Mr. Alan Dukes:

In addition to our CEO, Mr. Aynsley, I am accompanied by Mr. Jim Bradley, our chief financial officer, and Mr. Richard Woodhouse, who is in charge of special projects.

We are very grateful to the committee for its invitation to come and discuss a series of issues with it. The last time we were before the committee was on 15 September last year and at that stage we went through in some depth what the bank had been doing since nationalisation. Today, I would like to update the committee further on the progress the bank has made since September 2011 and on some of the challenges we face. Following my presentation, my colleagues and I will be happy to deal with any issues members of the committee want to raise.

As committee members know, the bank's mission is to deal with the assets of the former Anglo Irish Bank and those of Irish Nationwide Building Society since the merger of these two entities in July 2011. We now do this under the name, the Irish Bank Resolution Corporation, IBRC, and have been doing so for just over a year in a concerted and directed effort to minimise the overall cost and maximise the returns in the interest of the taxpayer. We operate on the basis of an approved restructuring plan which was submitted to the European Commission in January 2011 and which it is intended will bring about an orderly wind-down of the entity over a period of ten years up to approximately 2020. An additional objective since the merger of the two entities is to prepare the former INBS mortgage book for sale within a period of five years.

The IBRC is a regulated entity that is closely supervised by the Financial Regulator and the Central Bank of Ireland. In addition, it is supervised by a monitoring trustee which has been put in place to report to the European Commission on the bank's adherence to the terms of the commitment letter which accompanied the Commission's approval of the restructuring plan. The bank is subject to all of the relevant provisions of company law and also to a series of codes of practice relevant to State-owned entities and companies as well as to the provisions under which the original new entity was set up by an Act of the Oireachtas post-nationalisation. It operates in the context of overall banking policy as laid down by the Minister for Finance on behalf of the Government.

I reported last year that the board and management of the bank had effected considerable and dramatic change in creating a fit for purpose wind-down vehicle to deliver on its mandate and resolution objectives. The most significant of these since then has been the sale of the bank's US loan book, which was effected in October 2011 and saw a once-off balance sheet reduction of close to $10 billion in one of the largest ever single sale transactions seen in the US real estate market. This operation was successfully carried out without any negative effect on the bank's regulatory capital base. Following the completion of the operation, there remained a balance of approximately $1 billion of unsold assets, which fell out of the sale for a number of technical reasons. We have made substantial progress on the disposal of these assets since completion of the original sale, and all offices of the bank in the United States have been closed.

Further progress in planned and controlled downsizing of the bank has been made since. We have prepared a series of notes for the committee which show there has been a further reduction in our balance sheet, bringing the total reduction, excluding the promissory notes and bonds, to 78% since nationalisation. Deleveraging will continue, principally on a loan-by-loan basis, but with consideration being given, based on informed analysis, to portfolio or book sales in both of the banks' remaining jurisdictions, the UK and Ireland, where it makes economic sense. Deleveraging to date has been substantially ahead of the targets set in the restructuring plan and we hope to maintain that accelerated performance. I should add that our success in this endeavour will depend crucially on developments in property markets and the condition and liquidity of markets in both Ireland and the UK. Dealing with the most distressed parts of the bank's loan portfolio will be especially challenging.

We place a close focus on cost containment and reduction within the merged entity. Staffing is one of the main cost components. We have now reduced the number of employees in the bank by over 50%, from the peak staffing levels of Anglo Irish Bank and Irish Nationwide Building Society combined in 2008, which was approximately 2,250. By the end of this year, core staffing levels in IBRC, excluding the NAMA unit, will be below 800.

I take this opportunity to express, once again, my appreciation of the way in which bank staff have responded to the demands inherent in the restructuring process since nationalisation. It has been a very demanding process of constant change accompanied by a great deal of negative comment about their workplace. Staff have participated in a radical process of change and retraining. Without their active participation, the progress we have made in the face of considerable difficulties simply would not have been possible. While we are obliged to review staff numbers, we must also ensure the quality and skill levels of our staff match up to the extremely exacting demands of the market situation and the wind-down role of the bank. As I said, the staff response to those demands has been exemplary.

We have streamlined the operation of the merged entity with office closures and sales of premises. A process to evaluate the outsourcing of some support functions was initiated, and several functions have been outsourced. We have, inter alia,completed a significant exercise in the area of legal expenses attributable to ongoing litigation matters and in the area of the appointment of receivers. These are two necessary ongoing expenditures and we have taken steps to ensure, to the maximum extent possible, that we obtain value for money out of that expenditure. These and other measures reflect the bank's continuing commitment to ensuring its infrastructure and business processes are efficient and appropriate for the changing size of the organisation as we progress through the phases of the wind-down.

We have continued to strengthen the board of the bank. It consists of ten members, including the chief executive officer. One member was appointed in November 2008, one in February 2009, the CEO in September 2009, three directors in May 2010, two in 2011 and two this year. Fees for non-executive directors were initially reduced by 20% at the end of 2008 and by a further 15% with effect from 1 July this year.

The total balance sheet of IBRC has reduced from €101 billion at the time of nationalisation to approximately €53 billion today. This includes the €29.3 billion in support from the Government to the former Anglo Irish Bank and the €5.4 billion put into the former Irish Nationwide Building Society. IBRC is totally reliant on funding from the Central Bank and monetary authorities and from the Government. Funding from the Central Bank and monetary authorities stands at approximately €42 billion. If we exclude the Government's promissory notes, total assets are approximately €25 billion. Impaired loans on our books amount to almost €18 billion, with cumulative impairment provisions of almost €11 billion. Impaired loans now account for approximately 66% of our total loan balances.
We remain reasonably hopeful that the final cost of the operation will be closer to €25 billion rather than the €29 million to €34 billion estimated in September 2010. This is, of course, highly contingent on what happens to property markets here and in the United Kingdom. The outcome will depend on what happens in the general economy and may also be impacted by any restructuring of the promissory note. In addition, the banking situation is very vulnerable to what happens in the eurozone in general. Notwithstanding these qualifications, which are substantial, we are confident that we have reduced the expected final cost of the operation to the taxpayer by an appreciable amount.

The bank has made significant progress since nationalisation in spite of considerable and complex challenges. The task ahead is possibly equally challenging and the problems are different in many respects. Following the merger with the Irish Nationwide Building Society, we are managing a relatively small portfolio of residential and investment mortgages. We recognise that the situation for mortgage holders is very difficult in the current economic environment and that this is unlikely to change for the better in the short term. We noted with interest the recent comments on this matter by Ms Fiona Muldoon of the Central Bank. We agree that banks must be decisive and creative in dealing with the system-wide issue and with the stress being experienced by many ordinary borrowers. We acquired what I can only describe as a very challenging mortgage book in July 2011, as can be seen in the notes we have prepared for the committee. A significant amount of work has been undertaken in regard to this book as part of our mortgage arrears resolution strategy. The strategy is designed to deliver a range of forbearance solutions to support borrowers in financial distress or those likely to fall into arrears in the near future. We are tackling these issues and making progress. It is a complex matter and it takes times to construct solutions that work. We will roll out those solutions in accordance with the timelines agreed with the Financial Regulator. The real test is not simply in the launching of new products but in ensuring thereafter that the solutions work and have the intended effects. IBRC is considering the possibility of doing even more, where practical and possible, with some of the more difficult cases in our mortgage book.

Another notable challenge for the bank is staffing, to which I have referred. Ongoing restructuring as the bank is wound down brings constant uncertainty for all staff. No long-term future career can be offered to those we seek to attract or those who wish to stay. This creates difficulties in terms of retention and motivation of staff. We are losing skilled and experienced personnel to other institutions at an unacceptable rate. Those individuals must be replaced with high quality candidates who can do the job we require them to do. Some 25% of IBRC employees are on short, fixed-term contract, the number is increasing. A drain in corporate knowledge is a serious side-effect of this dynamic. Of the original 2,250 Anglo Irish Bank and INBS staff at the time of the bank guarantee, fewer than 575 remain working in the merged entity. This underlines further the dramatic change that has taken place in the workplace culture. The numerous comments to the effect that the bank does not need the number of staff currently employed simply are ill-informed. The challenge for management is to ensure we have the right number of qualified staff to complete our task, no more and no less.

I assure the committee that the objectives of the board and management team are to run the bank in the public interest in a manner which minimises costs, maximises the return to the Irish State and treats customers and creditors fairly in the context of policy as laid down by the Government. The work being undertaken at IBRC is critical to the economy. The work of an asset recovery bank is complex and not easily understood by the public. In particular, the nature of the management and staffing expertise required for the task is often insufficiently understood.

There is clearly a high degree of interest in what we do and say. Since our discussion with the committee last year, there have been, at the last count, 7,362 print articles on the bank's activities and a huge number of media queries. We feel very privileged to be the subject of so many parliamentary questions in the Dáil. We deal with those queries and questions in house. I acknowledge the need for the bank to engage in an open, honest and transparent manner with all of its stakeholder groups and to communicate clearly what it is doing.

In addition to fulfilling our statutory reporting obligations, we regularly communicate progress achieved and major milestones along the way to ensure what we are doing is understood by stakeholders, including the media and the public.

I also should add in parentheses that if the joint committee has some additional time available at the end of the session, I might go into detail on the number of statutory reporting requirements we must meet. It regularly keeps me awake late at night, shortly before our board meetings, to check that we have made all the statutory returns we must make. I sometimes am tempted to wonder, in the small hours of the morning, who reads the goddamned things when they get to the other side, but that is another day's work.

I wish to make three points of clarification in this connection before I conclude. The first relates to the bank's dealings with high profile borrowers, in which there frequently is a substantial amount of outside interest. We have strict legal and ethical obligations not to disclose the bank's dealings or relationships with individual borrowers in the public domain. We simply cannot discuss the specifics of any individual case with any third party. Following a call in the media from a member of this joint committee for these dealings to be investigated, the chief executive officer, Mr. Aynsley, has given the Chair a commitment to the effect that the bank is more than willing to discuss in detail its approach to managing both performing and non-performing borrowers and the multifaceted governance that applies to all decisions in this regard without exception. I repeat and fully endorse that commitment. I can state categorically that any debt restructuring decisions the bank has made have been in accordance with that governance process and in the best interests of the taxpayer at all times.

The second point of clarification concerns the bank's appointment of and the mandate given to advisers. The bank is in wind-down mode and the process will be pursued by selling, as I indicated, entire loan books, portfolios of loans or individual loans. It is, therefore, a matter of when and not if we so do, as we achieve full resolution under the Government and European Union mandates. Details regarding the individual appointments of advisers relating to any commercially sensitive areas of activity, such as the ongoing analysis or the sale or recovery of individual loans or loan portfolios, must be treated as commercially sensitive information, given the real risk that public disclosure might have a detrimental effect on the bank's efforts to maximise loan recoveries. Therefore we will disclose any specific information in this regard. In response to continuing interest in the matter on the part of particular members of the joint committee, I can assure them that the bank adheres to a structured procurement process for the appointment of all of its advisers. That process is open, objective and transparent and is subject to the bank's governance processes, including both the provisions of the relationship framework with the Minister for Finance and oversight, through a regular reporting process, through the board of the bank.

The third point of clarification relates to the bank's recovery of debts owed by the Quinn family. I am sure members will appreciate these actions are the subject of litigation and are a matter for the courts that will be before the courts again as early as tomorrow. We will not be able to respond to questions today on any matters related to that activity.

I can again assure the joint committee that all of the actions and decisions undertaken by the bank are, without exception, focused on maximising returns in the best interests of the taxpayer and we now are quite ready to deal with any issues the committee may wish to raise.