1. L E A D E R S H I P  P R O B L E M SO L V I N G  V A L U E C R E A T I O N © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Alvarez & Marsal Challenges facing the European Banking Sector September 2011

2. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Banking Crisis is back in Europe 1 iTraxx Financials Senior 5 year CDS

3. 2009 2010 2011 2008 September 15 th ; Wall Street Bank Lehman Brothers files for Chapter 11 Bankruptcy protection and Merrill Lynch is taken over by Bank of America September 30th;The Irish government guarantees deposits in the country’s main banks for two years January 15th; The Irish Government says it is to nationalise the Anglo Irish Bank January 16th; The US government provides the Bank of America another 20 billion dollars from its 700 billion dollar financial rescue fund to help it with the losses incurred when bought Merrill Lynch February 11th; Ireland says it will inject €7 billion into Bank of Ireland and Allied Irish in return for guarantees on lending, executive pay and mortgage arrears. May 2nd; Greece gets a €110billion bail out from other countries using the euro, and the IMF June 22nd ; Greek PM tries to persuade MPs to approve €28 billion of cuts, tax rises, fiscal reforms and privatisation plans. Euro zone ministers say the legislation must be passed to receive a 12billion Euro loan Greece needs to pay its debts November 21st; Irish Finance minister says he will recommend to the Government that the country formally request a bailout package from the EU, ECB and IMF

4. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 3 Total Debt outstanding as % of GDP €bn 96% 60%

5. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 4 IrelandGreecePortugal  Credit bubble  Inflated property market  Poor lending practices  Over reliance on property taxes  Property crash  Govt. Guarantee transferred bank risk to the sovereign  Series of bank recapitalisations which stretched the sovereign  Troika support package  Independent stress tests to establish capital needs for banks  Sovereign issued too much debt, a significant part of which was purchased by Greek banks  Lower rates of tax collection  Insufficient public sector reform  Market confidence in sovereign dropped  First and second Troika support package  Risk of haircuts on sovereign debts weakened bank balance sheets  Delays in implementation of agreed package  Stress tests being conducted to bring transparency on bank balance sheets  Sovereign issued too much debt  Insufficient reform to increase flexibility  Market confidence in sovereign dropped  Troika support package  Reform package agreed  Stress tests being conducted to bring transparency on bank balance sheets

6. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 5 Sovereign downgrades have an extremely negative effect on domestic banks funding options

7. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 6 Debt Exposure Breakdown

8. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 7 The outlook for Ireland Inc  Bonds prices have stabilised. Ireland currently delinked from Greece  Exports are increasing  Banks are attracting new investors – Bank of Ireland

9. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. 8 Non-Performing Loans in Europe

10. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. Outlook for Europe 9  Ireland, UK, Eastern and Northern Europe in relatively good shape  Majority of sovereign debt is held by domestic and German banks  Therefore debt restructuring will adversely affect already weakened domestic banks  In the event of a debt restructuring of 30-50%; the worst hit will be domestic and state-owned German banks*  French banks already experiencing liquidity problems * Measured impact of a haircut that is greater than 5% of Tier 1 Capital

11. © Copyright 2011. Alvarez & Marsal Holdings, LLC. All Rights Reserved. The next 12-18 months 10  Banks can only mitigate the effects; unable to eliminate them.  Greater reliance on central bank liquidity & ECB/IMF funding options  Liquidity / Sovereign risk trade-off  The continent will have to become more transparent before we can hope for stability  Government administration needs to be restructured

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