Mr. Aidan Walsh:

Thank you, Chairman and members of the committee. I am pleased to be here today with my colleague, Mr. Denis O'Connor. As he has stated, we have been requested to provide evidence to the committee on two lines of inquiry - the role of advisers in analysing the crisis and the effectiveness of reviews of bank loan books and capital adequacy.

I also attended the meeting with Mr. Neary, the Financial Regulator, on 18 September which Denis has referred to in his opening statement. This meeting took place following the collapse of Lehman Brothers the previous weekend and the severe constraints that were being experienced on an international basis in the interbank and wholesale money markets. As Denis has stated, following our meeting we agreed a specific scope of work and engagement letter. We deployed separate teams to each bank. In the first week of our work we focused, as agreed, on the movements in deposits into and out of the banks and in compiling information on the top 20 borrowers by jurisdiction in which the banks operated. Management at the banks were co-operative and shared management and accounting information with us. It was clear that the liquidity positions were deteriorating on a weekly and daily basis and interbank and corporate deposits were not being rolled over and where they were, the deposit periods were reducing significantly.

We both attended part of a meeting at the National Treasury Management Agency on Sunday, 28 September. There were participants from IFSRA, the Central Bank, the Department of Finance, the NTMA and from Merrill Lynch, who were the financial advisers to the Government. We did not have a draft report prepared for that meeting. We shared information we had collected on the rapidly declining liquidity and the substantial cash deficits that were forecast by the banks to arise in the very near term. We also shared information on a summary of the loan books at the three banks, the value of loans that were reported as impaired and the value of loan provisions that were booked. We had not done any substantive work on credit quality at this stage, just nine days into a complex assignment. Our next meeting, to discuss draft reports with the Financial Regulator and his staff, was on Monday, 6 October, a week after the bank guarantee had been announced.

As Denis has stated, we were instructed on 8 October to commence work on what was known as Atlas 2. The results of our Atlas 2 work was reported to the Financial Regulator and the Department of Finance in mid-November 2008, roughly six weeks after the bank guarantee had been announced. The primary focus of this report was, as agreed, on the top lending positions. It also included the results of stress tests that had been run by each of the banks on their capital adequacy ratios, and based on their own assessments of the probable emergence of future loan losses. In addition, PwC included two additional scenarios based on higher levels of future loan losses, called scenario 1 and scenario 2. The assumptions for these scenarios were developed in conjunction with officials from IFSRA, the Central Bank, Department of Finance and NTMA. As is clearly stated in the report, these scenarios were for illustrative purposes only, to show the sensitivity of the banks to future losses in these two scenarios. Our work was not intended to be a comprehensive assessment of the most likely outcome for future losses. It is also important to note that within the timescale that we were working to, Atlas 2 did not include any third-party evaluation of property values, nor did it include a review of the security documentation supporting the loans.

Work on Atlas 3 then followed. JLL's work was carried out independently of our loan reviews. JLL were given details of the properties comprising the collateral for the loans, but the loan details were not shared with JLL. The property values were tested based on a long-term outlook for property values, which was formulated by JLL. The collateral values were not marked to estimated current market value at the time of the review, as there were no ... as there was no liquidity in the market and the market could not absorb a wholesale transfer of property. The results of the JLL work were consistent with the indicative future losses calculated under scenarios 1 and 2 as part of the Atlas 2 analysis. Mr. O'Connor and I shared responsibility for the work which PwC carried out for IFSRA in the period from 18 September 2008 to early January on the assignments that we have code-named "Atlas". I too am subject to statutory obligations which prevent me from discussing confidential information which we obtained as part of our engagement on the Atlas reports. However, I also aim to be as forthcoming as possible and of as much assistance as I can be to the committee in relation to the two themes which we have been asked to address. Thank you.