Mr. Michael Buckley:

Thank you, Chairman. I very much hope I will be of assistance to the committee today in its important work.

I joined AIB as head of investment banking early in 1991. And subsequently, as I said, I served as managing director of AIB Capital Markets and then as managing director of the Poland division. In October 2000 I was appointed group chief executive designate and I formally took over as group CEO in June 2001. My successor was designated in March 2005 and I retired at the end of June 2005. From the date of my retirement onwards, I had no further involvement in the management and board of AIB group. As I was retiring ten years ago, I can honestly say that I had no premonition, let alone any evidence, that a liquidity and credit crisis was building internationally or that when that major crisis crystalised late in 2008, that AIB would be so vulnerable to it and ultimately would only survive through taxpayer support. I deeply regret what happened and the damage it inflicted on the lives of so many.

There are two interlocking parts, Chairman, to the account I want to give of my time as CEO of AIB. They are in my written witness statement. I'm just summarising them here. I'm going to start with the business strategy in general and as it applied to the Republic of Ireland in my time. And second of all, I want to talk about risk and credit management. First, the business strategy. In 2001 the business environment was fraught. It was in the wake of the dotcom crash, then 9/11 and we had the added challenge in Ireland of foot and mouth disease. As a result, the strong period of growth that started in the second half of the 1990s slowed for, I think, about two years, but from early to mid-2003 the economy returned to its catch-up growth spurt. There had been a 1 million person increase in the population between 1971 and 2001. The labour force had increased by 400,000, or 32%, in the ten years up to 2001. The number of people in employment had risen by about 400,000 also, or 49%, in the same ten-year period. Such a rate of demographic growth and change hadn't been seen in the history of the State and the numbers continued to grow through the whole period of my time as CEO. That meant the potential for many new customers and strong demand from that growing customer base across the whole range of financial products in a very low interest rate environment. I think that context is very important.

In 2001, investors saw AIB as a federation of banking franchises with varying growth prospects but without any distinctive common thread to its brands. They saw our main market, the Republic of Ireland, as dynamic but their view was that other banks operating here had more exciting growth prospects. The strategy we set out in response to those factors, was to position ourselves to build one distinctive model of doing retailing and commercial banking that could be applied to each country in which we operated. And that model was to focus on growing the total value of each good customer relationship based on having best products, best service and best people.

In our largest business here in Ireland we believed that we hadn't been fully exploiting our greatest strengths, those were that we had between 30% and 40% market share of all personal current accounts and all business working accounts but a much lower market share of most individual product categories. So the strategy was to get better at responding to customer needs across the whole product spectrum.

I've mentioned the very strong demographics so building our relationships with good customers in the property and constructions sectors was a logical part of the strategy, but so too was building a stronger presence in the growing health insurance market and meeting the needs of our growing customer base in deposits, mortgages and investment products. When I presented that strategy to the board in 2001, I said that if we were successful in executing it we could have an aspiration of doubling our profits over the next five years. In some of the documents I've been given that aspirational outcome has been incorrectly represented as the strategy itself. In fact, the medium-term forecast and annual budgets presented to the board throughout my period are focused somewhat more modestly on achieving double digit earnings growth overall on a consistent basis. So doubling profits in a five-year period was never actually a budgeted target.

Property and construction lending grew strongly during my time, most of the material I have been sent about that looks at growth trends across the whole period of 2001 and 2009 in percentage terms. That in my view is misleading because the starting base was actually quite low. In money terms the entire group exposure to property and construction during my four years was about €6 billion in mid-2001 and it grew to about €19 billion, this is in euro, by mid-2005. And within those overall totals the figures for the Republic of Ireland were that it grew from €4 billion to €11 billion.

I have no evidence that at that level we had materially outrun the demand arising from deposit and demographics nor did I have a view coming to me from my credit professionals that standards were slipping at the time. On the contrary their view to me throughout and to the board was that credit quality was stable and strong.

In any business you're trying to keep a fairly wide range of shifting factors in good balance so towards the end of 2004, as a result of the fact that loan growth had been significantly outpacing deposit growth, I began to focus on the increasing loan-to-deposit ratio and on the proposal from myself and my management team, the board put in place at that stage targets, one for the simple loan-to-deposit ratio and the second for an adjusted loan-to-deposit ratio. That was done to begin to slow down the rate of credit growth to a level closer to the growth rate for deposits and also to help ensure that internal capital generation was positive.

I'm going to turn now to my second main aim in the period mid-2001 to mid-2005; which was improving our risk management capability. That was partly for strategic reasons, it was partly also because we had three massive regulatory projects to implement; Basel II, Sarbanes-Oxley and the new IFRS accounting standards, and, thirdly, because I had to deal with two major crisis management events during my time - the fraud in our Allfirst subsidiary in 2002 and the FX charging issues identified in Ireland in 2004. Collectively, all of those factors required the single risk and finance support organisation to be built across AIB Group which had always been heavily divisionalised. That was a huge five-year project as I saw it. In the wake of the Allfirst fraud we commissioned separate independent reviews and reports on treasury operational risk, credit risk, policy frameworks across all of those things to get assurance that they were fit for purpose and we constructed a series of projects to implement the recommendations arising. The general message in those reports was that within each division there were no major issues but that we needed to establish common standards across the whole group.

During 2002-03 we recruited an experienced chief risk officer, reporting directly to me, to build that single organisation. We put in place a single group-wide treasury organisation. We again recruited externally an experienced head of internal audit to build a group-wide capability and we enlarged the mandate and scope of the compliance function across the group. We devoted massive resources both to the regulatory projects and to remediation programmes arising from Allfirst and from the FX charging issues in 2004.

Implementation was still going on when I retired, including a wide range of actions designed to change those aspects of culture and practice in the bank that were obstacles to colleagues at any level feeling free to raise any issues that concerned them. And that was a strong personal mission of mine. I have a couple of final things to say, Chairman. First of all, turning to credit policies, delegated authorities and exception management, Deloitte had carried out a very detailed policy and process review, I think towards the end of 2002 if my recollection is right. What they found was that there were "well established processes, policy and delegated authorities based on skill and experience, that grading and monitoring systems accommodated early identification and management of deterioration of credit policy, that there was a system of credit review independent of business reporting lines and written policies pertinent to current business." That's the end of the quote. Their recommendations mainly had to do with ensuring consistency across all of our divisions. The delegated authorities to divisional credit committees were relatively modest during my time. They were increased somewhat towards the end of 2004, but not dramatically, and exceptions to large exposure policy were infrequent. The month before I retired, in May 2005, Standard & Poor's raised our long-term credit rating to A+. In their announcement, the agency said:

The rating on AIB reflects its leadership position in its main market, the Republic of Ireland, strong credit risk management, good underlying financial performance and sound liquidity. They also reflect AIB's ongoing initiatives to improve its risk management procedures and control frameworks.

That is the end of the quote. Thank you Chairman.