Progress update report
12 March 2015
Important notice
This report has been prepared for the Minister for Finance following consultation with
the Department of Finance and in response to a request for a detailed update report
made under Section 17 (c) of the Ministerial Instructions issued on 7 February 2013.
Our work on Irish Bank Resolution Corporation Limited (In Special Liquidation) (“IBRC
in SL”) commenced on 7 February 2013 on the appointment of the Special
Liquidators. This report covers the period 1 April 2014 to 31 December 2014 (unless
otherwise stated) and is an update to the progress report issued on 6 June 2014.
This Report is for the benefit of the Minister for Finance and has been released on the
basis that it shall not be copied, referred to or disclosed, in whole or in part, without
our prior written consent. This Report is not suitable to be relied on by any party
wishing to acquire rights against KPMG for any purpose or in any context. Any other
party that obtains access to this Report or a copy and chooses to rely on this Report
(or any part of it) does so at its own risk. To the fullest extent permitted by law,
KPMG does not assume any responsibility and will not accept any liability in respect
of this Report to any party other than the Minister for Finance.
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This engagement is not an assurance engagement conducted in accordance with any
generally accepted assurance standards and consequently no assurance opinion is
expressed.
2
Glossary of terms
a/c
Account
ALCO
Asset and Liability Committee
ALG
IT
Information Technology
JCBC
Joint Committee of Inquiry into the Banking Crisis
A&L Goodbody
LPT
Local Property Tax
c.
circa
LSA
Loan Sale Agreement
CBI
Central Bank of Ireland
MARS
Mortgages Arrears Resolution Strategies
CRE
Commercial Real Estate
NAMA
National Asset Management Agency
CRO
Chief Risk Officer
NARL
National Asset Resolution Limited
DGS
Deposit Guarantee Scheme
NDA
Non Disclosure Agreement
DOF
Department of Finance
NTMA
National Treasury Management Agency
PAYE
Pay As You Earn
PI
Participating Institution
Slide TitleExceptional Liquidity Assistance
ELG
Slide TitleEligible Liability Guarantee
ELA
FCA
Financial Conduct Authority
ODCE
Office of the Director of Corporate Enforcement
FX
Foreign Exchange
RMI
Recovery Management Ireland
GP
Grand Parade
ROI
Republic Of Ireland
HR
Human Resources
SC
Stephen Court
IBRC
Irish Bank Resolution Corporation Limited
SL
Special Liquidation
IBRC in SL
Irish Bank Resolution Corporation Limited (in
Special Liquidation)
SLA
Service Level Agreement
SLs
Special Liquidators
IBRC Act/The Act Irish Bank Resolution Corporation Act 2013
SMU
Service Management Unit
IRRCAC
IBRC Assurance Company Limited
SPV
Special Purpose Vehicle
INBS
Irish Nationwide Building Society
3
Glossary of terms (continued)
TSA
Transitional Service Agreement
TUPE
Transfer Of Undertakings (Protection of
Employment) Regulations 2006
VAT
Value Added Tax
VDR
Virtual Data Room
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4
Contents
Page
The contacts at KPMG
Executive Summary
in connection with this
Deal workstream
13
Loan management workstream
16
Finance workstream
19
Partner, Dublin
Creditor Adjudication Process
23
Tel:
Legal workstream
26
Slide Title
Eamonn Richardson
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Regulatory and compliance workstream
29
Operations workstream
33
Loan migration workstream
38
Partner, Dublin
HR workstream
41
Tel:
IT workstream
44
Facilities workstream
47
Deposits workstream
50
Tax workstream
54
Costs and fees
58
report are:
Kieran Wallace
Restructuring
+ 353 1 410 1932
Fax: + 353 1 412 1932
kieran.wallace@kpmg.ie
Restructuring
+ 353 1 410 1344
Fax: + 353 1 412 1344
eamonn.richardson@kpmg.ie
6
5
Executive
Summary
Outcome to date
Cash inflow and outflow summary
NARL repayments
Net customer loan and derivative receipts
Settlement of hedging derivative contracts
Distributions from subsidiaries
Sale of bonds
NAMA repayment
NAMA funding
Administrative expenses
Fee income
Tax refunds
Fixed and other asset sales
Other miscellaneous receipts
Outflows
Inflows
€14.68 bn
€16.53 bn
CBI repayment
Liquidation fees
Liquidation legal fees
Other liquidation costs
NET CASH AT 6 FEBRUARY 2015
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€1.85 bn
Status of Wave 1 sales process
Project
Completed
Evergreen
Rock
Salt
Pebble
Sand
Stone
Dec 2013
Feb 2014
Feb 2014
Feb 2014
Jun 2014
Jul 2014
Status of Wave 2 sales process
Project
Completed
Amber
Quartz
Pearl
Amethyst
Opal (IBRCAC)
Nov 2014
Feb 2015
Feb 2015
March 2015
March 2015
7
Executive summary
IBRC sales process by numbers
The IBRC loan portfolio was supported by collateral based in 22 different jurisdictions worldwide.
€21,700,000,000
OF LOANS PREPARED AND BROUGHT TO MARKET
LOANS CONSISTED OF OVER
64
Slide Title
22 Title
Slide
DIFFERENT JURISDICTIONS
3,500
PROPERTY VALUATIONS
WERE OBTAINED
>130,000 355
INTERESTED PARTIES
ACROSS 13 COUNTRIES
755,000
NON DISCLOSURE AGREEMENTS (“NDA”)
SIGNED WITH INTERESTED PARTIES
Project Evergreen
Irish originated Residential
Mortgages
■ Ireland (100%)
Irish originated Corporate Loans
■ Ireland (93%)
■ UK (7%)
Project Salt
Project Amber/Project Amethyst
DIFFERENT BORROWER GROUPS
LETTERS ISSUED TO BORROWERS
AND GUARANTORS
174
Project Sand/Pearl
US CRE, UK hotels and UK &
Ireland Shopping Centres
■ Ireland/UK (84%)
■ US (15%)
■ World: other (1%)
15,900
LOAN SALES PROCESSES CONDUCTED
COLLATERAL WAS BASED IN
Project Pebble
DOCUMENTS WERE REVIEWED AND UPLOADED
TO VIRTUAL DATA ROOMS (“VDRS”)
241
INDICATIVE BIDS WERE RECEIVED
ACROSS 9 PORTFOLIOS
100%
OF THE LOAN BOOK
TRANSACTED
Corporate and CRE loans
■ UK (78%)
UK originated Commercial Real
■ Ireland (22%)
Estate (“CRE”) Loans
■ UK (89%)
Project Quartz
■ US (7%)
Irish originated CRE
■ Germany (3%)
loans
■ Europe: Other (1%)
■ Ireland (97%)
■ UK (1%)
■ Other (2%)
UK originated CRE Loans
■ Germany (60%)
■ UK (30%)
■ Poland (7%)
■ Europe: other (3%)
Project Rock
Project Stone
Irish originated CRE Loans
■ Ireland (46%)
■ United Kingdom (33%)
■ Continental Europe (18%)
■ Other (3%)
We saw strong interest from a variety of financial and strategic buyers and funders, with
US private equity houses and hedge funds being key participants across each of the 9 portfolios.
Total Indicative and Binding Bids (across multiple tranches per portfolio)(a)
Evergreen
Rock
Salt
Sand/
Pearl
Stone
Pebble
Quartz
Amber
Indicative
58
31
11
26
48
6
23
38
Binding
20
13
4
9
35
4
10
12
Bids
Note:
(a) 7 indicative bids and 3 binding bids were received for Project Opal (sale of IBRCAC) have not been included in the table
above.
8
Tasks to completion
Liquidity
management of
€1.85 billion
Set up SMU by 1 July
2015
Liquidate / sell
remaining
subsidiaries
Since the start of the Special
Slide Title
2013, the SLs have made
Slide Title
Liquidation in 7 February
significant process in
deleveraging the loan books
Manage remaining
loan book of €3.6
billion
Sell remaining IBRC
assets
of IBRC and managing other
aspects of the liquidation.
Some of the more pertinent
tasks to completion are
presented opposite.
Continue to manage
on-going litigation
Clear remaining
deposit accounts for
payment
Complete creditor
adjudication process
9
Executive summary
Area
Summary
Outcome
■ NARL facility fully repaid in October 2014.
■ Agreement and payment of €17.1 million to preferential creditors.
■ Sale of IBRCAC completed.
■ Cash balance on hand of approximately €1.85 billion as at 6 February 2015.
■ Remaining loan book of €3.6 billion and other assets to be managed/sold.
■ Approval from CBI for permission to carry on with certain excluded activities granted to 31 March 2015. A further extension to 30 June 2015 has
been requested.
■ A new IBRC SL Supervisory Committee has been proposed to the CBI to replace the existing Corporate Governance structures. This is currently
subject to CBI approval.
Employees
■ All IBRC offices closed with the exception of Stephen Court.
■ There are currently 157 employees remaining as at 1 March 2015. Staff levels are being monitored to ensure that adequate staffing levels are
maintained as the SL progresses.
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■ A further 121 employees will leave IBRC by 30 June 2015.
To support on-going activities, a Service Management Unit (“SMU”) will be put in place. This will comprise IBRC and KPMG staff and personnel
Slide■ Title
supported by external service providers where necessary i.e. IT, HR, Legal. This unit will formally operate from 1 July 2015 until the liquidation is
concluded. It is envisioned that 36 IBRC employees will form part of the SMU.
■ 188 of the 222 employees entitled to a payment under the Irish Bank Officials' Association (“IBOA”) associated termination scheme have been
paid through a scheme devised by Kieran Mulvey, who acted as mediator between IBRC and IBOA.
■ The three existing pension schemes are in wind down and should be closed by 31 December 2015.
Legal
■ Section 56 report completed and submitted to the Office of the Director of Corporate Enforcement.
■ On-going management of over 700 litigation proceedings.
■ Litigation remains a key risk to be managed in the SL to ensure that contingent liabilities are appropriately managed.
■ Complied with Banking Inquiry Direction issued by the Joint Committee of Inquiry into the Banking Crisis.
10
Executive summary
Area
Summary
Creditor
adjudication
process
■ The creditor adjudication process began in September 2014 and is tailored to qualify and quantify unsecured creditors claims.
■ There are presently approximately 1,400 claims being reviewed.
■ Advertisements for creditor claims were made in Irish, UK and US newspapers.
■ Creditors in the Ireland, UK and the rest of Europe have until 31 March 2015 to submit their claims, while US creditors have until 31 May 2015.
The difference arises due to difference in provisions governing the process in the US.
Dividends
■ As at 6 February 2015, IBRC had cash balances of approximately €1.85 billion. Surplus funds from the liquidation will be available for distribution
to unsecured creditors.
■ The dividend payable to unsecured creditors cannot be estimated at this time. This is due to the following uncertainties:
-
Future level of realisations from assets remaining in IBRC;
-
The level of creditor claims which will ultimately be admitted as valid claims against IBRC;
- The level of future recoveries from plaintiff litigation taken by IBRC; and
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- The level of future potential liabilities arising from litigation where IBRC is a defendant.
We hope to be in a position to make an interim dividend to unsecured creditors in Q4 2015.
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Tasks to
completion
■
Complete the sales process for residual assets including the execution of remaining purchaser TSAs and migration and close out activity of all
loan data, including physical files.
■
■
■
■
■
■
■
■
■
■
Manage remaining loan book of c. €3.6 billion and realise other assets.
Preparation for post wind down operational infrastructures and implementation on 1 July 2015.
Liquidation or sale of remaining subsidiary interests.
Management and unwind of hedging positions.
Complete creditor adjudication process.
Resolve outstanding tax issues in Ireland and the UK.
Continue to manage on-going litigation and any new litigation which may arise.
Finalise revised governance structures with CBI and ensure that IBRC maintains its regulatory obligations until all assets have been sold.
Continue to liaise with the CBI and NTMA to clear the remainder of the deposit accounts for payment.
Complete all statutory liquidation matters.
11
Costs summary
Cost reduction achieved at IBRC was greater than liquidation specific fees
(excluding loan sales)
23 month
period to
31 December
14(a)
SL related professional and legal fees to 31 December 2014
Rebate obtained
Fee relevant to the sale of €21.7 billion of loans
159.0
(8.0)
(90.4)
Liquidation specific
60.6
On-going cost reduction in IBRC during same period
41.4
Note:
(a)
Represents the period following the commencement of SL of 7 February 2013 to 31 December
2014;
(b)
The above is exclusive of value added tax (“VAT”) and disbursements;
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The SLs have continued to review and monitor all third
party advisor
Slide
Titlecosts.
Minister negotiated the agreement of various further
rebates on the already reduced rates with KPMG, A&L
Goodbody (“ALG”) and Linklaters.
In summary:
– It should be noted that had the Bank continued
with its planned wind-down the operating costs
were anticipated to be €1.1bn to the end of 2020.
While the cost of liquidation is significant we
anticipate the total cost of the wind-down will be
considerably less than previously estimated while at
the same time eliminating many of the risks
associated with the long term wind-down plan.
– Net of sales related costs, liquidation costs are
Certain legal advisors signed up to NAMA rate card
and/or fixed cost pieces of work. Certain other
advisors signed up to NAMA rate card.
Certain other advisors were engaged following a
competitive tender process with fixed fee quotes.
currently €60.6 million which should be considered
in the context of operational cost savings of €41.4
million over the same period.
– Sales costs are €90.4 million for successfully
disposing of c. €21.7 billion of loans, or 0.4% of the
value of loans sold.
– Total sales and liquidation costs are 0.9% of total
cash receipts generated during the period.
12
Deal
workstream
IBRC sales process by numbers
€21,700,000
64
15,900
22
>130,000
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355
Slide
Title
174
755,000
3,500
241
100%
€21.7 billion of loans prepared and brought to market
64 loan sales processes conducted
Loans consisted of over 15,900 different borrower groups
Collateral was based in 22 different jurisdictions
More than 130,000 letters issued to borrowers and guarantors
355 interested parties across 13 countries
174 Non Disclosure Agreements (“NDAs”) signed with interested parties
Over 755,000 documents were reviewed and uploaded to virtual data rooms (“VDRs”)
3,500 property valuations were obtained
241 indicative bids were received across 9 portfolios and for the stake in IBRCAC
100% of the loan book transacted
14
An overview of the IBRC Wave 2 sales process
The Wave 2 sales process for the final €2.5 billion worth of loans left unsold following the Wave 1 loan sales as well as the sale of IBRC’s stake in IBRCAC and the
NAMA subordinated bonds was initiated in August 2014.
Sales
Borrower
Groups
Tranches
Gross Loan
Balance (€bn)
919
5
1.1
Contracted and completed.
5
4
0.6
Contracted and completed.
6,300
2
0.7
Contracted and completed.
1
1
0.1
Contracted and completed.
Status
Remaining loan book
Project Quartz
■ Commercial real estate loans; originated in Ireland primarily secured
by Irish properties.
Project Amber
■ Irish originated corporate loans, secured by primarily UK properties.
■ Commercial real estate loan portfolio primarily secured UK
properties.
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Title
ProjectSlide
Pearl
■ Residential mortgage loan portfolio originated in Ireland
Project Amethyst
■ Commercial real estate loans; originated in Ireland primarily secured
by Irish properties.
Project Opal
■ Sale of 100% stake in IBRCAC.
Contracted and completed.
Project Jade
■ Sale of IBRC’s holding of NAMA subordinated bonds.
Contracted and completed.
15
Loan
Management
workstream
Loan Management workstream: key highlights
Continue to manage the remaining loan book of c. €3.6 billion through the normal course of business.
The reconstituted credit committee continues to function to support the management of remaining loans.
Considered a further 632 applications at commercial credit committees, bringing the total since the SL to
3,805.
Slide
Title
Considered
a further 962 applications at residential credit committees, bringing the total since the SL to
3,877.
Slide
Title
Continue to align with the Deal workstream to support the TSAs for the Wave 2 sales process.
17
Loan Management workstream
Key actions/achievements
Work remaining/Key future actions
■ The reconstituted credit committee continues to function to support the
management of remaining loans. Credit committee activity for IBRC in
SL can be summarised as follows:
■ Continue to manage the remaining loan book of c. €3.6 billion. This loan
book contains a small number of connections which remain with IBRC
primarily due to on-going litigation proceedings.
■ Ensure that all loan sales are correctly recorded and reflected in the loan
management files.
Credit Committee activity: 20 May 2014 to 31 December 2014
Number of
applications
considered
Commercial Credit Committee
632
Residential Credit Committee
962
Residential Credit Committee Appeals Board
8
■ Following the Sand portfolio sale, the Loan Management team was
reduced to 40 full time employees (from 80 previously reported) to
support full service proposition of residential borrowers until the
conclusion of the Pearl portfolio sale.
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Title
■
Successful
delivery of TSA services for 2 purchasers following the
completion of the Sand portfolio sale.
■ Successful migration of portfolios to 2 purchasers in the Sand sales
portfolio.
■ Ensure successful management of the staggered loan sale completion
process.
■ Ensure TSAs entered into with purchasers are delivered by the loan
management teams including management of purchasers meetings and
queries.
■ Continue to manage the remaining loan book and develop a plan to meet
the loan management requirements throughout the final sales process.
■ Continue to maintain compliance with regulatory requirements.
■ Continue to manage remaining IBRC Loan Management staff throughout
the remainder of the SL and ensure that sufficient skilled staff are
retained to manage the remaining loan book.
■ Manage the archiving of files and data to assist with the ultimate winding
down of the SL.
■ Letters were issued to borrowers inviting them to make representations
to the SL on the Pearl portfolio sale. A dedicated KPMG team was
established to deal with borrower queries.
■ Ensured that all on going litigation and receivership cases continued to
be managed.
■ Continue to support the loan sale process including key customer
communications for pre completion as well as developing full operating
protocols for post completion period.
■ Delivery of TSA services for 2 purchasers following the completion of the
Pearl portfolio sale.
18
Finance
workstream
Finance workstream: key highlights
Repayment of the NARL facility in October 2014.
Management of IBRC finance team of 20 employees in Dublin. Closure of the London Finance
function on 30 September 2014.
Liquidity management of €1.85 billion.
Preparation and submission of monthly updates and other ad hoc reports to DOF.
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Slide Title
Oversight of group rationalisation of 293 subsidiaries in 16 jurisdictions.
Management of a further 24 financial interests in 24 companies in 6 jurisdictions.
Manage hedging of Sterling and US dollar.
Loan sale transfers completed and removed from the IBRC system.
20
Finance workstream
Key actions/achievements
■ The NARL facility was fully repaid in October 2014.
■ Agreement and payment of €17.1 million of preferential creditors.
Cash inflow and outflow summary
€m
Inflows
■ Management of the IBRC finance team of 20 employees in Dublin.
Opening cash
■ The London Finance function closed on 30 September 2014.
Net customer loan and derivative receipts
■ Liquidity management of €1.85 billion.
■ Loan sale transfers completed and removed from the IBRC system.
Period to 6
February 2015
241
13,936
Distributions from subsidiaries
930
Sale of bonds
777
NAMA funding
511
■ Continue to provide liquidity and statistical returns on a
monthly/quarterly basis for submission to the CBI.
Fee income
60
Tax refund
30
■ Continue to prepare and submit monthly updates and other ad hoc
reports to DOF.
Fixed and other asset sale
28
Other miscellaneous receipts
12
Slide Title
Slide Title
Continue to manage settlements involving closing out valuation
■ Continue to manage the derivative valuation and settlement process of
terminated trades.
■
differences, rights of set-off and guarantee claims. These derivatives
were terminated by inter-bank counterparties following IBRC entering SL.
■ The creditor adjudication process was initiated in September 2014,
tailored to quantify and qualify unsecured creditors. Please refer to
pages 23 to 25 for further details.
Total Inflows
16,525
Outflows
NARL repayments
(13,202)
Settlement of hedging derivative contracts
(316)
NAMA repayment
(512)
CBI repayment
(196)
Administrative expenses
(247)
Liquidation fees
(86)
Liquidation legal fees
(89)
Other liquidation costs
Total outflows
Cash balance at 6 February 2015
(30)
(14,678)
1,847
21
Finance workstream (continued)
Work remaining/Key future actions
■ Continue to review the monthly accounts for completeness and ensure
that loan sales are correctly recorded.
■ Continue to review and reassess the scope of financial reporting
requirements as the loan sales progress and the scale and complexity of
the remaining business reduces.
■ Continue to review the bank accounts on a regular basis and sweep all
available cash into the main SL bank accounts.
■ Close bank accounts as the loan sale process concludes and accounts are
no longer required.
■ Continue to meet with the reconciliations team to ensure that
outstanding items are cleared in a timely manner.
Slide Title
Continue
the finance staffing requirement and backfill where
Slideto review
Title
necessary for critical roles.
■ Continue the approvals for payments via the various channels and
amend processes as appropriate as the loans are sold.
■
■ Continue to monitor the cash flows and ensure that excess monies are
placed on deposit to maximise returns.
■ Continue to review the liquidity and statistical returns with the CBI as the
assets reduce and assess the necessity to continue to produce some/all
of the returns.
■ Continued management of hedging activities.
■ Effect dividend payments to unsecured creditors and target Q4 2015 for
the first interim dividend.
22
Creditor
adjudication
process
Creditor adjudication process: key highlights
The creditor adjudication process which began in September 2014, is tailored to quantify and
qualify unsecured creditors.
Letters have been sent to all known creditors. In addition to this, advertisements for claims have
been placed in newspapers in Ireland, the UK and the US.
A team was set up to adjudicate on claims with dedicated helpline and email.
Slide Title
Slide
Title 1,400 claims have been received to date.
Approximately
1,010 claims are in the final stages of being accepted, rejected or disputed.
24
Creditor adjudication process: overview
Workstream overview
Work remaining/Key future actions
■ It was confirmed during mid 2014 that there would be a surplus available
for distribution for unsecured creditors. Therefore, a creditor adjudication
process was initiated.
■ Continue to review of claims received to date, liaising with relevant IBRC
staff members to obtain all relevant information.
■ The creditor adjudication process is tailored to quantify and qualify
unsecured creditors.
■ Receipt, log and timely review of new claims up to the deadlines outlined
opposite.
Key actions/achievements
■ The SL’s have finalized their view on the impact of a recent High Court
decision regarding interest overcharging and whether arising from that
judgment any similar type claims are properly a matter for IBRC or for
other third parties. This work will be co-ordinated with the process for
adjudicating unsecured creditor claims.
■ Letters were sent to all known unsecured creditors of IBRC seeking
claims.
■ Notification of acceptance of claims to creditors where claims have been
agreed by the unsecured creditors review team.
■ Advertisements were placed in newspapers in Ireland, the UK and the US.
■ Notification of rejection of claims where entitlement cannot be proven or
the figure claimed has not been substantiated by the claimant.
■ Potential unsecured creditors must submit their claim along with
supporting documentation before 31 March 2015 in respect of creditors in
Ireland and the UK and by 31 May 2015 in respect of US creditors.
Slide Title
Slide
Title
■
Every claim
submission is reviewed by the Unsecured Creditor team.
■ A dedicated helpline and email box was set up to deal with queries and
accept supporting documentation.
Given the diversity in the nature of claims, the unsecured creditor team
consult widely with relevant IBRC staff to get further information and
confirmations necessary in relation to claims.
■ IBRC systems are utilised to obtain any available background
documentation in support of the claim.
■ Employee files were reviewed and details of employee unsecured claims
were agreed for admission as unsecured creditors.
■ Time was expended on calling up and reviewing historic/closed IBRC files
in order to obtain information where claimant correspondence
/documentation submitted was incomplete.
■ Continue to contact claimants for further information to substantiate
claims being considered for acceptance.
■ Continue to deal with requests for information and other enquiries
received into the unsecured creditors e mail address and on the helpline.
■ Continue to liaise with ALG and other professional advisors as required for
advice and assistance in correct adjudication of claims.
■ Extraction of available information from the UK and ongoing review of UK
claims with UK professional advisors and any other UK resources
available.
■ Continue to liaise with relevant state/governmental/regulatory bodies as
appropriate in relation to claims.
■ Liaising with directors of subsidiary companies in order to identify
potential debts/unsecured claims for inclusion in unsecured claims
process.
■ Complete distribution to unsecured creditors when all other matters in
relation to the special liquidation have been concluded.
25
Legal
workstream
Legal workstream: key highlights
On-going management of over 700 sets of legal proceedings.
Approximately 27 new sets of proceedings noted since April 2014 – significant reduction since
2013.
Over 65 substitution applications on Stone portfolio.
Slide Title
Slide Title
Defendant Litigation Case Management Team managing 260 cases taken against IBRC/INBS.
Dealt with over 90 data access requests since April 2014.
Investigation on conduct of directors complete and report submitted to the Office of the Director
of Corporate Enforcement (“ODCE”).
27
Legal workstream: overview
The legal workstream review and manage current litigation/legal cases taken by or against IBRC (in SL)
■ The SLs have established the Defendant Litigation
Case Management Team to exclusively manage
260 cases against IBRC/INBS.
■ There has been a significant reduction in the
number of new proceedings noted since 2013.
■ Approximately 27 new proceedings noted since
April 2014.
■ The SLs assess the merits of litigation cases being
pursued and develop appropriate strategies taking
into account the commercial benefit, legal costs,
public interest considerations.
■ This fall off in new litigation by and against IBRC
in SL has been expected.
Significant reduction in new cases noted.
■ IBRC in SL remains party to over 700 legal
cases.
Slide Title
Slide Title
■ The figure above does not take account of all
Quinn related litigation; miscellaneous financial
leasing litigation and US foreclosure proceedings
to which IBRC currently remains a party.
Ongoing management of over 700 legal cases.
New
Proceedings
Data Access
Requests
Defendant
Litigation
Legal
Independent
Review
The SLs are managing over 260 defendant
litigation cases.
■ The SLs have instructed Eugene F. Collins Solicitors
to independently review legal advice previously
provided regarding proceedings against former
Directors of INBS.
■ The SLs have also instructed BDO Accountants in
London to carry out a peer review of KPMG’s role.
Group Legal
Staff Count
Conduct of
Directors
Independent review of legal advice and peer
review.
Data Access
Request
■ At April 2014, Group Legal staff count stood at
12. This comprised 10 solicitor qualified staff, 1
legal secretary and 1 paralegal.
■ This has now reduced to 5 in order to manage
the on-going litigation.
Group Legal staff count reduced to 5.
■ The SLs have dealt with over 330 data
access requests since appointment.
■ 90 of those data access requests were
dealt with since April 2014.
The SLs have dealt with over 90 data
access requests since April 2014
■ The SLs carried out an investigation into the
conduct of each of those persons who acted as
directors of IBRC within the twelve months
preceding 7 February 2013.
■ The SLs submitted their report on the conduct of
the directors of IBRC to the ODCE.
The SLs investigated the conduct of the
directors of IBRC and reported to ODCE.
28
Regulatory and
Compliance
workstream
Regulatory and Compliance workstream: Key highlights
Agreement reached with the FCA to stand down their Section 166 investigation of IBRC with
regards to the mis-selling of interest rate hedging products.
Preparatory work on new corporate governance and delegated authority frameworks to support
SMU on-going. Submission made to the CBI.
Administration of the Investor Compensation Scheme.
Slide
Title
CBI permission to carry on with certain excluded activities to 31 March 2015 granted with a
further
request to carry on certain activities to 30 June 2015 submitted.
Slide
Title
Supervision of ongoing reporting obligations to CBI.
Complied with Banking Inquiry Direction issued by the Joint Committee of Inquiry into the Banking
Crisis.
30
Regulatory and Compliance workstream
The SL of IBRC resulted in the CBI revoking its banking license.
Work remaining/Key future actions
IBRC continues to operate with the consent, and under the supervision of
the CBI.
■ Ensure that IBRC maintains its regulatory obligations until all assets have
been sold.
Key actions/achievements
■ Liaise with CBI to agree appropriate regulatory and compliance
framework for SMU.
■ AML remediation of loan files continuing.
■ Agreement reached with the FCA to stand down their Section 166
investigation of IBRC with regards to the mis-selling of interest rate
hedging products.
■ Preparatory work on new corporate governance and delegated authority
frameworks to support SMU.
Slide Title
■ Investor Compensation Scheme claims submitted.
Slide Title
■ Banking Inquiry Direction issued by the Joint Committee of Inquiry into
■ Notification of intention to close UK branch issued and acknowledged by
regulatory authorities.
■ Application made to the CBI for permission to carry on with certain
excluded activities to 30 June 2015.
Conflicts of interest
■ Conflicts of interest have been raised by a number of parties during the
course of the SL. The SLs adopt policies and procedures which are
utilised by KPMG in assessing and managing conflicts of interest.
■ The SLs are confident that any conflicts of interest that have arisen have
been appropriately managed and do not pose a threat to independence
issues. This has been confirmed to DOF.
the Banking Crisis (the “JCBC”) :
-
The JCBC issued a ‘Notice of Intention to Issue a Direction Order’
(the “Direction”) to the SLs on 18 December 2014. The notice
directed the SLs to provide certain information, outlined in 21
categories on or before 28 January 2015.
-
Subsequently, an extension period was granted to 13 February 2015
to provide outstanding information that had not been delivered in the
initial submission.
-
The SLs have sought to comply fully with the Direction on a best
endeavours basis.
31
Regulatory and Compliance workstream:
Revised governance structure
Revised governance structure
■ As the level of operational activity will reduce in line with loans and asset volumes, many of the current governance structures are no longer appropriate and will
be transformed in advance of the set-up of the SMU.
■ Subject to CBI approval we propose that the IBRC SL Supervisory Committee will replace all of the existing committees (i.e. Credit Committees, Equity
Investment, ALCO, etc.).
■ The Supervisory Committee will assume responsibility for:
–
Credit Reviews;
–
Credit Sanctioning – i.e. protected advances as required;
–
Restructuring arrangements;
–
Disposal of remaining assets;
–
Enforcement actions;
–
Liquidity Management; and
Slide Title
Please refer to the Operations section of this report for further details on the SMU.
Slide Title
–
■
Oversight of legal function, to include oversight of key legal risk mitigation initiatives; legal strategy in respect of material litigation (plaintiff and defendant);
key decisions regarding legacy matters and consideration of other important legal issues as they arise.
Risk Management and Control Framework
■ Based on the reduced level of assets, business activity and staffing levels, we propose to put in place a revised risk based Management and Control Framework
that will be overseen by IBRC SL Supervisory Committee.
Primary focus will be to ensure oversight on the following key activities:
■ Management of restructuring plan;
■ Credit Risk Management;
■ Operational Risk Management;
■ Financial Risk Management; and
■ Reporting to CBI and DOF as required.
32
Operations
workstream
Operations workstream: key highlights
Delivered 11 successful TSA/Data migrations for Wave 1 sales process.
On track to deliver 2 TSA servicing arrangements for Pearl. Wave 2 completions are on track to exit TSA
by 31 March 2015.
Managed Section 11 requirements for 16 purchasers’ LSAs through to completion dates.
Accommodated over 20 weekends for the set up and exit from TSA, migration of customer related
Slideinformation
Title to purchasers/service providers for Wave 1 and Wave 2.
SlideWeTitle
have completed the work required for NAMA to release IBRC SL from over 1,500 undertakings
relating to Deeds held for NAMA PI.
Post migration to Capita, dealt with an average of 1,500 Section 95 requests, plus another 1,500
business related requests per month. This has now reduced significantly.
Currently working with NAMA to close out c. 800 queries relating to NAMA Managed legacy deeds.
A new IBRC SL Supervisory Committee has been proposed to the CBI to replace the existing Corporate
Governance structures. This is currently subject to CBI approval.
34
Operations workstream
Key actions/achievements -NAMA
■ We continue to work with NAMA to finalise transfer of remaining
customer records and data in advance of PI status expiring on 30 June
2015.
■ We have completed the work required for NAMA to release IBRC SL from
over 1,500 undertakings relating to Deeds held for NAMA PI.
■ Currently working with NAMA to close out c. 800 queries relating to
NAMA Managed legacy deeds.
■ Post migration to Capita, we were dealing with an average of 1,500
Section 95 requests, plus another 1,500 business related requests per
month. This has now reduced significantly and we await updates from
NAMA, following their decision to accelerate sale of all the PI Books.
Slide Title
Slide Title
Fortnightly meetings continue with NAMA to manage through Legal Exit
■ At this time we await formal update from NAMA in relation to Section 95
requirements, Legacy Documents and Data, Release of Prior Charges
solution and Section 93 submissions.
■
Services and the above items.
Key actions/achievements – Non NAMA
■ Identify and manage issues arising from daily/weekly meetings and
working groups regarding day to day operations and planned operations
during the TSAs and transfer of operations to the individual purchasers.
■ Delivered 11 successful TSA/Data migrations for Wave 1 sales process,
on track to deliver 2 TSA servicing arrangements for Pearl.
■ Wave 2 completions completed on 13 February 2015 and all on track to
exit TSA by 31 March 2015.
■ TSA and Migration teams worked very effectively to manage multiple
migration projects with multiple SPVs and their service providers.
■ Managed Section 11 requirements for 16 purchasers’ LSAs through to
completion dates.
■ Accommodated over 20 weekends for the set up and exit from TSA,
migration of customer related information to purchasers/service
providers for Wave 1 and Wave 2.
Work remaining/Key future actions
■ Focus has now moved to wind down planning activities and preparation
for post wind down operational infrastructures.
■ Major project identified to return a significant level of deeds and other
collateral to customers before June 2015. This security was not returned
to/taken back by customers when loans were repaid previously.
■ Development of post wind down capability, processes and procedures to
manage residual loans and other assets from 1 July 2015.
■ Finalise revised governance structures with CBI.
35
Operations workstream: establishment of a SMU structure
SMU overview
■ While there will be much work in the coming weeks and months related to the completion of loan sales, provision of transitional servicing and migration of data to
purchasers, we are also working towards putting in place the infrastructure to support the key activities outlined below.
■ These include:
-
Management and control of residual loans and other assets;
-
Management of residual litigation matters (primarily existing known defendant litigation and potential new litigation);
-
Management of Discovery requests arising from Court Orders, Banking Inquiry etc;
-
Management of Data Subject Access Requests from former personal customers (In certain cases, this includes customers of NAMA and IBRCAC);
-
Management of Collateral Release (including proactive return of security on previously repaid loans);
-
Financial Management and Reporting;
-
IT and other services required to support the residual operation;
-
Slide Title
Slide Title
Management
of Sub Participated Loans and Derivatives on behalf of purchasers – pending consent/maturity;
-
Liquidity Management; and
-
Agreement and payment of dividends to Unsecured Creditors.
■ To support the above activities, we will put in place a SMU structure comprising IBRC and KPMG staff and personnel supported by external service providers where
necessary i.e. IT, HR, Legal. This unit will formally operate from 1 July 2015 until the liquidation is concluded.
■ The required resources, infrastructure and governance of this unit have been defined as part of the restructuring of operations activities.
■ It is envisaged that the numbers required will reduce within a period of two years once the litigation concludes and as residual loans and assets are sold or written
off and removed from the balance sheet.
36
Service Management Unit Structure
KPMG
Restructuring
Residual Loans
KPMG
Restructuring
GL, Reporting &
Accounts Payable
Slide Title
Slide Title
DSAR:
eDiscovery
Discovery
KPMG
Restructuring
Operations
IT
Operations
Collateral
Mgmt
Physical
Records &
Facilities
Regulatory
Reporting
GL Entries/
Consolidation
Operations
KPMG
Restructuring
Finance
IT
Infrastructure
Technical
Subsidiaries
Reconciliation/TLM/
Resi Sweeps
Legal
Litigation
Other Legal
IT
Applications &
Data Support
37
Loan migration
workstream
Loan migration workstream: key highlights
Development of IT plans and resources required to support planned migration of asset/customer data to
third parties, including migration of Legacy NAMA PI services to Capita as Primary Service provider.
Key resource management including backfilling of roles across IT, Finance and Operations functions.
Establishment of management wind down programme and governance with plan and approach.
Establishment
Slide
Title of project for the management of Opal (IBRCAC) sale and segregation.
Slide
Title
Agreement and delivery of migration aspects for 2 TSAs in place for third party purchasers in Ireland.
Segregated data for the main financial systems to support the loans sale process for both commercial
.and residential portfolios.
Segregated physical files for onward delivery to third parties.
Identifying and managing risks associated with staff attrition and loss of corporate knowledge.
39
Loan migration workstream: overview
Workstream overview
Key actions/achievements
■ Segregation of data and transition of people, process and portfolios for
servicing of TSAs and Interim Operating Models for Wave 1 and Wave 2
sales to third party purchasers.
■ Completion of the migration of all key PI legacy data from IBRC systems
to NAMA/Capita including trial migration activity, live cutover weekend
and migration of auxiliary systems in June 2014.
■ Design, planning and implementation activity for migration of loan sales
data from IBRC systems onto third party purchasers systems and their
associated Service Providers for Wave 1 and Wave 2 completions.
■ Completion of all exit services with NAMA including Legal, IT and
Operations exit services.
■ Planning, design segregation and migration of unstructured data in the
form of electronic data (emails and shared drives) and physical files.
■ Execution of Stone, Sand and Rock and Salt, Amber and Quartz
purchaser TSAs including provision of data/reports at start, during and at
end of TSAs.
■ Segregation, redaction and transfer of Residential files for Sand and
Pearl Residential completions.
■ Migration and close out activity of all loan data, including physical files
for Sand, Stone and Rock and Salt, Quartz Leasing portfolio.
■ Programme management of Management Wind down activity including
the orderly wind down of IT, processes and contracts.
■ Review of Wave 1 sales, transition and migration learnings and
implementation of actions accordingly.
Key issues arising/risks/challenges
■ Establishment of Management Wind down governance, design and
planning.
Slide Title
■ Co-ordinating with numerous Service Providers and third parties with
Slide
different Title
approaches and timelines for trial migration, migration and
completion.
■ Providing requested information that was shared in a timely manner
while ensuring that all information was correct and that there were no
breaches of information sharing.
■ Ensuring IBRC operates to the strict quality assurance requirements as
set by the various regulatory bodies.
■ Identifying and managing risks associated with staff attrition and loss of
corporate knowledge.
■ Executing a high volume of parallel projects to support loan sales which
placed a strain on staff across Finance, Operations and IT.
■ Significant volume of physical files which required redaction, review,
segregation and transfer to third parties.
■ Completion of exit services with PTSB through the delivery of data.
Work remaining/Key future actions
■ Execution of Pearl purchaser TSAs including provision of data/reports at
start, during and at end of TSAs.
■ Migration and close out activity of all loan data, including physical files
Amber, Quartz, Pearl and Opal (IBRCAC).
■ Design, testing and implementation of IT, people and process
requirements for the establishment of the Service Management Unit post
management wind down.
■ Orderly wind down of functions and rationalisation of IT footprint to
support management wind down.
40
HR workstream
HR workstream: key highlights
Stephen Court is the only remaining office following the closure of the Grand Parade, regional and
UK offices.
Continue to ensure that there are adequate staffing levels as the SL progresses. There are 157
employees remaining as at 1 March 2015.
All statutory redundancy and minimum notice payments in relation to affected ROI and UK
employees have been completed.
SlideManagement
Title
of employee relations and contract extensions as the liquidation and sales processes
Slideprogressed.
Title There were 206 leavers in the period between 1 April 2014 and 31 December 2014.
The three existing pension schemes are in wind down and should be closed by 31 December
2015.
188 of the 222 employees entitled to a payment under the Irish Bank Officials' Association
(“IBOA”) associated termination scheme have been paid through a scheme devised by Kieran
Mulvey, who acted as mediator between IBRC and IBOA.
Payment of redundancies for employees during the liquidation period.
42
HR workstream: overview
Key actions/achievements
Work remaining/Key future actions
■ Continue to oversee the 157 employees remaining as at 1 March 2015.
The employees have been issued with new leave dates based on the
resources required for the remainder of the wind down. A further 121
employees will leave by 30 June 2015.
■ Continue to manage the monthly payroll for remaining employees.
■ All UK employees were made redundant and paid statutory redundancy.
■ 188 of the 222 employees entitled to a payment under the The Irish
Bank Officials' Association (“IBOA”) associated termination scheme have
been paid through a scheme devised by Kieran Mulvey, who acted as
mediator between IBRC and IBOA.
■ All statutory redundancy and minimum notice payments in relation to
affected ROI and UK employees have been completed.
Slide Title
■ Advised regional management in relation to the closure of the regional
offices and provided outplacement support for employees whose
Slide
contractsTitle
were completed as a result of the closure.
■ Establish TSA staffing requirements and ensure sufficient resources are
maintained.
■ Manage staffing levels in the SMU.
■ Manage any HR issues arising out of the transfer of remaining loans to
loan purchasers.
■ Continued communications to employees on SL progress.
■ Archive of HR files and other documentation.
■ Discharge preferential and unsecured employee claims.
■ Manage exit process for departing employees and complete statutory
redundancy and IBOA associated termination scheme payments.
■ Negotiated the continuance of main defined contribution pension scheme
for the SL period. Also instructed the pension scheme administrator to
commence the wind down of three existing schemes. The workstream
will continue to monitor the progress of these schemes with the
administrators.
43
IT workstream
IT workstream: key highlights
Data Centres: Project for migration to one operational Data Centre with required Disaster
Recovery solution by June 2015. Approximately 500 terabyte of Data across multiple IT platforms.
Applications: Project initiated to migrate Banking Applications to non-transactional,
transactional or archived mode. Approximately 250 applications in scope.
SMU: IT Staffing requirements to support SMU unit defined and approved by SLs.
Slide Title
SlideOngoing
Title Data Segregation projects for the main financial systems to support the loans sale
process are currently being executed. 5 individual migrations in this period.
IBRC Symantec Clearwell services provisioned for third party Legal entities to service e-Discovery
requests. 61 individual cases completed during this period.
45
IT workstream: overview
Key actions/achievements
■ Review of IBRC in SL key external electronic security threats and
readiness status was completed.
■ SMU: IT Staffing requirements to support SMU unit defined and
approved by SLs.
■ Ongoing Data Segregation projects for the main financial systems to
support the loans sale process are currently being executed.
■ IBRC Symantec Clearwell services provisioned for third party legal
entities to service e-Discovery requests.
■ IBRCAC: Ongoing project to facilitate provision of required IBRCAC IT
Services from new office location.
■ Complete Review of IBRC in SL IT Licencing and Support Costs.
Slide Title
■ Data Centres: Project initiated for migration to one operational Data
Slide
Title
Centre with
required Disaster Recovery solution by June 2015.
.
Work remaining/Key future actions
■ Applications: Project initiated to migrate majority of Applications to “read
only” non-transactional mode.
■ SMU: Collating IT support requirements (e.g. Web access, Intranet), in
addition to Applications and Data retention.
■ Facilitate closure of remaining IBRC office locations.
■ Facilitate SMU Enterprise IT Services.
■ Retention and Storage of all IBRC hardware, network kit and data.
■ Continued monitoring and assessment of IT resources and risk mitigation
approaches to maintain key individuals and knowledge.
■ Continued support for migration programmes including provision of IT
services during TSA periods.
46
Facilities
workstream
Facilities workstream: key highlights
Management of group property requirements: the closures of the regional offices in Waterford,
Galway, Limerick, Belfast, Cork as well as the London office have been completed.
Relocated all remaining staff from GP to SC.
Identify new property for SMU from 1 July 2015.
Slide
Title
Slide
SinceTitle
our previous update, a further 6 former INBS properties have been sold. The sales process
of the remaining 7 properties are on-going.
Document management: coordinate transfers of c. 50,000 files to off-site storage facilities.
48
Facilities workstream
Key actions/achievements
■ Former INBS branches. 26 properties have been sold to date. Of the
remaining 7 properties:
–
3 are currently contracted for sale,
–
2 have been sale agreed; and
–
2 are being put for auction with Allsop.
■ IBRC and INBS art collections: All 138 lots have been sold.
■ The closures of the regional offices in Waterford, Galway, Limerick,
Belfast and Cork as well as the London office have been completed.
■ Staff from GP relocated to SC during January 2015.
Work remaining/Key future actions
Slide Title
Slide Title
■ Document management: currently assessing requirements to meet the
■ Conclude the sale of the remaining INBS branches.
■ Work in conjunction with ALG to progress the recovery of rent arrears
from six tenants where commercially viable.
on-going and increasing Section 93 & 95 requests from NAMA to the
Service Delivery Management Team.
■ Circa 1,500 RMI client files, remaining after the completion of the loan
sales are currently in the process of being transferred to our off-site
storage facility.
■ Circa 1,300 IBRCAC client files, remaining after their move from GP are
currently being transferred to our off-site storage facility.
■ The retrieval of circa 40,000 INBS closed residential files from archives is
in progress.
■ 1,300 boxes of IBRC client and other files have been brought back from
the USA, with inventories checked against box contents before being
transferred into our off-site storage facility.
49
Deposit
workstream
Deposits workstream: key highlights
As of 7 February 2013, there were 2,443 deposit accounts with a total value of €333.8 million to
be either paid out through the DGS/ELG schemes or set-off against loan balances.
We have reviewed and approved 1,663 deposit accounts with a total value of €185.0 million for
payment through the DGS/ELG Schemes.
To date, payments of €35.9 million and €136.4 million through DGS and ELG schemes
respectively have been paid out. The remainder will be repaid as claim forms are submitted for
the ELG scheme.
Slide
Title
We worked closely with ALG and the IBRC relationship teams to ascertain if a right of set-off
exists
with regard to depositors indebted to IBRC.
Slide
Title
To date, we have obtained approval for and processed 526 deposit accounts for set-off with a
total value of €98.6 million.
We continue to liaise with NAMA on a regular basis in order to complete the reviews and
repayments.
Timely communication with deposit holders following pay-out of deposit funds through DGS/ELG
or set-off of deposit funds against related outstanding loans.
51
Deposits workstream : Overview
Overview
■ The Deposits workstream is responsible for administering the DGS and ELG
Scheme. The DGS and ELG Schemes were activated upon appointment of
the SLs to provide compensation to eligible depositors of IBRC. Eligible
deposits of up to €100,000 for an individual or small company and €100,000
for every individual with a joint account in IBRC are protected by the DGS.
Eligible deposits above this limit are guaranteed under the ELG.
■ On 7 February 2013, there were approximately 2,443 deposit accounts in
IBRC valued at €333.8 million. Eligible account holders were either
compensated by DGS from CBI and/or through ELG administered by NTMA.
■ This was the first time claims were made under the DGS and ELG schemes.
■ Under the IBRC Act, the SLs were obliged to offset deposits where the
depositor is indebted to IBRC and a right of set-off is established by the SLs
or the legal advisors, ALG.
Slide Title
Number of Accounts
Slide Title
Ineligible
accounts (i.e.
unsecured) 110
Accounts for
set-off - 526
Accounts
payable under
DGS - 1,304
Number
of
Accounts
Accounts
where no claim
is anticipated 112
Accounts
payable
under ELG 443
Key highlights:
■ 1,663 acs (€185.0 million) have been marked for payment (4 June 2014 report:
1,797 acs; €215.7 million) of which 1,519 accounts (6 June 2014 report: 1,340
acs) have been paid out by CBI and NTMA. The other 144 accounts will be paid
out by CBI on a phased basis/subject to a claim being submitted to NTMA by
the account holder.
■ 526 accounts (€98.6 million) marked for set-off: A few of these account set-offs
have yet to be completed.
■ 9 accounts (€0.9 million) are under investigation by NAMA. 7 accounts (€1.6
million) are under investigation by IBRC and are being released for payment on
a phased basis.
■ No claim is anticipated for 112 accounts (€9.3 million) where the beneficiary is
unknown/IBRC or where the amounts are insignificant.
■ 110 claims have been transferred to the unsecured creditor database and will
be adjudicated upon because they were either ineligible or the amounts were
insignificant and not paid by either scheme.
Value of Accounts (€m)
Ineligible
accounts (i.e.
unsecured) €38.4
Accounts
for set-off €98.6
Accounts
payable under
DGS - €39.3
Value of
Accounts
€m
Accounts
payable
under ELG €150.2
Accounts
where no
claim is
anticipated €9.3
52
Deposits workstream (continued)
Work remaining/Key future actions
■ The SLs will continue to liaise with the CBI and NTMA to clear the
remainder of the deposit accounts for payment (subject to a claim being
submitted for ELG).
■ The estimated outcome of the payout under both the DGS and ELG
Schemes continually changes due to legal reviews of the deposit
accounts together with decisions made by both CBI and NTMA.
■ Currently we believe the maximum amount payable under the ELG
scheme and the DGS will be €150.2 million and €39.3 million,
respectively. The above figures are estimates only and are subject to
change as set off is applied and further deposits are added.
■ In collaboration with ALG and IBRC staff, final decisions are being made
on remaining potential deposit accounts set-off.
Slide Title
Slide Title
■ The same controls and investigations used on deposit accounts have
been undertaken to resolve issues with uncashed cheques relating to
deposit accounts and credit loan balances.
■ We are completing the issuance of deposit statements and DIRT
certificates as the deposits are paid by the DGS/ELG or set-off.
■ The SLs will continue to work with the Tax team, ALG and IBRC staff to
complete the remainder of the set-offs once identified.
■ The SLs will continue to work with the Tax team to ensure that the
Deposit workstream is fully compliant with all potential tax liabilities.
53
Tax
workstream
Tax workstream: key highlights
We have been working to ensure that IBRC’s tax affairs are managed effectively so that all
relevant tax obligations are met on a timely basis.
Ongoing engagement with the Irish Revenue in relation to an open tax audit.
Extensive support to the Deal team in relation to the disposal of loan books and IBRCAC.
Advising
Slide
Title on various borrower related tax matters.
Slide Title
Analysing the tax implications of winding up various Irish subsidiaries and the repatriation of
capital from foreign subsidiaries.
Tax analysis of over 50 mortgagee in possession transactions, engagement with Receivers in
respect of over 280 properties and filing of 150 LPT returns and rental returns.
Ongoing engagement with foreign tax authorities in relation to the tax position of the Group.
55
Tax workstream: overview
Overview
IBRC’s US tax obligations
■ IBRC is a complex organisation which gives rise to tax obligations under
a very broad range of headings. The key tasks undertaken by the Tax
workstream are described below:
■ Preparation and filing of US federal tax return and 13 state tax returns.
Operation of IBRC’s Irish tax function
■ Review and supervision of IBRC’s tax compliance arrangements;
■ The SLs tax team has been working with IBRC personnel to ensure that
IBRC’s tax affairs are managed effectively in order that all relevant tax
obligations are met on a timely basis. This includes:
■ Preparation and filing of UK corporation tax returns to date of closure of
the UK Branch; and
–
Preparation and filing of Irish corporation tax returns for IBRC and 13
of its Irish subsidiaries;
– Preparation and filing of tax information returns as required
Slide
Titletax returns, EU Savings Directive returns, return of
(encashment
payments to third parties, etc.);
Slide
Title
– Operation
of the VAT tax regime (including related tax filings and
payments for IBRC and 4 of its subsidiaries);
–
Operation of the Professional Services Withholding Tax & Relevant
Contracts Tax regimes (including related tax filings and payments);
–
Preparation and filing of LPT returns and payments for over 150
properties;
–
Operation of the PAYE regime;
–
Engaging with the Revenue in relation to an open tax audit and on
historic tax matters; and
–
Dealing with Revenue attachment notices.
IBRC/INBS UK tax obligations
■ Engagement with HMRC in relation to technical matters relating to prior
period tax returns.
Asset recovery
■ Analysis and review of the tax implications of loan enforcements;
■ Addressing the complex tax obligations that arise for IBRC as mortgagee
on taking possession of mortgaged property and on their ultimate
realisation through sale or “Mortgage to Rent” transactions;
■ Tax input into restructuring proposals;
■ Advising on the tax implications of asset disposals (loans, etc); and
■ Advising on overseas capital repatriation.
56
Tax workstream (continued)
Loan sales
Work remaining/Key future actions
■ The SLs’ tax team has provided extensive tax support to the loan sale
workstream:
■ Advising on the disposal of UK/US situate assets and repatriation of
proceeds to Ireland;
–
Analysis of the tax implications of the loan sales in each of the
relevant jurisdictions;
■ Preparation of tax returns where receivers have been appointed by the
bank;
–
Dealing with tax issues raised by purchasers;
–
Tax review of the loan sale agreements entered into with each of the
purchasers;
■ Ongoing Irish tax compliance obligations in respect of Corporation Tax,
VAT, PAYE, RCT and PSWT;
–
Tax review of TSAs; and
–
Analysis of the tax implications of cash repatriation from overseas
subsidiaries.
Slide Title
■ Analysis of the tax implications of IBRC realising its interest in IBRCAC;
Slide Title
■ Analysis of the direct and indirect tax implications of surrendering various
Other asset disposals
leased properties;
■ Analysis of the direct and indirect tax implications of disposing of various
branch properties;
■ Preparation and filing of US federal returns and advice on cessation of
taxable presence in USA;
■ Resolution of UK technical tax issues;
■ Addressing the winding up of Irish and foreign subsidiaries and the
distribution of remaining assets to IBRC;
■ Management of tax issues related to assets under enforcement action in
a range of countries including the UK, the USA, Russia and the Czech
Republic;
■ Engagement with the Irish Revenue in relation to an open tax audit and
on historic tax matters; and
■ Advice in relation to various borrower related matters.
■ Analysis of the tax implications of US asset disposals; and
■ Analysis of the tax implications of winding down various Irish and foreign
subsidiaries and repatriating funds to IBRC.
57
Costs and fees
Cost and fee summary
Area
Summary
Overheads
€m
Staff costs
Actual
Budget
14 month 9 month
14 month 9 month
period to period to 23 month period to period to 23 month
■
%
31 Mar
31 Dec period to
31 Mar
31 Dec period to
14
14 31 Dec 14
14
14 31 Dec 14 Variance
80.7
29.5
110.2
Administrative costs
71.9
39.6
Premises costs
10.9
5.3
29.8
131.0
111.5
93.5
25.0
118.5
16.2
17.9
5.4
23.3
(30.5%)
9.1
(71.8%)
(0.5)
3.0
2.6
6.6
2.5
Total
163.1
77.4
240.5
219.3
62.6
Special liquidation professional and legal fees summary
€m
KPMG SL team
KPMG migration
ALG
Linklaters
Other legal advisors
Professional advisors
Total gross fees
Less: rebates
Total net fees
14 month
9 month 23 month
period to period to period to
31 Mar 14 31 Dec 14 31 Dec 14
48.4
3.9
25.2
16.0
10.8
15.0
119.2
(7.6)
111.6
(15.9%)
101.2
Other
Slide Title
Slide Title
Fees
■ Headline overhead costs before SL costs are circa
€41.9 million (15%) below budget for the SL period
from February 2013 to 31 December 2014. SL costs
are shown separately.
Overhead analysis for the 23 month period to 31 December 2014
23.0
0.7
7.7
2.8
3.0
2.7
39.8
(0.4)
39.4
71.4
4.6
32.9
18.8
13.7
17.6
159.0
(8.0)
151.0
(5.9%) ■
281.9 (14.7%)
For the 9 month period to 31 December 2014,
administrative costs were higher against budget
primarily as a result of higher than anticipated legal
fees incurred on on-going litigation cases.
It should be noted that had the Bank continued with
its planned wind-down the operating costs were
anticipated to be €1.1bn to the end of 2020. While
the cost of liquidation is significant we anticipate the
total cost of the wind-down will be considerably less
than previously estimated while at the same time
eliminating many of the risks associated with the
long term wind-down plan.
■ The table opposite details the actual professional fees associated with the
SL since the commencement of the SL on 7 February 2013 to 31 December
2014.
■ Net of sales related costs, liquidation costs are currently €60.6 million
which should be considered in the context of operational cost savings of
€41.0 million over the same period.
■ Sales costs are €90.4 million for successfully disposing of c. €21.7 billion of
loans, or 0.4% of the value of loans sold.
■ Total net fees are 0.9% of total cash receipts generated during the period.
■ Please refer to the following slide on further details of the rebates agreed.
59
Cost and fee summary (continued)
Area
Summary
Rebates
■ The Minister negotiated the agreement of various rebates on the already reduced rates in April 2014 with KPMG, ALG and Linklaters.
■ For the 9 month period to 31 December 2014, rebates received totalled c. €0.4 million, bringing the overall rebates received since the start of
liquidation to c. €8.0 million.
Rebates agreed
14 months to
31 Mar 2014
(€000)
9 months to
31 Dec 2014
(€000)
Total rebate
(€000)
Advisor
Rebate arrangement
KPMG
■
€5 million for fees related to the period 7 February 2013 to
31 March 2014.
5,000
-
5,000
ALG
■
10% reduction of fees from pre-agreed NAMA rates for the
period 7 February 2013 to 31 May 2014.
2,458
248
2,706
■
5% reduction of fees from specifically agreed rates
effective from 1 February 2014 (on-going).
97
141
239
7,555
389
7,945
Slide Title
Slide Title
Linklaters
Total
60
Summary of Special Liquidation fees to
31 December 2014
The table below details the actual professional fees associated with the
SL since the commencement of the SL on 7 February 2013 to 31
December 2014.
Special liquidation professional and legal fees (gross fees)
14 month
period to
€'000
KPMG SL team
- KPMG Ireland
- KPMG UK
- KPMG other
Notes
1
1.
KPMG rates are based on NAMA rate cards for the relevant services. This is the total fee
chargeable for the period. This is before a rebate of €5.0 million was agreed following discussions
at the request of the Minister.
9 month
period to
23 month
period to
31 Mar 14(a) 31 Dec 14
31 Dec 14
2
2.
Represents fee for work done in relation to the oversight and planning for the migration of the
NAMA PI loan book management to Capita. This fee will be recovered in full from NAMA.
3
3.
ALG rates are based on NAMA rate cards for the relevant services. This is the total fee chargeable
for the period. This is before a rebate of €2.7 million which was agreed following discussions with
the SLs and DOF.
4.
4
At the outset, Linklaters was engaged at specially agreed rates. This is the total fee chargeable for
the period. This is before a rebate of €0.2 million which was agreed in April 2014 (covering the
months of February to December 2014). This was agreed following discussions with the SLs and
DOF.
5
5.
Valuer A has not provided consent to the release of their name.
41,807
6,023
585
20,935
1,906
125
62,742
7,929
710
71,380
KPMG SL team total
1
48,415
22,966
KPMG migration
2
3,885
675
4,560
ALG
3
25,164
7,704
32,868
Linklaters
4
15,959
2,839
18,798
Other legal advisors
Arthur Cox
Slide Title
Slide Title
4,075
1,466
5,541
2,768
(87)
2,681
Maples and Calder
2,064
653
2,717
Skadden, Arps, Slate, Meagher & Flom LLP
1,198
910
2,108
491
22
513
181
4
185
10,777
2,968
13,745
4,648
811
5,459
3,461
284
3,745
941
25
966
Byrne Wallace
RDJ
PJ O'Driscoll
Other legal advisors total
Professional advisors
PwC
Valuer A
Savills
Property valuation fees
5
4,168
335
4,503
Deloitte
367
68
435
Eastdil
525
6
531
Merrills
800
512
1,312
60
615
675
Goodbody
Professional advisors total
Total
14,970
2,657
17,627
119,170
39,810
158,979
Note: (a) Represents the period following the commencement of SL of 7 February 2013 to 31
March 2014;
(b) The above is exclusive of VAT and disbursements;
(c) GBP fees have been converted at GBP1:€1.18 for the 14 month period to 31 March 2014
and GBP1:€1.2512 for the 9 month period to 31 December 2014.
(d) and USD fees have been converted at USD1:€0.7485 for the 14 month period and
USD1:€0.7613 for the 9 month period to 31 December 2014.
The table below details the SL professional and legal fees net of the rebates agreed.
SL professional and legal fees analysis - gross vs net
€000
SL related professional and legal fees (gross)
Rebates agreed:
- KPMG
- ALG
- Linklaters
Total rebate
SL related professional and legal fees (net of rebate)
23 month period to
31 Dec 14
158,979
(5,000)
(2,706)
(239)
(7,945)
151,033
61
Actual overheads analysis
The budgeted overheads presented in the table below represents the preliquidation budget prepared by IBRC management adjusting for certain cost
savings implemented following the SL.
Overheads analysis from 1 April 2014 to 31 December 2014
Notes
€m
The table opposite details the general overhead costs of IBRC in SL for the
period from 1 April 2014 to 31 December 2014. The principal matters to
highlight are as follows:
Notes
Actual
Budget % Variance
Staff costs
Salaries
22.3
21.6
2.9%
Pensions
1.8
2.1
(13.9%)
Contractors costs
5.2
5.7
(9.2%)
Other
Slide Title
Computer expense
Slide Title
Insurance
0.3
0.4
(28.6%)
29.5
29.8
(1.0%)
29.8
16.1
85.5%
5.0
5.5
(8.4%)
2.3
0.7
216.1%
2.6
2.8
(6.3%)
39.6
25.0
58.6%
3.2
2.8
15.5%
2.0
2.6
(21.6%)
5.3
5.4
(2.5%)
1
1.
Administrative costs
Legal and professional
12
23
Other
Premises costs
Rent and rates
Other occupational costs
Other
Total before SL related costs
Source:
IBRC in SL management accounts
43
3.0
2.5
23.0%
77.4
62.6
23.6%
Legal and professional fees are €13.7 million more than planned as
mainly as a result of higher than anticipated legal fees incurred on:
■
Quinn litigation due to on-going case management as the litigation
progresses;
■
Legacy litigation; and
■
Loan management support services as a result of having to
complete a Wave 2 sales process on certain loan portfolios.
2
1.
Insurance costs were c. €1.6 million over budget due to the timing on
payments of the insurance premium.
3
2.
Actual rental costs are 16% more than budget principally due to timing
differences between expected billings and actual invoices received.
■
The SL has resulted in specific overhead cost savings which would not
otherwise have been achieved.
■
The total forecast operating expenses for IBRC produced prior to the
liquidation for the period 1 January 2013 to 31 December 2020 was
€1.131 billion.
62
KPMG: workstream structure
The table below details the nature and scope of the work streams that comprise the SL engagement
Special Liquidator – KPMG work streams
Work stream
Scope of work
Deal team
■
■
■
■
■
Design, implement and oversee the data preparation, independent valuation and sale process for each of the underlying loan portfolios.
Manage the borrower representation process and related legal matters.
Population of VDR.
Bidder process meetings and negotiations with successful bidders.
Other asset sales (including equity, bonds and other interests).
Loan Management
■
Management of existing loan portfolios and lending operations for the commercial and residential portfolios. The workstream deals with
borrowers to ensure business as normal continues.
■
Deleveraging of the loan book (other than through loan sales) in an appropriate manner and in line with SL Guidelines.
■
Developing an appropriate plan to wind down the Loan Management function in a controlled manner as deleveraging is completed.
Slide Title ■
Slide Title ■
Finance, Deposits,
Regulatory and compliance
and operations
■
Preparation of internal and external financial and regulatory reporting. Liquidity and Foreign Exchange risk management.
Effective unwind of balance sheet assets not included in the Deal workstream and development of a value realisation strategy for the
subsidiaries and joint ventures interests.
Oversight of operational functions in IBRC in SL including (1) Lending services and (2) Treasury operations
■
Administration and oversight of the DGS and ELG scheme.
■
Liaising with relevant regulatory bodies and ensuring IBRC in SL is compliant with all regulatory and compliance requirements.
■
Ensuring appropriate governance structures are in place in accordance with CBI/FCA guidelines.
■
Manage creditor adjudication process.
Legal
■
■
■
Deal with legal issues arising in the course of the liquidation of IBRC including legacy issues.
Recognition issues.
Section 56 report and investigation.
Loan migration
■
Responsible for oversight and planning for migration of the NAMA PI loan book management to Capita.
HR/IT/Facilities
Taxation
■
Responsible for transfer of the non NAMA loan portfolio to respective purchasers and their service providers.
■
Management of all HR and employee matters.
■
This workstream is also responsible for IT, Property, Facilities and the overall Project Management Office.
■
Effective management of IBRC tax affairs to ensure that:
- it meets its tax obligations on a timely basis;
- tax assets are realised; and
- legacy tax issues are addressed.
63
Principal legal advisors
The table below details the roles and responsibilities of the principal legal advisors engaged in the SL process.
Special Liquidation – Principal legal advisors
A &L Goodbody
Deal Team
■
■
■
■
■
■
■
■
Lead transactional legal advisors on sale structure and
principal transaction documents.
Extensive due diligence on assets across range of
portfolios.
Unprecedented title and other documentation retrieval
exercise throughout Ireland/Europe/US/UK.
Valuation, NDA and Sales Process Letter work streams.
Population of legal data rooms/data tapes.
Data Protection advice and data scrubbing of VDR.
Advice on Borrower Representation process, responses
received and segmentation.
Bidder process briefing sessions and negotiations with
successful bidders.
Managed external legal advisors (Irish, UK, US and c. 20
other jurisdictions).
Competition law matters.
Closing mechanics across multiple Irish portfolios and
tranches.
Other asset sales (including equity, sub bonds and other
interests).
Extensive planning with NAMA on potential transfer.
Project management team resources.
Slide■ Title
Slide■■ Title
■
■
■
Linklaters
■
■
■
■
■
■
■
■
■
■
■
Treasury,
General
Banking,
regulatory
■
■
■
Termination of CBI market and borrower hedging
arrangements.
Ongoing banking and asset management advice (including
Credit Committee issues).
Advice on regulatory matters.
■
■
■
Lead transactional legal advisors on sale and transfer structure and principal transaction
documents as well as post-transfer matters on the Rock and Salt portfolios.
Extensive work on the transfer of each asset in the Rock and Salt portfolios to the relevant
purchasers including obtaining any relevant consents and/or waivers to transfer and
finalising alternative solutions where necessary, drafting and negotiating transfer
documentation (and ancillary documentation), co-ordinating signing, closing and related
deliverables and ensuring compliance with conditions precedent to loan sale deed.
Competition law advice.
Managing incumbent law firms during the transfer process and liaising with legal advisers to
IBRC Asset Finance and IBRC Property Lending.
Post-completion transaction management of the Rock and Salt portfolios, including ensuring
all requisite perfection steps have been taken in the relevant jurisdictions, elevating various
connections, advising on the termination of certain derivative transactions and completing a
further review to ensure proper transfer of security not specifically listed in original transfer
documentation.
Assisting with the re-financing of certain connections, including liaising with local counsel
where appropriate.
Carrying out a review in relation to interest charging provisions on all sub-participated loans.
Responding to ad hoc queries in relation to Loan Sale Deed and Transitional Services
Agreement and ad hoc information requests from purchaser’s legal advisers.
Assisting with English law aspects and responding to ad hoc queries in relation to other
portfolios, including post-completion advice (Evergreen, Stone and Sand portfolios).
Drafting English law transfer documents and reviewing questions raised by prospective
purchasers in respect of English law security (Quartz portfolio).
Providing Luxembourg law advice on purchaser guarantee, legal opinions and solvency
certificate (Pearl portfolio).
Swap and derivative advice including in relation to transferability, in particular, structuring
around consent issues (e.g. by way of total return swap or early termination and transfer of
termination amount).
Advice on various regulatory matters.
Reviewing correspondence from and responses to certain borrowers in relation to derivative
related queries and claims regarding disputed matters around derivative transaction
terminations.
64
Principal legal advisors (continued)
Special Liquidation – Principal legal advisors
A &L Goodbody
Deposits and
ELG
■
■
Legal and
litigation
■
■
■
■
■
Linklaters
ELG Due diligence and claims categorisation
work streams.
Set-off analysis on claims under ELG.
■
Not applicable.
Advice on mis-selling/over-charging claims.
Dealing with all litigation against SLs whether in
relation to the sales process or issued by parties
against the SLs.
Managing certain existing litigation.
Chapter 15 in US and all related applications.
Managing and dealing with purchasers in
relation to all applications for substitution and
all litigation queries arising from sales process.
■
General litigation advice/strategy on threatened/issued proceedings as well as more specific advice in
relation to certain borrowers and representations when required.
Consideration of jurisdictional issues and interaction of English law with the IBRC legislation and Irish
law generally.
Ad hoc queries relating to borrower representation letters.
Advice in relation to closing London branch.
Advice in relation to funds retained and applied against outstanding debt by an incumbent law firm
during pre-liquidation period.
Extensive involvement in and providing advice on legal proceedings brought by certain borrowers,
including correspondence with their legal advisers and preparing for and attending all hearings.
Assisting with English law aspects of swaps mis-selling claims.
Assisting with Chapter 15 issues including pleadings relating to Sale Motion, local law transfer issues,
responses to US Assets Questionnaire and ad hoc queries in relation to Chapter 15 proceedings.
Reviewing loan sale deed and drafting summary regarding operation of Litigation substitution.
Slide Title
Slide Title
■
■
■
■
■
■
■
■
Northern
Ireland
■
■
■
■
Extensive N.I. due diligence exercise.
Title and documentation retrieval exercise.
General liquidation advice to SLs.
Closing mechanics across a range of portfolios.
■
■
Instructed N.I. incumbent firms on Rock/Salt transfer process.
Advice on UK subsidiaries and discussions with their legal advisers in relation to the sales and transfer
process.
Employment
and Pensions
■
Employee termination / retention and related
advice.
Advice on TUPE.
Transitional issues.
■
Employee termination/retention and related advice, including drafting and advising on employee
compromise agreements.
Advice on TUPE.
On-going advice on foreign recognition.
On-going advice on IBRC Act and various
Ministerial Instructions.
Liaising with DOF Legal.
Section 56 Report issues.
■
■
■
■
Advice to SLs
on
miscellaneous
issues and
project
management
■
■
■
■
■
■
Advice on UK Recognition of the Special Liquidation.
Advice on processes around ongoing management and/or redemption of loans, disposals and partial
repayment.
Advising on and negotiating lease surrenders, including drafting Old Jewry Surrender and Dilapidations
Agreement.
65
Principal professional advisors
The table below details the roles and responsibilities of the principal professional advisors engaged in the SL process.
Special Liquidation – Principal professional advisors
Responsibilities and scope
KPMG
■
Special Liquidators, Taxation Advisors, Deal Advisors and Loan Migration Advisors.
ALG
■
Please refer to pages 64 and 65.
Linklaters
■
Please refer to pages 64 and 65.
Arthur Cox
■
Primary legal advisor on Sand and Pearl. Legal advisors on the Stone and Quartz portfolios. Responsible for general legal advice, deal advice,
contract negotiation, documentation management, project management of Irish and non Irish firms, legal and security reviews and other legal
diligence.
Byrne Wallace
■
Legal advisor on certain Evergreen tranches and certain Amber and Quartz connections. Also Legal advisor for the Stone portfolio. Responsible
for: general legal advice, deal advice, contract negotiation, documentation management, project management of other firms, legal and security
reviews and other legal diligence.
Slide Title■
Skadden , Arps,
Slide
Title■■
Slate,
Meagher &
Maples and Calder
Flom LLP
Legal advisor on certain Stone, the Amber and Quartz tranches. Responsible for: general legal advice, documentation scheduling, project
management of other firms, legal and security reviews and other legal diligence.
US Chapter 15 application.
Other US related legal matters.
RDJ
■
Legal advisor on certain Evergreen and Amber connections. Responsible for: general legal advice, contract negotiation, documentation
management, project management of Ex-ROI firms, legal and security reviews and other legal diligence.
PJ O'Driscoll
■
Legal advisor on Stone; responsible for: general legal advice, documentation management, project management of other firms, legal and security
reviews and other legal diligence.
PwC
■
Independent valuers of Rock/Salt, Sand, Stone, Quartz, Amber and Pearl portfolios. Also valued shares of certain UK subsidiaries.
Valuer A
■
Independent valuers of certain loan and shareholding assets.
Various property
valuers
■
Property collateral valuation.
■
Includes Jones Lang LaSalle, Allsop UK, CBRE, Cushman & Wakefield, Ganly Walters, GVA, Knight Frank, Savills, Jordan Auctioners and HT
Meagher O'Reilly.
Savills
■
Project management of property collateral valuation process.
Eastdil
■
Valuers of Project Quest.
Goodbody
■
The sales advisors in relation to the NAMA subordinated bonds.
66
Cost management
Cost management
■ KPMG resourcing reviewed regularly:
–
workstream leads monitor workload and capacity. Resourcing amended as required to ensure efficient delivery of workstream to the liquidation;
–
fortnightly project review meeting to discuss progress and delivery of loan sale process against plan;
–
monthly review of costs by workstream;
–
budgeted costs set for the liquidation process to 30 April 2015;
–
reviewed actual against plan and investigated variances; and
–
reviewed most efficient method of delivery project and used IBRC staff where appropriate.
■ KPMG reviewed and monitored third party advisor costs:
–
certain legal advisors signed up to NAMA rate card and/or fixed cost pieces of work;
–
certain other advisors signed up to NAMA rate card;
–
certain other advisors engaged following a competitive tender process with fixed fee quotes;
–
Slide Title
review of costs against agreed fixed fees;
Slide
Title
review
of costs
incurred in relation to security reviews;
–
review of valuer costs against agreed fixed fees; and
–
negotiation and agreement of a 10% rebate with ALG and 5% with Linklaters.
–
–
monthly review of third party costs against delivery of process to timeline and budget;
■ KPMG updated DOF regularly:
–
monthly report included analysis of time spent by KPMG, ALG and Linklaters;
–
report on budgeted costs to 30 April 2015 issued to DOF;
–
costs discussed in update meetings with DOF; and
–
regular fee update reports issued to DOF.
■ Costs managed and minimised where appropriate through the use of IBRC staff to support the sales process.
■ Accelerated timeline required multiple processes to run concurrently which required additional resources in order to deliver.
67
Slide Title
Slide Title
68