Neill Michael O'Neill Tim O'Rahilly Billy O'Riordan Feargal O'Rourke Joe O'Shea Ken Owens George Reddin Dermot Reilly Garvan Ryle Emma Scott Bob Semple Mike Sullivan Billy Sweetman Paul Tuite David Tynan Joe Tynan Pat Wall Aidan Walsh Tony Weldon Also at Cork, Galway, Kilkenny, Limerick, Waterford and Wexford PricewaterhouseCoopers is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business.

Table of Contents
Page

1 Scope of Work 2 Financial Overview 3 Summary Findings (Excluding Confidential Information) 3.1 Phase I Extracts (27 September 2008) 3.2 Phase II Extracts (27 November 2008) 3.3 Phase III Extracts (17 December 2008) 3.4 Loan Reviews 3.5 Capital Adequacy and Stress Tests 3.6 Money Market Exposures Appendices 1 Contract 2 Glossary

1 10 16 17 20 31 33 35 39 41 43

Section 1 Scope of Work

Transaction Services

Section 1 - Scope of Work

Purpose of PwC reports and exclusion of customer and other information (1 of 2)

Purpose of PwC Reports

The PwC Reports were prepared to assist IFSRA in its review of the financial and capital position of Anglo and for no other purpose. The PwC Reports were prepared using financial and loan portfolio information supplied by Anglo’s management which was not subject to audit by PwC. We also had access to senior executives at Anglo. The audit is a separate process under statute which we understand will be completed in the week ending 20 February 2009. PwC are not Anglo’s statutory auditors. We have had no access to the work undertaken by the auditors or their conclusions. Our work was completed in accordance with the specific terms of reference set out in the Instructions.

Customer information

This Summary Report excludes specific customer related, forward looking and other information for the following reasons: • Under the terms of the Data Protection Acts 1988 and 2003 (“DPA”) there is a requirement not to disclose personal information in relation to Anglo’s customers and counterparties. We have been advised that there is no clear means in the DPA to permit provision by PwC of a report to the Minister if the report contains personal data on individuals; • Even if disguised, to reveal customer information or information through which customers could be identified would be a breach of the Central Bank Acts pertaining to customer confidentiality and banking secrecy; and • Anglo has public debt and we have been advised that there is a risk of a breach of law if forward looking information were to be publically disclosed without being subject to a detailed verification process. The results of the work on the value of property held as security for loans has been excluded from this Summary Report on the grounds of customer confidentiality and commercial sensitivities. The vast bulk of the PwC Reports was a description of customers’ loan exposures, none of which is included in this Summary Report. The descriptions of customers included a summary of various loans, partnerships, underlying assets, security etc.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

2

Section 1 - Scope of Work

Purpose of PwC reports and exclusion of customer and other information (2 of 2)

Completion of work

We have not carried out any work or made any enquiries of Anglo’s management since 10 December 2008 being the date on which we completed our fieldwork on Phase III. The PwC Reports do not incorporate the effects, if any, of events and circumstances which may have occurred or information which may have come to light subsequent to that date. We make no representation as to whether, had we carried out such work or made such enquiries, there would have been a material effect on the PwC Reports. Further, we have no obligation to update, and we will not update, the PwC Reports nor do we have any obligation to notify you if any matters come to our attention which might affect the continuing validity of our comments or conclusions.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 1 - Scope of Work

Scope of work and process undertaken

Financial Statements

The management accounts for the year ended 30 September 2008 were in the process of being finalised, including the final review of advances and treasury assets for impairments at the dates of our reviews. The 2008 final audit was still in progress at the time of drafting this report. As such the final reported 2008 position could change from that reported to us by management. The PwC Reports were issued to IFSRA on the following dates: - Phase I - issued on 27 September 2008 - Phase II - issued on 27 November 2008 - Phase III - issued on 17 December 2008 In addition working drafts were issued on various other dates during the period from the commencement of our work to 17 December 2008. We also issued a supplemental report incorporating the work of the independent property valuer. We have not sought to update this Summary Report for any events since the date of completion of our fieldwork (10 December 2008).

Report issuance dates

PwC Risks/Observations

Where we have made comments and observations about possible asset write downs and scenarios, these are for indicative purposes only. We have not sought to mark to market property assets in the present economic environment, (where the market for property assets is largely illiquid); in that context it is difficult to forecast the out-turn of any immediate short term assets sales or asset developments. See also page 9 – Independent Property Valuation. Because events and circumstances frequently do not occur as expected, there will always be differences between predicted and actual results, and those differences may be material.

Management representations

We showed working drafts of the original PwC Reports to, certain members of senior management, who have confirmed that, to the best of their knowledge and belief, they did not contain any material error of fact, there had been no material omission and that they fairly set out the recent results and state of affairs of the Group. To the extent that we considered appropriate, we have incorporated their comments in the original PwC Reports. Management did not concur with all of our conclusions in relation to loan impairments and other matters.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 1 - Scope of Work

Scope of work and review process undertaken

Review Process

Phase I of our work was undertaken in a nine day period commencing on 18 September 2008. We visited the headquarters of the Bank in St. Stephen’s Green, Dublin 2 but none of the other lending locations, including the UK and USA. We had access to the CEO, CFO, MD Ireland, Head of Risk Management, Senior Manager Risk Management, Director of Group Treasury, Head of Liquidity and Market Risk Manager. Phase II of our work commenced on 14 October 2008. We visited the headquarters of the Bank in St. Stephen’s Green, Dublin 2 but none of the other lending locations, including the UK and USA. We held meetings with senior UK lenders in Dublin and US senior management by video conference. We had open access to all senior management, Lending, Risk and Finance staff including the CEO, the CFO and the Director of Lending and various other members of senior management including the key relationship lending managers. Phase III of our work commenced on 24 November 2008. We visited the headquarters of the Bank in St. Stephen’s Green, Dublin 2 and the Bank’s USA head office in Boston. We held meetings with senior UK lenders in Dublin. We had open access to all senior management, Lending, Risk and Finance staff.

Access to information (Phase I)

Our information was obtained primarily from Anglo’s August 2008 reporting pack and discussions with management. In addition, we reviewed a sample of Anglo credit reviews (concentrating on the main customer exposures by size) and liquidity reports which were prepared in September 2008. Our information on the customer loan exposures was obtained primarily from credit review sheets prepared by management, credit files and discussions with senior relationship lending underwriters and senior central credit risk personnel. In the time available and due to the extensive documentation we have not conducted a detailed review of all documents on the credit files. The Group is a complex business which produces a substantial amount of financial information for internal and entity reporting requirements. As a result of the time available to undertake our review and complete our reports, we were not able to review all the relevant financial and management information available at 31 August 2008 (Phase I) and 30 September 2008 (Phases II and III).

Access to information (Phases II and III)

Complexity of business

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 1 - Scope of Work

Scope of work and review process undertaken – Phase I (Report of 27 September 2008)
Limited scope procedures Phase I 1. 2. 3. 4. 5. 6. 7. 8. 9. Read minutes of the following groups for the period from 1 January 2008 to 19 September 2008: The Board of Directors, The Audit Committee and The Asset and Liability Committee. Read the management accounts for the eleven months ended 31 August 2008 and the published interim unaudited accounts for the six months ended 31 March 2008. Obtain a sectoral breakdown by ranking for Customer Loan Balances (Ireland) as at 30 June 2008. Obtain an analysis of captions included in the Group balance sheet as at 31 August 2008 (Loans and advances to banks, loans and advances to customers). Obtain a listing of the main customer loan balances as at 31 August 2008 (Top 50 for Ireland and UK, Top 20 for North America). Obtain a listing of the customer loan balances over €2 million impaired as at 31 August 2008. Obtain a listing of the Watch cases over €5 million as at 31 August 2008. Obtain a listing of the Top 10 Land and Development Exposures as at 30 June 2008. Select a sample of the customer loan balances as at 31 August 2008 (to cover the large exposures, balances on the watch list) and review the loan files. We will discuss the contents of these files with members of management. Obtain analysis of customer accounts, deposits from banks and debt securities in issue as at 31 August 2008. Obtain an overview of the credit risk function (loan application processes, management reporting etc). Obtain details of the impairment/default policies. Review the policy in respect of the use of derivatives and the basis of valuing derivatives. Obtain analysis of the Banking Book Assets at 31 August 2008 and comment on the valuation basis. Review and comment on the Detailed Nostro Cashflow Projections for the period from 18 September 2008. Review and comment on the Regulatory Liquidity Mismatch (internal report) as at 18 September 2008. Review the Group Funding Report as at 18 September 2008. Discuss the above information and obtain a briefing from senior management or their assessment of the current financial and liquidity position of Anglo.

10. 11. 12. 13. 14. 15. 16. 17. 18.

Significant scope matters (Phase I)

We have undertaken only a high level review of the 31 August 2008 balance sheet. We have not been able in the time available to us to check any of the underlying documentation, the adequacy of security, valuation reporting etc. In addition, we have summarised the profit and loss account to 31 August 2008 but have not had detailed discussions with management on its components and the reasons for key movements.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

6

Section 1 - Scope of Work

Scope of work and review process undertaken – Phase II (Report of 27 November 2008) (Page 1 of 2)
Limited scope procedures Phase II 1. 2. 3. 4. 5. Read the management accounts for the most recently available date, the published interim unaudited accounts for the most recent published six months accounting period and latest available annual report. Obtain an analysis of captions included in the Group balance sheet as at the most recent management accounts date (Loans and advances to customers, securities etc.). Obtain a sectoral breakdown of customer loan balances as at 30 September 2008 with an impairment analysis. Obtain a geographic breakdown of customer loan balances as at 30 September 2008. Obtain an analysis of customer loan balances by credit grade as at 30 September 2008. If the institution operates on a divisional basis or has differentiated asset classes we will obtain an analysis by material portfolios. Obtain an analysis of customer arrears as at 30 September 2008. Obtain a listing of the top 50 customer loan balances as at 30 September 2008. Obtain a listing of the impaired customer loan balances over €2.0 million as at 30 September 2008. Obtain a listing of the Watch cases over €5.0 million as at 30 September 2008. Obtain a listing of the Top 20 Land and Development Exposure as at 30 September 2008. Obtain total land and development exposure split between unzoned land, zoned land without planning permission, land with planning permission, construction and other developments under construction. From the customer loan balances as at 30 September 2008 (to cover the top 20 large exposures and top 20 land and development exposures) obtain and review the loan files and discuss the contents of these files and supporting documentation with members of management. Obtain an overview of the credit risk function (including credit policy document, credit grading definitions, loan application processes, management reporting etc.). Obtain details of the impairment/default policies. Obtain details of the policy over the use of derivatives and the basis of valuing derivatives. Obtain a list of all derivatives with a notional principal in excess of €20 million. Obtain a listing of all financial assets with a carrying value > €20 million, excluding loans to customers, at 30 September 2008 classified as Held to Maturity, Loans and Receivables, Trading or at Fair Value through Profit and Loss Account. Obtain an analysis of exposure to monoline insurers at 30 September 2008 as part of this analysis.

6. 7. 8. 9. 10. 11. 12.

13. 14. 15. 16. 17.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

7

Section 1 - Scope of Work

Scope of work and process undertaken – Phase II (Report of 27 November 2008) (Page 2 of 2)
Limited scope procedures Phase II (Contd.) 18. Obtain an analysis of the Treasury/Banking Book Assets at 30 September 2008 and comment on the valuation basis, mark to market losses and impairments in the year to date for each major class of asset held. 19. Obtain the top 10 exposures to financial institutions (with balance, credit rating of counterparty and limit) at 30 September 2008. 20. Obtain the Bank’s projected capital and capital adequacy position for the next three years and the impact of management scenarios in relation to variations in impairment charges and other relevant factors. 21. Discuss the above information and obtain a briefing from senior management of their assessment of the current financial and capital position of the institution. We point out that, our Phase II work did not include a review of cases outside the 62 large cases included in our loan sample. Smaller loans, that is, approximately less than €300 million in size for investment loans and €150 million for development loans may have different characteristics and risk factors that may make them higher risk in terms of their potential for impairment. We do not comment on such matters in this report. We have not been able in the time available to us to check any of the underlying documentation, the adequacy of security, valuation reporting etc.

Significant scope matters (Phase II)

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 1 - Scope of Work

Scope of work and review process undertaken – Phase III (Report of 17 December 2008)
Limited scope procedures Phase III Loan Reviews We obtained a listing of the top 400 customer exposures as at 31 October 2008. (The top 20 investment exposures, top 20 land and development exposures and 22 other exposures were reviewed as part of our work in Project Atlas Phase II). We have selected the next 40 exposures with the highest Land and Development loan balances to form our sample. We reviewed this additional sample (i.e. next 40 largest land and development loans) as set out below: - Drawn versus committed facilities - Overview of security held, location etc. - Date and output of most recent valuations - Other KPI (roll-up of interest, rollover date etc.) Independent Property Valuation The scope of work for the independent valuation agent was to: 1. Provide a macro assessment of the key markets that each institution operates in for both the residential loan and commercial loan portfolios. 2. Focus on the problem Commercial Real Estate loans and carry out a desk top review of the Bank’s valuation of the underlying properties based on a medium term (3 to 5 years) view of potential future value. 3. Assess the valuation methodology used by each Institution. Significant scope matters – Phase III We point out that, our work did not include a review of cases outside the 102 cases included in our combined loan sample. Smaller loans, that is, approximately less than €330 million in size for investment loans and €64 million for development loans may have different characteristics and risk factors that may make them higher risk in terms of their potential for impairment. We do not comment on such matters in this report. We have not been able in the time available to us to check any of the underlying documentation, the adequacy of security, valuation reporting etc.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

9

Section 2 Financial Overview

Transaction Services

Section 2 - Financial Overview

The Bank’s profitability has developed strongly over the last 8 years, driven by lending advances growth and a low cost to income ratio – approximately one quarter of the loan book at 30 September 2008 was development based
Historic Profitability - Profit Before Tax ( € millions)
1,243 347 504 615 850
21,354 9,412

Loan Book - Origin (€ millions)
1,485
43,585

195 2001

261

2002

2003

2004

2005

2006 IFRS

2007

2008 Pro Forma *

12,843 Ireland

5,497 UK (incl. Belfast) Devel Total

1,339 US

Irish GAAP

* 2008 is after Treasury and specific lending impairments but before general impairments Source: Annual reports and management estimate (2008)

Historic Total Assets (€ billions)
96.7 73.3 49.6 15.8 19.4 25.5 34.3 101.3

Geographical Split of Assets - 30 September 2008
44% 37%

13%

2001

2002

2003

2004

2005

2006 IFRS

2007

2008 Pro Forma
Ireland UK US

6%

Irish GAAP

Europe / other

Source: Annual reports and management estimate (2008)

Source: Management Information

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

11

Section 2 - Financial Overview

Draft management accounts to 30 September 2008 showed PBT of €0.8 billion for the year then ended, €456 million lower than the prior year and €739 million lower than budget
Group Profit and Loss Account
• Total income for the year 30 September 2008 was €2.0 billion, €272.9 million higher than the prior year and €124.0 million lower than budget. The FY08 budget was completed in Summer 2007 prior to the “credit crunch”. The Irish Banking Division generated €1.1 billion or 54% of the total income. The average margin for the Irish Banking Division was 2.23%. The UK banking Division is the second largest division. Total income from this Division amounted to circa €437 million or 21.6% for the year to 30 September 2008. This is 16% lower than budget. The UK Commercial market remains very challenging with few transactions occurring, and management noted that it is very hard to determine where valuations are at present. The residential market in the UK is also showing low levels of activity. Direct overheads of €343.1 million (for the year to 30 September 2008) are €108.7 million lower than budget and €46.7 million lower than the prior year. Actual employee numbers are 1,777 versus 1,798 in the prior year. The draft management accounts to 30 September 2008 report lending impairment charges of €720 million and treasury impairment charges of €154.8 million. The profit on sale of Geneva (€20 million) relates to the disposal of the wealth management division in Geneva.

€ in billions Income Net interest Other income Total income Overheads Direct overheads Group contribution before impairment Banking impairment Treasury impairment Total impairment Group contribution after impairment Profit on sale of Geneva Reporting adjustment Statutory reported PBT

Sep 08 Mngt

Sep 08 Budget

Sep 07 Actual

1,624.9 400.6 2,025.4 (343.1) 1,682.4 (720.1) (154.8) (874.9) 807.4 20.0 (41.2) 786.3

1,605.4 544.0 2,149.4 (451.8) 1,697.5 (172.2) (172.2) 1,525.3 1,525.3

1,276.7 475.7 1,752.5 (389.8) 1,362.6 (75.1) (67.0) (142.1) 1,220.5 22.2 1,242.7

Source: Draft Group Management Accounts Pack 30 September 2008

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 2 - Financial Overview

Summary balance sheet at 30 September 2008
Group Balance Sheet as at 30 September 2008
Sep 08 € in billions Assets Cash and balances with central bank Derivative financial instruments Financial assets held at fair value through P & L* Loans and advances to banks Available-for-sale financial assets Loans and advances to customers Interests in joint ventures Investment property* Other assets Total assets Liabilities Deposits from banks Customer accounts Debt securities in issue Derivative financial instruments Liabilities to customers under investment contracts Current taxation Other liabilties Accruals and deferred income Subordinated liabilities & other capital instruments Other liabilties Share capital Share premium account Other reserves Retained profits Shareholders' funds including non-equity Equity and non-equity minority interests Total equity and liabilities Mngt Aug 08 Mngt Sep 07 Actual


1.8 2.0 0.7 14.0 8.2 72.2 0.3 1.9 0.3 101.3 20.5 51.5 17.3 1.5 1.2 0.0 0.2 0.1 4.9 0.1 97.3 0.1 1.2 (0.5) 3.3 4.1 0.0 101.3 0.8 2.1 0.8 7.5 8.3 71.9 0.3 1.9 0.3 93.9 15.1 47.4 18.5 1.5 1.3 0.1 0.1 0.2 5.0 0.1 89.3 0.1 1.2 (0.5) 3.8 4.6 0.0 93.9 0.8 1.4 1.1 12.1 12.5 65.9 0.1 2.1 0.6 96.7 7.6 52.7 23.6 1.2 1.8 0.1 0.2 0.2 5.3 0.1 92.6 0.1 1.1 (0.1) 2.9 4.1 0.0 96.7

The table opposite sets out the unaudited management balance sheet for the Bank as at 30 September 2008 with comparatives. The key focus of our work was on loans and advances to customers.

Source: Draft Group Management Accounts Pack 30 September 2008
* The majority o f these balances are held o n behalf o f po licyho lders of A nglo Irish A ssurance company

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 2 - Financial Overview

Retail, office and hotel investment account for 41% of the total Group loan book at 30 September 2008. Retail, office and hotel investment account for 35% of the Irish book, 47% of the UK book and 51% of the US book at 30 September 2008.
Group Loan book by sector
Office zoned land 1% Retail investment 16% Personal Industrial investment 5% Retail development 2% 2% Leisure investment 3% Mixed zoned land 3% Fund investment 1% Residential investment 4%

Business banking 5% Office investment 15%

Other property investment 5%

Hotel development 1% Hotel investment 10% Mixed development 2%

Residential zoned land 6% Pub investment 1% Residential development 7% Office development Mixed investment 1% Retail zoned land 7% Unzoned land 2% 2%

Source: Management information

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

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Section 2 - Financial Overview

Investment lending accounted for 65% of the Bank’s loan book at 30 September 2008; Development & Land accounted for approximately a quarter of the total

Development Loan Book - 30 September 2008
€ in millions Unzoned Ireland 934 UK 489 Sub-total 1,423 US Total Development Lending Zoned 4,142 1,032 5,174 Full PP 2,255 924 3,179 WIP 5,512 3,052 8,564 Total 12,843 5,497 18,340 1,339 19,679 % of loan book
17.3% 7.4% 24.7% 1.8% 26.5%

Investment 63.4%

Business Banking 5.0% Personal 5.0%

Investment Loan Book - 30 September 2008
€ in millions Ireland UK US Sub-total Hotel 3,923 2,349 1,224 7,496 Mixed 2,179 1,495 1,318 4,992 Office 5,230 3,203 2,165 10,598 Resi 1,308 854 1,129 3,291 Retail 6,102 4,484 1,412 11,998 Other 5,230 3,844 565 9,639 48,014
64.6%

Development 12.9%

Total 23,972 16,229 7,813

% of loan book
32.2% 21.8% 10.5%

Land 13.9%

Total Investment Lending

This sectoral information was preliminary. The actual percentage of Development Loans at 30 September 2008 was 23%.
Source: Management information

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

15

Section 3 Summary Findings (Excluding Confidential Information)

Transaction Services

Section 3.1 Phase I Extracts (27 September 2008)

Transaction Services

Section 3.1 - Phase I Extracts (27 September 2008)

Key findings for discussion Phase I (Page 1 of 2)

Discussion Point
Trading

Comments
Anglo generated PBT (after impairment charges) of €1.3 billion for the 11 months to 31 August 2008, up from €1.1 billion in 2007. In the period from 31 March 2008 to 31 August 2008 loans and advances to customers increased from €69.0 billion to €71.9 billion. Customers’ deposits declined during this period, with a further decline by 19 September 2008. Debt securities issued also declined from 30 June 2008 to 31 August 2008. Anglo operates a very centralised credit management, with short reporting lines and clear responsibilities. According to August management information almost all of the Bank’s loan book, equating to c.99% of total customer loans, is considered by management to be performing. 0.6% of the Bank’s loan book is classified as impaired, but significant security is in place to minimise the Bank’s loss given default. 2.6% of the book is classified as “Watch” i.e. loans are performing but require intensive management to ensure that the Bank does not incur any loss. Loans that are classified as Watch cases do not necessarily migrate to impaired. As at 31 August 2008, the top 20 Irish regulatory groups represented €11.4 billion or 26.5% of the total Irish loan book. The top 20 regulatory groups in the UK represented €8.3 billion, or 46% of the UK loan book, and the top 20 regulatory groups in the US represented €3.0 billion or 32.4% of the US loan book. There are potentially substantial exposures to a number of key customers. From a review of the loan files it is evident that personal guarantees and net asset statements are obtained from borrowers. While these show the borrowers’ net worth in a favourable position it must be noted that collateral valuations, in particular property, in the current environment may be significantly lower and realising some of these collateral assets may be difficult. However, given the satisfactory performance of the book to end of August 2008 it is not anticipated by Anglo management that forced ‘fire sales’ of collateral will occur.

Credit management Loan Quality

Customer concentration

Guarantees and cross collateral

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 18

Section 3.1 - Phase I Extracts (27 September 2008)

Key findings for discussion Phase I (Page 2 of 2)

Discussion Point
Liquidity

Comments
As of 27 September 2008, Anglo was forecasting net negative cash of €12.0 billion by 17 October 2008. The principal reason is a €10 billion reduction in corporate and retail deposits consistent with recent deterioration. There has been a €5 billion deterioration in corporate deposits and €440 million deterioration in retail deposits in the last week. The projections assume completion of a securitisation of part of the loan book for €2.2 billion and successful bidding for ECB funds. The Inter bank and debt capital markets are effectively closed at present and the projections assume a continuation of these market conditions.

Banking Book Assets

Banking Book Assets (Available-for-sale financial assets) includes RMBS’s, ABS’s, CDO’s totalling €1.9 billion which are difficult to value and probably illiquid in the current market.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 19

Section 3.2 Phase II Extracts (27 November 2008)

Transaction Services

Section 3.2 - Phase II Extracts (27 November 2008)

Anglo’s business model was successful with many years of uninterrupted profit growth, however, in common with the sector, changing economic circumstances highlight a number of key underlying risks (1 of 4)
Area
Business model

Comment
The Bank’s business model is to lend on a senior first secured basis to proven operators against investment (cash flow supported but often highly geared) and development property assets with cross collateral and, in most cases, supported by personal guarantees from the principals. New lending to existing customers is supported by both the asset being acquired and the customer’s pool of assets held as security. Where possible net worth/asset statements are obtained from borrowers with estimates made where this is not possible. Loans are priced off market rates which means that there is a positive interest margin earned. Management believe that Anglo attracts the highest level of security, recourse and risk adjusted margin in its markets. Management have asserted that the Bank only underwrites loans based on a thorough understanding of the client. It does not accept deals underwritten by brokers or other banks and it never purchases loans from other banks/entities. All loans are underwritten on the assumption that they will remain on the Bank’s balance sheet throughout their term.

Historical Financial Performance

The Bank generated profits before tax of €1.221 billion in 2007 and is presenting pro forma profits before tax of €1.5 billion (after treasury but before lending impairments) in the year ended 30 September 2008. This amount is subject to audit. Since 1990, the Bank has incurred an average rate of lending impairment of 43bps per annum, reaching a maximum of 101bps in the years 1990 to 1993. Market Abuse regulations prevent us from publically disclosing forward looking information without it being subject to a detailed verification process which was not part of our scope of work.

Financial Projections

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 21

Section 3.2 - Phase II Extracts (27 November 2008)

Anglo’s business model was successful with many years of uninterrupted profit growth, however, in common with the sector, changing economic circumstances highlight a number of key underlying risks (2 of 4)
Area
Capital Ratios – Anglo Scenarios Management and People

Comment
Capital ratios and the Anglo Scenarios are discussed in Section 3.5 – Capital Adequacy of this Summary Report. We were informed that Anglo’s senior management team has significant experience in banking, underwriting, risk and wider financial services. Most of the senior underwriters have in excess of 15-20 years lending risk experience in the sector and relevant markets and have worked through previous economic cycles. Many have worked with Anglo for long periods whilst others bring experience from other institutions.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 22

Section 3.2 - Phase II Extracts (27 November 2008)

Anglo’s business model was successful with many years of uninterrupted profit growth, however, in common with the sector, changing economic circumstances highlight a number of key underlying risks (3 of 4)
Area
Interest roll up

Comment
In common with other banks, Anglo provides interest roll up facilities when providing development facilities where supported by expected future cash flows. The extent to which interest roll up is permitted in any case is determined by policy limits, including the strength of the individual client, other cash flows and security and underlying asset values. Management indicated that interest roll up is continually assessed by relevant lending directors and Group Risk Management and may be extended where deemed appropriate, for example, as underlying asset values increase or to reflect the strength of a borrower or as part of a restructuring. This would be consistent with our sample reviews of the larger loans, particularly longer term Irish development land plays. The cumulative amount rolled up on any individual facility can normally be identified. Interest roll up and capitalisation is permitted under IFRS. In some cases Anglo lends on an interest only basis against cash generative investment properties depending on its risk assessment. In certain cases capital repayments will be derived from asset sales or refinancing. The critical risk assessment in management’s view is the robustness of the contractual cash flows derived from the subject property which service and repay the debt facility. Development loans are converted into investment loans when a development is completed and assets become revenue earning (tenants in place) and in many cases, the loans are retained on the Bank’s books post development. The Bank has a significant portfolio funding investment property lending in its Irish book. In the case of a client engaged in the acquisition of overseas assets (mainly UK and Europe), such loans will typically be secured upon the overseas asset and also cross collateralised on the borrower’s Irish security.

Investment property loans

Investment property - security

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 23

Section 3.2 - Phase II Extracts (27 November 2008)

Anglo’s business model was successful with many years of uninterrupted profit growth, however, in common with the sector, changing economic circumstances highlight a number of key underlying risks (4 of 4)
Area
Equity release

Comment
In accordance with industry norms, the Bank will in certain circumstances provide equity release facilities where there has been capital and/or income appreciation to allow customers to invest in other projects. The underwriting of equity release facilities considers inter alia, the strength of the client and the quality of its asset base in line with normal underwriting procedures. A number of key property developer customers purchase or take options over land banks a considerable period of time in advance of local area plans, zoning, planning permission etc. being available. As a result they may end up carrying land at a low base cost relative to current market values. In recent years this model would have allowed them to accrue significant uplifts in value over time which they realise by selling sites with planning permission or through development. The risk is whether with their equity and other resources they have the ability to carry the interest due on loans funding the transactions. Management state that the Bank’s involvement in major land/development deals has reduced over the past three/fours years. Anglo has built up strong relationships with its key customers. Management state that this strategy of developing deep relationships with what it deems to be the strongest operators is deliberate. From our review of the larger loans in the portfolio it is evident that a small number of key customers are involved in a large number of transactions and represent a significant proportion of the loan portfolio. Anglo considers itself able to attain a thorough understanding of its client’s business, finances and relevant risks, which are continually reassessed in face to face client meetings often held weekly. There are a number of customers which are not currently on the Bank’s watch, notable or impairment lists all of whom exhibit potentially serious short term liquidity issues. However, by virtue of their size and risk profile senior management represented to us that all are subject to regular monitoring up to Executive Director, Board Risk and Compliance Committee and main Board level. Management have confirmed that the September notable/watch/impairment lists have been updated to include these customers.

Property developer land banks built up over time

Close relationships with key customers

Credit grading

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 24

Section 3.2 - Phase II Extracts (27 November 2008)

Anglo’s approach to lending: key assumptions re security valuations and stress assumptions

Area
Security valuations

Comment
The security valuations included in Anglo’s LTV calculations reflect the following general factors which may be amended to reflect specific circumstances: - Land valued at the lower of cost or market value - Construction work in progress at cost - Completed development properties at net sales value - Other properties at latest independent external valuations provided by a bank appointed valuer - The value of shares in private companies are discounted by 50%.

Stress assumptions

Customer relationships and loans are stressed on an individual basis rather than across the book. In arriving at stressed LTV’s the Bank discounts property values by 20%. Interest cover is stressed by increasing base interest rates by 2%. In the current environment it is unlikely that this will be a significant problem. Rental income to interest cover is stressed by reducing rental income by 10% with no allowance for in course increases in rental income.

Liquidity

The scope of our review has not been to concentrate specifically on the wider issue of liquidity in world banking following the effective closure of the normal inter-bank lending markets. However, the Anglo model is dependent on customers’ ability to successfully refinance significant development and investment loan portfolios in the short to medium term. This is exacerbated where (i) Anglo is the lead bank in a wider syndicated loan or (ii) significant additional debt funding would be required for the successful build completion to derive value from development land banks held by key customers. While the stress scenarios applied by management assume no new net lending for 2009 and 2010, it is assumed Anglo will successfully re-finance its own short term borrowings in that period.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 25

Section 3.2 - Phase II Extracts (27 November 2008)

Current economic difficulties are likely to impact Anglo in 2009 and subsequent years

Area
Difficult economic conditions for Anglo and its key customers

Comment
Anglo has performed very strongly over the past number of years and expects to generate a core business profit of €1.7 billion before treasury write downs and loan provisions in 2008. Anglo projects this level of core business profit to continue for the next number of years because most of its income is annuity based derived from its lending assets. The business environment in which the Bank and its peers operate has deteriorated significantly in the past six months and in line with this general trading conditions have deteriorated significantly. The carrying cost of assets may not exceed their economic value even if they are realisable and as a result the option of interest roll up may not be available to customers to the same extent as to date. In addition, while demographics remain favourable, the continued unavailability of mortgage funding and increasing unemployment may exacerbate already reduced demand for residential property resulting in a fall in price for units already built and less demand for new developments on the land banks held by Anglo’s clients. The retail trade is also struggling and if the difficult economic conditions continue into the medium term shopping centres and retail developments may begin to experience trading difficulties or not be developed. A number of Anglo’s customers have significant exposures to the retail sector with Retail Investment and Retail Development loans accounting for 16% and 4% of the Bank’s loan book respectively. Whilst these issues may not lead to impairment in Anglo’s 2008 results, a further deterioration in market conditions could lead to a reduction in the discounted cash flow attributable to certain assets and thereby materially impact future impairment charges. As with the sector in Ireland and internationally, the Bank adopts impairment recognition policies as prescribed by International Financial Reporting Standards (IFRS).

Large customer exposures

The Bank has a number of very large exposures with approximately 15 relationships in excess of €500 million. The size of these exposures increases the risk profile of the Bank. However, the Bank considers that in all cases they are supported by diverse portfolios of assets underpinned by material contractual cashflows and with significant personal/corporate recourse.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 26

Section 3.2 - Phase II Extracts (27 November 2008)

Our review has identified concentrations of lending in a number of areas, for example, shopping centres and land banks in the greater Dublin area (1 of 2)

Area
Large customers with cashflow difficulties

Comment
We understand from management that a number of the Bank’s larger customers are experiencing short term cashflow difficulties at present and are in the process of disposing of non-core and in some cases trading assets. The diversity of the customer’s asset base, the reliability of underlying cash flows, the quality of the Bank’s security (including recourse) and the value it will realise along with potential actions of other Banks will dictate in the first instance the existence or otherwise of impairment and thereafter the level of potential loan loss, if any, the Bank may incur. The Bank has lending exposures secured on shopping centres in the greater Dublin region. The exposures may be lending against completed centres or sites for future development (albeit any existing or future commitments to fund expansions are/will be conditional on pre-lets etc.). In the current economic environment with a forecast decline in retail sales and disposable incomes it is difficult to see any material uplift in shopping spend which may in turn affect tenant demand and undermine the feasibility of some of these development projects. The Bank considers the structure of the facilities in place, being cross-collateralised and/or supported by existing rental flows from well established, well let and high quality tenanted assets to be a significant risk mitigant.

Shopping Centre Concentration

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 27

Section 3.2 - Phase II Extracts (27 November 2008)

Our review has identified concentrations of lending in a number of areas, for example, shopping centres and land banks in the greater Dublin area (2 of 2)

Area
North Dublin land banks/ development sites

Comment
There are large exposures to a number of developers with land banks and development sites which are geographically close in North Dublin and contiguous areas. We have not estimated the number of residential sites potentially available in these locations. Successful development of all these locations is dependent on a number of factors including completion of local area development plans, zoning etc., an increase in demand from current depressed levels, services/infrastructure build and continued availability of financing. There are also large exposures to a number of developers with residential land banks and development sites which are geographically close in South Dublin and Wicklow. There is currently a large over-hang of unsold higher density residential units in these areas. Successful development of all these locations is dependent on similar factors to North Dublin as noted above. There are large current and potential exposures to a number of developers with development sites. Significant funds (which have not been committed) will be required to develop these commercial sites to realise their value.

South Dublin land banks/ development sites

Funds to develop land banks

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 28

Section 3.2 - Phase II Extracts (27 November 2008)

Other risks include UK hotels and pubs and other banks in syndicates

Area
UK Hotels and UK Pub Trade

Comment
Anglo has loans to certain UK hotel chains. Anglo management view exposure to this sector as diversified with respect to geography, asset class and underlying cash flows. Any slow down in economic activity in the UK may impact the profitability of these hotels and ultimately the recoverability of underlying loans. Anglo management has assured us that all are trading satisfactorily. The UK pub trade is also experiencing difficulties. Anglo has exposures to this sector including a number of pub chains in the Watch/Notable category, however, none form part of the Top 20 relationships. In the majority of cases, the promoter remains actively involved in the day-to-day running of their business and in all cases the Bank considers it has close and open relationships. In a number of development companies (below the level of lead promoters), there are possible weaknesses in the senior management teams and until recently little attention has been paid to succession. In addition financial planning and control, including capital acquisitions tax planning has been weak. Anglo management have indicated that their efforts to increase customer focus in this area have borne fruit as many of their major clients have improved in this area recently. If the security on which some loans are secured was marked to market it is probable that significant shortfalls would occur in line with the rest of the Irish and international banking sectors given current market conditions. Whilst the Banks lending model/underwriting standards rely in the first instance on contractual cash flows, collateral values are a key consideration in the event of default leading to a forced/distressed sale. In accordance with IFRS, Anglo amortises these securities as IFRS does not permit a mark to market approach for such lending assets. The Bank has exposures to a number of customers who also have significant exposures to other domestic and foreign banks. There is a risk that (i) if other banks call in their loans customers may not have the resources to pay these and Anglo’s loans or (ii) these other banks may not participate in new rounds of refinancing.

Management Succession / Tax Planning

Mark to market of collateral security may indicate losses

Other banks funding developments

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 29

Section 3.2 - Phase II Extracts (27 November 2008)

Treasury AFS assets

Area
Treasury AFS securities

Comment
Anglo had a portfolio of available for sale financial assets with a fair value of €8.2 billion as at 30 September 2008 which reflected impairment and mark to market losses of €288 million in FY08. There was an AFS reserve of a negative €589 million held on balance sheet at 30 September 2008. The Bank use a number of sources to derive the fair value of the assets carried in the Available For Sale (AFS) balance sheet category. 75% of the prices for these portfolios come from Bloomberg with the remainder coming from external service providers and broker quotes. There is some uncertainty in the market about pricing for certain asset backed securities given market conditions. At 7 November 2008 the Bank was still seeking prices in respect of €978 million of AFS assets and expects to obtain third party prices for approximately 50% of these. Currently prices are based on the most recent counterparty prices. It is Anglo management’s belief that the pricing used is conservative.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 30

Section 3.3 Phase III Extracts (17 December 2008)

Transaction Services

Section 3.3 - Phase III Extracts (17 December 2008)

Phase III of our review concentrated on the next 50 largest Land and Development exposures. Land bank concentrations may result in significant losses for a number of developers.
Area
Mothballing of developments and land banks

Comment
During our review, we have seen significant evidence of borrowers reacting to the downturn in the residential market by effectively ‘mothballing’ development sites and land banks. These sites are not expected to be developed/completed until there is a return in activity to the market. This is a short to medium term solution for many developers. However, the ability to place facilities on hold may be restricted. It will be difficult for the Bank to permit interest roll up on facilities where LTV is high, interest cannot be funded and further security is unavailable. In our Phase II report we commented that there were large exposures to a number of developers with residential land banks and development sites which are geographically close in South Dublin and Wicklow. Our work on Phase III has highlighted the fact that this concentration of exposure also applies in the next 50 largest land and development loans. Taking both phases of our work into account there is currently a large over-hang of unsold higher density residential units in these areas accounting for a number of years supply and on top of this there are sites without planning permission in relation to which developers are hoping applications will be processed when local authority infrastructure and planning issues are resolved. Successful disposal of the current and ‘pipeline’ stock will take many years and appear unlikely to occur at current unit price levels. There are likely to be significant losses for individual developers and in turn the Bank as a result.

South Dublin land banks/ development sites

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 32

Section 3.4 Loan Reviews

Transaction Services

Section 3.4 - Loan Reviews

In the course of our work we reviewed Anglo’s top 20 Investment lending exposures and its top 70 Land & Development lending exposures. Detailed loan reviews for each individual exposure are contained in the PwC Reports.
Area
Approach to lending review

Comment
In the course of Phases II and III of our assignment, we reviewed a sample of individual lending exposures concentrating on the most significant exposures based on regulatory groupings. In Phase II we reviewed Anglo’s top 20 Investment Exposures as well as their top 20 Land & Development Exposures (based on the bank's own classification of these exposures) and 22 other exposures. In Phase III we reviewed Anglo’s 40 next largest Land & Development exposures across its Ireland, UK and US divisions. Our information on the individual exposures was obtained primarily from credit review sheets prepared by management and discussions with senior lending and central credit risk personnel. Detailed loan review sheets in respect of each of the exposures we reviewed were included in our Phase II and Phase III reports dated 27 November and 17 December 2008 respectively. Summary tables for these large exposures were also provided. Due to the commercially sensitive nature of this information this information is not reproduced in this Summary Report. The Top 20 Investment lending exposures reviewed in our Phase II report had a combined value of €11.7 billion representing 15.7% of total advances as at 30 September 2008. The Top 20 Land & Development exposures reviewed in our Phase II report had a combined value of €6.4 billion representing 9.0% of total advances as at 30 September 2008. The Top 70 Land & Development exposures reviewed between Phases II and III of our review had a combined value of €12.6 billion which represents some 63% of Anglo’s total Land & Development loan book as at 30 September 2008 and 17% of its total loan book.

Top 20 lending exposures

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 34

Section 3.5 Capital Adequacy and Stress Tests

Transaction Services

Section 3.5 - Capital Adequacy and Stress Tests

Capital stress tests were performed under two different impairment scenarios; both were more stringent than Anglo’s own stress tests (1 of 3)

Area
Capital Ratios – Anglo Scenarios

Comment
Under the Anglo Base Case, as prepared by Anglo management, core equity and tier 1 ratios stand well in excess of current regulatory minima by 2011. Under Anglo’s Scenario 1 core equity and tier 1 equity ratios stand well in excess of current regulatory minima (Tier 1 – 4% and Total Capital – 8%) by 2011; under Anglo’s Scenario 2 core equity and tier 1 equity stand in excess of current regulatory minima by 2011; and under Anglo’s Scenario 3 core equity and tier 1 equity stand in excess of current regulatory minima by 2011. These Anglo scenarios assume internally generated capital accretion and a raising of €750 million non-core Tier I capital in 2011. This fund raising improves the Tier 1 ratio by 81bps and Total Capital Ratio by 80bps in 2011. In arriving at their conclusions Anglo has made a number of critical assumptions as follows: 1. Anglo will continue to generate core operating profits in line with existing profit levels (despite the current downturn). 2. This assumed level of profit is sufficient to absorb any impairments in that year. 3. Impairment charges will be spread over a 2-3 year period and will not spike heavily in any one year. 4. No net new additional lending will occur (but funds from loan repayments will be lent again). 5. Anglo will not pay any dividends until capital ratios improve significantly.

Capital Ratio - Stress Scenarios

We considered stress impairment scenarios based on forecasts being made by market analysts and the projected impairment loss experience in other banks by major loan exposure categories and based on Anglo’s 30 September 2008 balance sheet exposures. This was done by taking market forecasts for bank loan impairments published by independent analysts and brokers in Ireland and the UK during October and November 2008 to arrive at two stress scenarios for impairment losses for different categories of loans: residential mortgages, residential investment properties, commercial/corporate loans, development land with planning permission, development land without planning permission, secured consumer lending and unsecured consumer lending.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 36

Section 3.5 - Capital Adequacy and Stress Tests

Capital stress tests were performed under two different impairment scenarios; both were more stringent than Anglo’s own stress tests (2 of 3)

Area
Capital Ratio - Stress Scenarios (Contd.)

Comment
The analysts’ forecasts were sense checked against impairment forecasts made by other banks. PwC took the worst case in each loan category and applied our own view as to future trends to arrive at impairment loss scenarios that were higher than those published by market analysts at that time. We applied the impairment loss for each loan category, as estimated in the two scenarios, against the equivalent category in Anglo’s loan book at 30 September 2008 to arrive at an estimated annual impairment loss. These annual impairment charges were €2.3 billion and €3.0 billion respectively per annum under the two scenarios for the years ended 30 September 2009 and 2010. The two PwC impairment loss scenarios exceeded Anglo’s worst case impairment loss scenario. The PwC stress scenarios suggests impairment losses greater than Anglo’s forecast operating profits before impairment charges in 2009 and 2010. We applied the PwC scenario impairment losses against Anglo’s capital and rolled this forward for financial years ended 30 September 2009 and 2010 without taking into account capital issues set out in its own capital plans. The capital base calculated under the PwC scenarios was compared to Anglo’s risk weighted assets of €85.8 billion as at 30 September 2008 as adjusted for the impact of impairment losses to arrive at scenario capital ratios at 30 September 2009 and 2010. Assumptions 1 to 5 set out on the previous page also apply to the PwC scenarios with the exception of assumption 2. Under the PwC highest stress scenario, Anglo’s core equity and tier 1 ratios are projected to exceed regulatory minima (Tier 1 – 4%) at 30 September 2010 after taking account of operating profits and stressed impairments. It should be noted these scenarios were constructed by us at a point in time (17 November 2008) and may not be applicable at any other date. If we constructed scenarios at today’s date or at any other point in time we may have arrived at a different conclusion with respect to capital ratios. Further, the highest stress scenario represents a downside risk but not necessarily a worst case scenario.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 37

Section 3.5 - Capital Adequacy and Stress Tests

Capital stress tests were performed under two different impairment scenarios; both were more stringent than Anglo’s own stress tests (3 of 3)

Area
Independent Property Valuation

Comment
We used an independent firm of property valuers (Jones Lang LaSalle) to value a sample of 160 properties held as security in relation to the top 20 land & development exposures on Anglo’s books as identified in our Phase II review and report. The results of this work indicated that impairment charges over the period FY09 to FY11 would fall in a range between the two PwC impairment scenarios but closer PwC’s lower impairment scenario.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 38

Section 3.6 Money Market Exposures

Transaction Services

Section 3.6 - Money Market Exposures

At 30 September 2008 the Bank had €9.9 billion of exposures across the top 10 Financial Institutions. All exposures are to EU banks with ratings of A- or above.
Top 10 Financial Institutions Exposures at 30 September 2008
€ in millions Counterparty Irish Life and Permanent Long Money Bank Term Market Repo Bonds Derivative Rating 7,237.5 A

Total 7,237.5

The table opposite sets out the top ten Financial Institutions exposures at 30 September 2008 as included on page 127 of our report dated 27 November 2008. The Bank is not exposed to counterparties with credit ratings less than BBB+. Money market exposures account for 94% of the total exposure, with Bank bonds (5%) and Repos 1% comprising the remaining exposure. All of the money market exposures included in the top 10 matured on or before the 3 October 2008. Money market exposures continue to be held at very short dates predominantly one night. This facilitates active daily management of credit lines and limits. The Bank’s single largest exposure is to Irish Life and Permanent plc. The money market asset balance 'Due from Banks' includes an amount of €7.2bn placed with Irish Life and Permanent plc. This amount is balanced (though we believe there is no legal right of set off) by an arrangement, whereby a non-bank subsidiary of ILP placed a customer deposit with the Bank for a roughly similar amount. The effect is to gross up the Bank’s balance sheet, boosting customer deposit liabilities and interbank assets. The arrangement reduced by approximately €6 billion within 3 days of the year end.

• •

9 other counterparties redacted


Source: Management Reports

This page is exactly as presented in the working draft report in relation to Anglo with the exception that the reference to nine other financial institutions has been redacted for confidentiality reasons. The page did not appear in the Summary Findings sent to the Minister by the Financial Regulator and the Central Bank or in the presentation made to the Minister which were prepared for the purposes of summarising credit, impairment risk and capital stress scenarios for the six covered banks.

Main Findings
Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts 40

Appendix 1 Contract

Transaction Services

Appendix 1 - Contract

Contract

Our contracts with IFSRA are dated 18 September 2008, 9 October
2008 and 25 November 2008 for Phases I, II and III respectively (the “Contracts”. We have not repeated them here. They form part of the relevant PwC Reports. The scope of our work for Phases I, II and III as set out in the Contracts is repeated in the Scope and Process section at the beginning of this Summary Report.

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

42

Appendix 2 Glossary

Transaction Services

Appendix 2 - Glossary

Glossary of Terms and Abbreviations

Term
ABS CDO EBIT EBITDA FLC FY IRU LTV PG Regulatory Group

Definition
Asset backed security Collateralised debt obligation Earnings before interest and tax Earnings before interest, tax, depreciation and amortisation First Legal Charge Financial year ended 30 September Interest Roll Up facility Loan to value Personal Guarantee A regulatory group is two or more parties constituting a single risk because one of them has control over the other or where there is no control relationship, if one party were to experience financial problems the others would experience repayment difficulties. Residential Mortgage Backed Securities

RMBS

Project Atlas - Anglo Irish Bank Corporation plc • Summary Report Extracts

44

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