Mr. David Duffy:

Before making my opening comments, it is important for us to recognise the support of Irish taxpayers, the Government and our other stakeholders, including the Central Bank. It has been said before that AIB does recognise the historical role it has played in where we have come to today, and the issues we face. We want to remind everybody that we are fully aware of, and do apologise on behalf of AIB for, our contribution to this situation. Notwithstanding that, the team here today is brand new. I will speak more about that shortly.

The efforts which we have to make to change AIB are very broad. The team here today is a brand new one. Our entire leadership team is new to the bank and brings a wide variety of skills to the table. The team is passionate about restoring AIB to a position where we can support the economy, return some value to the shareholder, and at the same time address what is a very important population - those who are in significant distress, whether they are customers in homes or SMEs.

The scale of what we have to do in the bank is fairly dramatic. For the purposes of history, the peak of our head count was 27,000 in 2007. Following the severance programme for the bank today we will be at 12,000. That is still subject to further potential reduction.

Our balance sheet over the period has been reduced by 26%.

There is a material change in the overall structure of the bank. We have changed the leadership team, reduced the workforce, cut pay for the majority of the workforce and reorganised the structure of the bank to be more simplified and focused on customers. We are trying to rebuild the business at the same time as restructuring while addressing customers in financial distress, which requires the build-out of a new bank capability. On top of that we have the overall regulatory regime, which has escalated significantly as it catches up on areas that needed to be enhanced over time. This all has to be done at the same time as motivating staff who have had a difficult time over the past four years, the majority of whom have not had an influence in the difficult decisions that have been made and their consequences. They do pay a price and it is difficult for them to remain motivated. It is also difficult for us to get them motivated to deliver some of the solutions required. These changes, given their scale and complexity, will take time. Everyone would like to solve everything immediately but it does take time.

When I joined the bank ten months ago, there were several concerns about the bank’s culture and the lack of trust between the bank and its key stakeholders, including the Department of Finance and the Central Bank. Our risk processes were very deficient and the customer model was broken. Our ability to help people in financial distress was fairly non-existent. We have introduced several cost-cutting measures. A voluntary severance scheme is under way with 1,700 staff expected to depart by the end of December 2012 and a minimum target of 2,500 by 2014. It is interesting to note that more than 2,500 applied for the scheme. That speaks of the stress and the environment in which many of our staff work. Annual savings in excess of €200 million are expected from this scheme. Pay and benefits have been tackled, with a 15% pay cut at executive levels while there is a pay freeze at more junior levels. All employees who are members of a defined benefit pension scheme will be moved to a defined contribution pension scheme, which is expected to generate €30 million in savings. Several branch closures have taken place, which is a difficult decision. We know it affects customers. However, with our arrangements with An Post we are hoping to mitigate the loss of service in some locations. We have to tackle fees. In our variable expenditure, we estimate that we will have reduced the ongoing burden of professional fees by 60% this year.

We are also looking at how we run the bank. We have a revised strategy based on servicing customers and increasing our effectiveness in lending in the economy - both mortgage lending and lending to small and medium-sized enterprises, SMEs. AIB recognised that the leadership team needed to change, which was part of the culture change in the bank. The entire board and leadership team has been replaced. In the past 12 months AIB has appointed a new chief executive officer, chief risk officer, chief operating officer, head of audit, head of human resources, general counsel and head of corporate affairs. Five new board members have also been appointed. Of the 11 board members, two are public interest directors and the other nine were appointed in 2010 and 2011. Of the 50 significant officers who were in place during the crisis, only two remain and only as non-executives. We have created a financial solutions group, a dedicated unit of more than 2,000 people, to address debt and debt restructuring.

What is the bank doing about lending? We are focusing on mortgages, SMEs and customers in difficulty while at the same time maintaining the bank’s capital and remaining stable for the long-term health of the economy. We have had to revise our processes to make it easier to access credit. AIB is 28% ahead of its September year-to-date lending target of the Government’s target of €3.5 billion. We continue to approve 90% of formal applications for credit. We have tackled the overall big drive for the small business area and shown how we are open for business. We are assisting SMEs and providing education, training and consultancy in moving them from collateral-based lending to cashflow lending. Some SMEs are fearful about the economy and unwilling to take risks. We are helping them understand how they can access credit. In many cases, we have discovered that firms do not want more debt and would prefer equity. There is a combination of issues in the dynamics of the economy which we are trying to address. We have landed several funds to promote debt and equity.

AIB will comfortably exceed its internal target of €1 billion in mortgage approvals for 2012. There has been an improvement in the trend of mortgage lending. However, as the Central Statistics Office pointed out recently, 46% of house purchases have been cash-only. The number of total approvals has increased by 72%, and 47% of all mortgages sanctioned are by AIB. This is quite a material share of the economy. At the same time, however, we have also opened up EBS as a mortgage channel which was not in the market until two months ago. We expect the EBS brand, a historically strong lender, and the AIB brand to be operating in the mortgage market fully in the next month.

AIB is participating in the NAMA 80:20 deferred consideration pilot initiative. We have introduced new initiatives such as the negative equity trade-up mortgage and expanded our distribution arrangements with An Post. Credit approvals have a quick turnaround and there will be a choice of brands with AIB and EBS.

Our endeavours show that we are approving much more than we used to and a much higher volume.

We have had to try to address the overall deposit costs for the bank. As we have explained at other meetings, the cost of funds to AIB is significant and leads to many of our products being loss-making. Many of the mortgages we write, even at current rates, when one takes into account the cost of funding and administering the bank, still remain loss-making. We have seen a big increase in deposits in the first half of the year. We have even seen some unguaranteed corporate deposits come back to the bank, which is a positive trend and a signal of more stability and confidence in the banking system.

The stabilisation and support of customers in difficulty are probably the most complex and significant matters in the endeavours we must undertake. We provided a complex analysis of this in the packs we sent to the committee. In the past year we have had to build the skills set which was not really available in the bank previously and that skills set is for 2,000 staff. We have had to identify existing and new outside resources. We have had to create a separate division of financial solutions group. We have had to train all of these individuals and work with them to help them on issues of how to manage, understand and be empathetic in the restructuring of debt with an individual. We have developed all of the Keane report and MARS arrears products and have had these submitted to and approved by the regulators. We have received full board approval for the entire strategy for addressing absolute debt levels in the marketplace and the use of each of these products. The strategy has been documented and confirmed and communicated to the regulators.

At the same time, we have not been sitting there waiting for that approval. We have been engaged with our customers and in many cases there has been initial forbearance. If we look at principal homes, the private homes category, we have been addressing 33,000 customers in difficulties. Although 85% to 90% of our customers are paying their mortgages, for those in distress for whom there is interest-only forbearance, 70% have been able to return to a normal payment schedule. The balance we must address within more complex scenarios and in that regard, we come across in a significant number of cases somebody who has a home but also an SME, is in a partnership for buy-to-let properties and may have other family relations who, together, have invested in commercial real estate or other properties. We are trying to address the disentangling of all of these components of debt by prioritising the issues of people staying in their homes and the stability of jobs and growth in SMEs. Some 41% of the population of SMEs at which we have been looking are in advanced stages of restructuring. Some 14% have debt restructuring. If one looks at all of the SMEs on which we are working and which are in distress, our objective is to have 100% of them addressed by the second quarter of next year. The speed at which we can move is significantly enhanced by having a trained and capable group of 2,000 staff. We now have the resources and would like to receive all of the committee's questions on this topic, among others, that will allow us, together with the tools we have developed, to address the issue of sustainable debt in all categories of the economy.

I want to bring my comments to a close because we have provided so much information that the guidance I am receiving is that we would like to move to questions as quickly as possible. Let me reiterate the fact that we appreciate the support we have received, for which we are very thankful. We recognise that AIB would not exist today were it not for that support. At the same time, we must deliver a sustainable and profitable bank if we are to be able to lend and return shareholder value at the end of this process and support with capital those in distress. We must be able on a long-term basis to support the growth of the economy. As the economy will eventually return to strong growth, we need to have the ability in skill sets and the capability in terms of capital to support that growth. We now have the right solutions and the right team in place that will allow us to deliver on our promise. At the same time, we appreciate the fact that delivery of many of these initiatives may not be as fast as people would like, but we must be effective in what we do; we must be consistent and fair in how we treat people; and, above all, the solution must work. We have achieved a great deal. We have taken many steps within the bank to change the culture and costs. At the same time, we have taken many steps to rebuild our lending and restructuring capability. Notwithstanding the fact that we have taken all of these steps, we recognise that we have more to do than we have already achieved.