Oliver Gilvarry Dublin 18 th September 2009 National

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Oliver Gilvarry Dublin, 18 th September 2009 National Asset Management Agency - All roads

Oliver Gilvarry Dublin, 18 th September 2009 National Asset Management Agency - All roads lead to NAMA

Background to NAMA q Funding difficulties for Irish banks q Restricting the flow of

Background to NAMA q Funding difficulties for Irish banks q Restricting the flow of credit into Irish economy q Banks are unwilling to lend in order to preserve capital q “Liquidity more difficult and costly to attract” Minster for Finance q Banking system needs to be capable of providing credit to viable businesses and households as recovery kicks in q Main priority for NAMA is to restore liquidity into the Irish Banking system and in turn provide a flow of credit into the economy 2

Structure of NAMA q NAMA involves removing development loans from eligible banks along with

Structure of NAMA q NAMA involves removing development loans from eligible banks along with a certain amount of performing investment loans q The mix of loans allows for NAMA to receive an income flow which can be used to pay coupons on the NAMA bonds and costs of the agency q Minister for Finance had stated the nominal value of the loans transferred into NAMA will be € 77 bn 3

Structure of NAMA q For Irish banks, NAMA bonds can be used to raise

Structure of NAMA q For Irish banks, NAMA bonds can be used to raise cash from ECB on Repo § Irish banks sell NAMA bonds to the ECB with promise to buy them back at a future date at an agreed price § Provides cash for the Irish banking system 4

Profile of Loans Transferred Loan amounts transferred as % of Loan Book: 5 AIB

Profile of Loans Transferred Loan amounts transferred as % of Loan Book: 5 AIB 16% BOI 14% Anglo 42% Irish Nationwide 76% EBS 6%

Profile of Loans Transferred Customers: 2, 000 Number of loans: 21, 500 Average LTV:

Profile of Loans Transferred Customers: 2, 000 Number of loans: 21, 500 Average LTV: 77% 6

NAMA Haircut q Relates to the discount the Government will pay for the bank

NAMA Haircut q Relates to the discount the Government will pay for the bank loans from the banks q NAMA will not pay the face value of the loans, but a lower value q The difference is the haircut q Size of the haircut is key to the banks q The larger the discount paid for the loan, the larger the losses the banks will suffer q The greater the losses taken by the banks, the increased requirement for new capital to be injected into the banks q Must also factor in coupons on NAMA bonds § Low coupons will lower the pre-provision profits of the banks § Reducing the ability of the banks to absorb losses from the residual loan book through profit generation 7

What is the Haircut? q Minister for Finance released details of overall haircut on

What is the Haircut? q Minister for Finance released details of overall haircut on 16 th September q Total Loans transferred is € 77 bn § § € 68 bn of loans € 9 bn of interest roll-up q Haircut applied was 30% with banks receiving NAMA bonds of € 54 bn § Current market Value of loans is estimated at € 47 bn q Five percent of payment will be in subordinated NAMA bonds § Payment on these bonds will be dependent on performance of NAMA q Individual haircuts for each bank were not released at the same time § AIB have guided their Haircut will be less than 30% average § BOI have guided their haircut will be substantially below 30% 8

What is the Haircut? q Valuation of loans will be on a case by

What is the Haircut? q Valuation of loans will be on a case by case basis q Valuation will be based on current price and “Long-Term Economic Value” q Adjustment over the current value will be done by: § Difference between current yields & yields over relevant periods § Correlation between – Land prices & demographic variables – Land prices & interest rates – Land prices & GDP q Therefore, valuations will be subjective 9

Other Details from the Minister’s Speech q Guarantee on Bank liabilities to be extended

Other Details from the Minister’s Speech q Guarantee on Bank liabilities to be extended § New scheme called Eligible Liabilities Guarantee (ELG) § Enables banks to issue debt beyond Sept 2010 § Liabilities cannot have maturity greater than 5 years § Scheme will operate up to Sept 2010 § Customer deposits to be covered under scheme § Banks will have option to issue debt and take deposits without guarantee § Dated subordinated debt will not be covered under ELG § Current scheme remains in place until Sept 2010 10

Other Details from the Minister’s Speech q Institutions participating in the scheme will have

Other Details from the Minister’s Speech q Institutions participating in the scheme will have to restructure its operations § The shape of the new system has not been outlined, but will be a focus over the coming weeks q Promotion of Lending § Comments the structure of NAMA will improve liquidity § Removal of problem loans will allow focus on new lending § No set target for lending as part of NAMA, but will be examined q Economic & Social benefits of NAMA § Facilitate Department of Education & Environment to improve areas by offering land banks in the control of NAMA § Use certain properties for social and affordable housing 11

Overall view of NAMA q Passes significant risk onto the Irish taxpayer q Any

Overall view of NAMA q Passes significant risk onto the Irish taxpayer q Any losses made by NAMA could be paid for by the Taxpayer q The Agency will remove the problem loans from banks balance sheets quickly q It will be a catalyst for the recapitalisation of some banks if required q NAMA will also be a catalyst for consolidation within the Irish banking sector q Allows a way for Ireland to solve the banking and property crisis without losing “Economic Sovereignty” 12

Impact on BOI & AIB q Estimate capital shortfall in AIB of over €

Impact on BOI & AIB q Estimate capital shortfall in AIB of over € 2. 5 bn § Potential capital raising through sale of US or Polish operations § Rights issue § Strategic investment q BOI § We believe BOI may not need to raise equity § Any equity raise will focus on repayment of preference shares q In Irish Banking sector our preference remains Irish Life & Permanent, followed by BOI 13

Alternatives to NAMA q Number of alternatives have been put forward domestically and internationally

Alternatives to NAMA q Number of alternatives have been put forward domestically and internationally § Insurance Scheme § Full Nationalisation 14

Insurance Scheme q An insurance scheme is where the Government insures certain assets on

Insurance Scheme q An insurance scheme is where the Government insures certain assets on a bank’s balance sheet q The assets remain on the bank’s balance sheet and continue to be managed by the bank who lent the money in the first place § No need to create a new agency to manage the loans q Government imposes a “First Loss” piece (similar to excess on an insurance policy) § Losses the bank suffers on the insured loans above a certain amount are covered by the Government § A fee or “Insurance Premium” is charged by the Government q More equity friendly than Asset Purchase Agency § Shareholders will continue to benefit if assets covered under scheme increase in value 15

Insurance Scheme q Allows banks to use pre-provision profits to absorb the losses over

Insurance Scheme q Allows banks to use pre-provision profits to absorb the losses over time q May not result in banks lending into the economy § No direct liquidity benefit § Banks will try and retain capital § Management focus will be on minimising the use of the “First Loss” q Similar to risk sharing proposal being examined by the Minister 16

Full Nationalisation q Irish banks are fully nationalised for a short period of time

Full Nationalisation q Irish banks are fully nationalised for a short period of time q Tax-payer can get all of the upside on the flotation of the banks in the future q Makes it easier to restructure the banks and clean up their balance sheets § Government don’t have to pay to take loans off the banks q Government takes over all responsibility for funding of the balance sheet § Not only have to provide capital to the bank, must continue to fund the bank q Can result in outflow of deposits from banking system § Even with a Government guarantee, Irish banks suffered outflows of deposits in Jan after the nationalisation of Anglo Irish Bank § Similar result once the revelations over the deposits between Anglo and Irish Life & Permanent became public 17

The extra cost of issuing Irish debt Vs German Debt 18

The extra cost of issuing Irish debt Vs German Debt 18

Irish Banking system q Number of domestic banks to fall to three q AIB

Irish Banking system q Number of domestic banks to fall to three q AIB & BOI to remain with IN, EBS & banking arm of Irish Life & Permanent merged to create a Super Mutual q High interest rates paid on deposit by Irish banks to reverse q Liquidity to improve in the banks q Uncertain if significant credit will be released into the economy, but will be better than current situation 19

Summary q We see NAMA as the best solution compared to other alternatives q

Summary q We see NAMA as the best solution compared to other alternatives q Provides liquidity to the Irish system via the ECB q Removes the bad loans from the banks’ balance sheets, with the aim to make it easier to attract liquidity and capital q It allows the country to stabilise the banks in a way Ireland can afford q With ordinary equity required after transfer of loans into NAMA 20

Summary q NAMA is the best option for the Irish Economy q No sustainable

Summary q NAMA is the best option for the Irish Economy q No sustainable recovery unless the banking system is repaired q Will have a cost to the taxpayer q Can’t be examined just on whether it will make a profit or loss q The benefits of stabilising the Irish banks and reducing the length of the current recession must also be taken into account 21

Economic Outlook q Key part of NAMA is to ensure Ireland is in a

Economic Outlook q Key part of NAMA is to ensure Ireland is in a position to benefit from economic recovery in the global economy q Next number of slides outline our economic outlook for next number of months 22

Economic Outlook q Economic growth will return to the major economies in 2010, but

Economic Outlook q Economic growth will return to the major economies in 2010, but at levels below long-term potential. q Unemployment in the US and UK will only peak in the first half of the year, with Europe following later in the year due to employment subsidies and more inflexible labour laws within the Euro. Zone. 23

Economic Outlook q Due to weak growth and higher unemployment rates, precautionary savings by

Economic Outlook q Due to weak growth and higher unemployment rates, precautionary savings by consumers will continue. Savings ratios in the UK and US will continue to rise as consumers re-structure their own balance sheets after the excesses of the last number of years. q Interest rates will remain accommodative, but rates will start to rise in the US followed by the UK. Europe will be slower to move on increasing its base rate, but the reduction of a number of Repos will reduce liquidity within the Euro-Zone and bring one month EURIBOR closer to base rate. 24

Economic Outlook q Higher interest rates and better growth outlooks will see the Dollar

Economic Outlook q Higher interest rates and better growth outlooks will see the Dollar and Sterling appreciate against the Euro over the course of the next year. q UK and US bond yields will move higher next year, but the greatest move is expected in gilts as the removal of QE and large government deficits drive yields higher. 25

Economic Outlook q Property to remain under pressure in Ireland q Recovery in Commercial

Economic Outlook q Property to remain under pressure in Ireland q Recovery in Commercial Property in the UK q US Commercial Real Estate to remain subdued due to lack of financing 26

Contact Details Oliver Gilvarry Will Sparks Head of Research Stockbroker Dolmen Securities 75 St.

Contact Details Oliver Gilvarry Will Sparks Head of Research Stockbroker Dolmen Securities 75 St. Stephen’s Green, Dublin 2 Tel: 01 633 3609 Fax: 01 633 3856 Website: www. dsl. ie 27

Appendix 28

Appendix 28

Dolmen Securities Overview Dolmen Securities Limited Board Ronan Reid: Chairman Gerardine Jones: MD Directors:

Dolmen Securities Overview Dolmen Securities Limited Board Ronan Reid: Chairman Gerardine Jones: MD Directors: Paul Mc. Gowan, Michael Jacob, Garrett Kelleher, Martin Scully Dolmen Stockbrokers Products: § Advisory Investments § Equities § Bonds § CFDs § Structured Products § Share Schemes _______________ Clients: § High net worth investors § Family offices § Companies § Institutions Dolmen Wealth Management Products: § Discretionary managed accounts § Equity & Debt Quoted Funds § Venture Capital § Investment process, suitability and related advice § Wealth Management Advice ______________ Clients: § High net worth investors § Companies § Institutions § Non-profit organisations 29 Dolmen Corporate Finance Products: § Fundraising § M&A advice § Strategic re-structuring ___________ Clients: § Corporates § Semi-states and Government organisations

Why Dolmen? q Independent high net worth client focused stockbroker and wealth manager q

Why Dolmen? q Independent high net worth client focused stockbroker and wealth manager q Advice not product focused service with personalised portfolios and service. q Private client focused research team and bond desk generating daily ideas and views using both fundamentals and technical data. Buy and Sell recommendations for any stock, as unlike our competitors, we rarely act as corporate broker to any listed company. q Unique yield and private equity products from Dolmen Corporate Finance eg. Airtricity, Petrogas and Mainstream. q Strong relationships with other Irish and International brokers/banks ensure Dolmen are at the pulse of the market at all times. 30

Introduction to Dolmen Divisions Stockbroking Wealth Management Corporate Finance

Introduction to Dolmen Divisions Stockbroking Wealth Management Corporate Finance

Dolmen Wealth Management What we do: q We provide best of breed investment advice

Dolmen Wealth Management What we do: q We provide best of breed investment advice that is client focused ascertaining client financial position, client need and agreeing a financial plan. We then execute this plan in the most risk appropriate cost effective means available whether via personal or pension account. q We manage monies directly in a range of markets – equity, bond or derivative markets, either directly in markets or via our specialist funds. q We provide independent investment advice for non-profit organisations based around suitability of asset allocation, specific investments and investment process. Who do we do this for: q We manage monies for Institutions, non-profit organisations and HNW investors. q We provide advice to Credit Unions, semi-state organisations and others. 32

Dolmen Stockbrokers: What we offer Best of breed advice ascertaining the correct equity investment

Dolmen Stockbrokers: What we offer Best of breed advice ascertaining the correct equity investment strategy based on investment amount, income requirement and attitude to risk. Your portfolio strategy is executed via: q. Shares: q Execution Only q Advisory Portfolio Management q Discretionary Portfolio Management q Bonds/Fixed Income q Options/Futures/Currencies q Contract for Difference (CFD): Leveraged share trading q Exchange Traded Funds (ETFs) including Oil, Gold, Silver and other commodities q Dolmen Corporate Finance Structured Products: Mezzanine Loan Notes etc q Pension Funds: Self-directed / Self-administered 33

Dolmen Corporate Finance - experience Whether selling your business, raising finance, or acquiring a

Dolmen Corporate Finance - experience Whether selling your business, raising finance, or acquiring a business our corporate finance team, headed by Kevin Beary, has over 50 years transaction experience: q Led and successfully completed over 80 transactions q > 30 Disposals q > 20 Acquisitions q 6 IPOs q > 30 Fundraisings and re-financings q Experience drawn from a broad range of sectors and transaction types q Leisure Industry q Property, hotels, construction and building materials q Shipping, distribution and transport q Infrastructure – waste q Software q Retail, media and other q Team’s diverse experience allows it to command the central role between all parties to create the optimal structure to match our clients’ ambition 34

Disclaimer This presentation has been prepared by Dolmen Securities for informational purposes only. Although

Disclaimer This presentation has been prepared by Dolmen Securities for informational purposes only. Although the information in this presentation has been obtained from sources which Dolmen Securities believes to be reliable, we do not represent or warrant its accuracy, and such information may be incomplete or condensed. This report does not constitute a prospectus and is not intended to provide the sole basis for any evaluation of the securities discussed herein. All estimates and opinions included in this presentation constitute our judgement as of the date of the presentation and may be subject to change without notice. Changes to assumptions may have a material impact on any recommendations made herein. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Past performance may not be a reliable guide to future performance. Simulated performance may not be reliable guide to future performance. Investments may fall as well as rise in value. Income may fluctuate in accordance with market conditions and taxation arrangements. Changes in exchange rates may have an adverse effect on the value price or income of the product. Dolmen Securities or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, underwriting or other services (including acting as advisor manager or lender) for any company, institution or person referred to in this presentation. This report is confidential and is being submitted to selected recipients only. It may not be reproduced (in whole or in part) to any other person without the prior written permission of Dolmen Securities Ltd is a Member Firm of the London Stock Exchange. Dolmen Securities Ltd is regulated by the Financial Regulator. 35