Mr. Mike Aynsley:

Thank you, Chairman, and thank you members of the joint committee. As you know, I came to Ireland in September '09. I definitely had the view when I arrived, based on what I'd been told and what was available publicly, that there was a big job to be done here. I had no idea that it would quickly become known as the most toxic bank in Europe. By the time of my arrival of course, the decision to establish NAMA had been made and you will recall that there was a number of 20%, in about mid-2009, being referred to as the likely NAMA haircut estimate across the industry. I've been involved in difficult situations previously, I knew that this was likely to be a light number. I knew that the full extent of the falling markets was not at that stage apparent, and we would see further deterioration, but I didn't expect the free-fall to continue as it did. By the end of 2009, the haircut was estimated at around 30% and, of course, right through 2010 it increased dramatically to the point where by the time all of the calculations were done, the industry average was around 58%.

For Anglo Irish Bank, this was devastating, as it was for the rest of the industry. It produced a loss on transfer of assets to NAMA of €21 billion. And that €21 billion loss on NAMA assets, that was a 62% haircut on €33.9 billion of assets eventually transferred. Of course, that 72% of the overall €29.3 billion of State funding required to support Anglo and that's ... it's interesting to contrast that €29.3 with the original €1.5 estimate, just prior to the point of nationalisation. Now, of course, the loans that remained in the banks, they were a mix of good loans but also of distressed and non-performing loans that didn't qualify for transfers. So, the difference ... the other €8.3 billion of money that went in, went to offset provisions on those loans and also to recapitalise the bank ... put it in a position to maintain its regulatory capital thresholds.

Internally, what I expected to find at the bank was the requirement to fundamentally restructure the organisation. I knew that that would be necessary, given past experience I'd had. I knew that there had been a substantial dislocation in the markets and that that pointed to a long period of uncertainty and that there would be a need for very, very careful management of the distressed loan portfolio. While the extent of the downturn was still very uncertain at that point, it seemed crystal clear that it wasn't just a cyclical aberration in markets; it was a structural change, and that was driven, primarily, by the global financial crisis and the collapse of the global funding markets.

So the business at Anglo needed to be restructured. People there were focused on growing and lending and the mindset of the lending banker needed to be changed. It needed to be changed quickly and it needed to be changed to, what you could refer to, as the mindset of a restructuring banker rather than a lending banker. We assembled a management team, which, I think, collectively was capable of addressing any issue that was put before it in the bank. The Minister for Finance, at the time, the late Brian Lenihan, specifically requested that the senior people hired should be unblemished and not have been associated with the Irish banking scene or involved in any way in the global financial crisis. The new team included specialists in corporate finance, debt restructuring and insolvency, as well as debt capital markets, balance sheet and capital management, enterprise risk management, corporate governance, finance, legal compliance and control in an environment wherein the management capacity and the mix assembled was equally applicable to a bank in full wind-down as it was to a bank going through a major restructure.

The work to transform Anglo-INBS - on merger, IBRC - into a fit-for-purpose vehicle was extensive and required essentially a rebuild of, not only the client relationship management functions, but also the governance risk management and control activities from the ground up. This had to be a progressive process, as markets were deteriorating rapidly and due attention to the immediate loan portfolio problems was critical. It was a difficult process, as the loan book at Anglo was characterised by a lack of thorough management information, poorly perfected security - in some cases, absent - and a need to retain and supplement the management teams themselves. Timeframes set by commitments to the European Commission needed to be respected and progress was desirable in the identification of management of a significant number of legacy issues. In both my main and supplementary statements to the inquiry, I've referred to a number of times to difficult aspects of the interaction between the bank and the Department over the period from nationalisation to liquidation. I remain of the view that most of the conflicts could have been avoided if there was a better understanding in the Department of the constraints the bank was under in complying with the various requirements it was subject to and the legal and prudential need for the bank to act independently. The bank was governed by the Anglo Act and as well as an associated relationship framework that required ongoing separation from the Minister and his nominees. In conducting interactions, there were often complex considerations required across multiple dimensions. These included, not only the regulatory obligations, but many others in managing the ordinary course of business, which referenced many possible overlapping areas such as the public interest dimension, the management of legacy issues, the management of stressed loans, the management of very large exposures, as well as the number of other relevant legal considerations.

Importantly, the bank needed to be on top of all associated technical and commercial aspects and be aware of any potential dangers involved to both the bank and the Minister should the separation not be respected. Unfortunately, this ran against the grain of what became the preferred position of the Department from March 2011-----