MAY 2014

1. MAY 2014 HML Ireland managing director David Kelly has spoken to the Irish Independent about why banks are paying for independent debt management support for their customers in mortgage arrears Moody’s upgrades Ireland’s credit rating by two notches to Baa1, with a stable outlook permanent tsb has seen a decline in underlying arrears levels, with total arrears in its buy-to-let and home loan portfolios now around 10% below 2013 peak levels

2. HML News David Kelly has spoken exclusively to the Irish Independent about debt advice for customers in mortgage arrears. You can read the article below: Why some banks are paying for independent debt management support for their customers in mortgage arrears HML manages mortgages and other loans for a range of banks in Ireland and the UK with a total value of approximately €50 billion.  This gives us a useful perspective into how the banks in the two countries compare in terms of dealing with mortgage arrears and whether there are any lessons for banks in Ireland from their UK counterparts.The first thing to say is that it is clear now that the Irish banks have moved into a new phase in dealing with the mortgage crisis.  After what all sides will agree was a very slow start – linked no doubt to both the scale and the sensitivity of what was an unprecedented crisis for this country - the banks are now addressing the mortgage arrears problem with real vigour and on a scale that was hard to imagine even 18 months ago.  However, while the banks are able to engage with the majority of their customers, it is also clear that for some customers, their relationship with their bank has been destroyed almost beyond repair. Confidence and trust in the bank has collapsed and contact has been broken off.  For customers in this situation, this means that it is much more difficult for them to get proper advice on how to deal with their problem and, for the banks, it means that it is almost impossible to try to find a workable way forward.    Ironically, many customers might get an initial sense of relief or even euphoria when they decide not to engage with their lender.  But it’s a very false and misleading feeling.  Breaking off communications may delay otherwise difficult decisions but it makes very unwelcome outcomes much more likely.  The likelihood of repossession, for example, increases significantly where there is no engagement.  On the other hand, we find that where engagement is restored, outcomes can improve significantly.  And the earlier customers who are in financial difficulty can get can advice that they trust, then the better the outcome for both the customer concerned and for the lender.  The key here is trust.  In the midst of a mortgage crisis, unfortunately, some customers simply won’t be able to bring themselves to trust the advice they are getting from the bank – regardless of how fair or balanced that advice is.  They may have lost confidence in the bank or they may be afraid to share the details of their financial position with the institution in question.In the UK, banks are responding to this by putting in place access routes for their customers to independent debt management agencies.Many people are surprised that banks might be willing to encourage – even to pay for – independent advice on debt management issues for customers who are, effectively, refusing to talk to them. But in our experience they are.  The reason is simple. In one sample of customers we manage on behalf of a UK bank, for example, over85% of customers who received independent advice on managing their debts paid more back to the bank than they were doing previously. Continued on the next page

3. HML News In that sample, the bank saw an increase in “cash collected” of some 50% as a result of helping the customer get independent, trusted advice.However the exercise works for the customer as well as the lender.  Customers in our sample talked of feeling a sense of control returning over their financial affairs.  They talk of regaining self-respect and being able to sleep again at night.In the UK we now work closely with an independent debt solutions agency to whom we can immediately refer customers whom we believe would benefit from their assistance.  The banks involved encourage us to do so – to the point of empowering our customer agents to initiate the referral - because they know that the outcome will likely be better both for them and for their customer.  Once the referral is made, the customer then deals directly with an appointed case-manager at the relevant debt management agency who will help them to develop a Debt Management Plan (up to and including an Individual Voluntary Arrangement / IVA) and manage it out over time.However the key is making that referral as easy and speedy as possible.   Our agents can make the referral from the phone call on which they are engaged with the customer; seamlessly putting the customer in touch with an agent who can begin work immediately.Irish banks have made tremendous strides in recent months and some banks are now experimenting with referring certain customers to independent advisors.  However, it is occurring now only on a relatively small scale. Perhaps the next challenge is how to put in place the type of broader infrastructure that could cope with the likely demand that exists for this type of service. The outcomes we’ve seen for both sides of the mortgage arrears crisis suggest this could make the effort very worthwhile.You can also read the article on the Irish Independent online.

4. HML News HML is celebrating ten years of operating in Derry. HML has been servicing Irish lenders’ portfolios since 2005, with the Derry office an important strategic move for HML’s expansion in Ireland. Currently based out of Ulster Science & Technology Park, the Derry office has grown from a staff of around 25 in 2004 to some 330. The Derry office has been central to HML expanding in the Republic of Ireland, with the company making significant contract wins in the country.HML has over 25 years of experience in the mortgage administration sector, and chose to open an office in Derry in order to draw upon the financial expertise in the city at a time when many financial companies chose to outsource abroad. There are 62 members of staff who have been with HML in Derry since 2004.HML’s Derry site has acted as a call centre for Children in Need since 2008,raising thousands of pounds for local charities including Foyle Hospice and has supported local schools, such as during the Time to Read initiative.Andrew Jones, chief executive officer at HML, said: “I am delighted that HML’s Derry site is celebrating ten years, and we have certainly substantially grown during that time. Opening a site in Derry was an important strategic move for us, drawing upon the experienced resources in the area and helping us to take advantage of growing opportunities in the Republic of Ireland. . “I’d like to thank all of our Derry staff for their hard work, particularly those individuals who have remained at HML since we launched in Northern Ireland in 2004.” Mel Smith, director of strategy and planning for the chief operating office and who is based in Derry, commented: “It’s certainly an exciting time for HML. We celebrated 25 years last year, as well as launching a new operational base in Dublin, enjoying double-digit profit growth and took home numerous industry awards. “Celebrating ten years in Derry is testament to our experience and longevity, which have also contributed to our leading ratings. Our UK residential primary (sub-prime) rating by Fitch is the highest in Europe and our prime rating is the equal highest rating of any servicer in the world.“I’d like to thank all HML staff in Derry for their hard work over the years, and look forward to seeing how we grow and develop in the future.”

5. Industry Statistics Date reflects what the statistic was during that period, rather than when the statistic was published

6. Industry Statistics Consumer Price Index The CPI in April was 0.3% higher than the same month in 2013. It increased by 0.1% on March, with notable upward pressures coming from the education (4.5%), alcoholic beverages and tobacco (3.7%) and miscellaneous goods and services (3.2%) sectors. This was partially offset by declines in clothing and footwear (-3.7%) and communications (-3.3%). ECB Interest Rate The ECB base rate remains at 0.25%. Mario Draghi, president of the ECB, said: “We firmly reiterate that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.” Unemployment Rate The unemployment rate declined by 0.1% from March to April to 11.7%, representing 392,700 peopleout of work. In the same month in 2013, the unemployment rate stood at 13.6%. House Prices The national average house price in Ireland stood at €187,736 in Q1 2014, a 0.7% decline on the previous quarter, according to MyHome.ie’s analysis of asking prices. However, it still represents an almost 5% decline on an annual basis. Commenting, Angela Keegan, managing directorof MyHome, said:“The volatility in asking prices in Q1 reflects a property market in transition, although a study of transaction data does show the markets have bottomed out both nationally and in Dublin.” In comparison, the average price of a residential property in Dublin rose over the quarter by 1.3% to reach €244,480. This represents the largest quarterly increase in asking prices since the property market bottomed out 12 months ago, with asking price growth of 3.7% on an annual basis. Arrears Principal Dwelling Houses (PDH) The number of PDH mortgage accounts in arrears declined by 3.3% between Q3 and Q4 2013. Almost 18% of accounts were in arrears by the end of Q4 2013, representing a total of 136,564. There was a 2.3% fall in the number of accounts in arrears of more than 90 days, the Central Bank of Ireland said. However, accounts in arrears of more than 720 days increased to 33,589, representing almost 63% of outstanding arrears on PDHs and balances of €6.9 billion. Buy-to-let (BTL) The number of BTL mortgage accounts in arrears declined during Q4 2013 to 39,250, representing 27% of accounts. However, there was also an increase in the number of those in arrears of more than 720 days, representing 8.4% of accounts with balances of €3.9 billion. Home Repossessions At the end of Q4 2013, there were 1,014 PDHs and 503 BTLs in lenders’ possession. Of the PDHs, 168 were taken into possession during the quarter, 63 of which were the result of a court order, while 105 were abandoned or voluntarily surrendered.

7. Top News Stories • Ireland’s credit rating has been upgraded by two notches by Moody’s. • Moody’s has increased the rating to Baa1, with a stable outlook. • The main drivers for the decision included a change in projected future debt levels, a significant reduction in off-balance sheet exposures and an improved credit position compared to other Baa-rated euro countries, such as Spain and Italy. • Moody’s said:“Ireland's credit profile is recovering more quickly from the euro area debt crisis as a result of its economy's dynamism and growth prospects.” • However, the rating agency added that the country’s credit rating remains constrained by significant risks within the banking sector - including large stocks of non-performing loans - and a high level of public debt. • permanent tsb has seen underlying arrears levels decline. • In its latest trading update, the lender revealed that arrears levels had fallen within its Asset Management Unit’s loan portfolios. As a result, it said its impairment charge for 2014 will be significantly lower than the past two years. • Total arrears in its BTL and home loan portfolios are around 10% below peak levels experienced in 2013. • It also said it was on track to meet arrears resolution targets. By the end of April, it had offered 19,000 long-term treatments to borrowers, with 15,700 accepted. permanent tsb has engaged with over 80% of customers under the Mortgage Arrears Resolution Targets. However, it urged those borrowers who had not yet engaged with its Arrears Support Unit to do so, saying“it is our clear preference to restructure a loan, where appropriate, rather than resort to legal action”. The proportion of Irish mortgages in arrears of three months or more has reached a new peak – Fitch report. This is according to a new report by the rating agency, which noted the proportion of those mortgages in long-term difficulty increased by 0.1% to reach 18.4% in Q1 2014. However, it represents a rise of 1.7% when compared to 2013’s full-year statistics. Some within the market have suggested that because Fitch tracks portfolios that contain more BTL loans than is typical for the market average, the arrears problem could be more prominent in this sector. The research note also stated that outside of Dublin, it expects house price affordability to improve due to an oversupply of properties, particularly as a result of forced sales. Fitch added that while house prices in Dublin are rising, it is unlikely they will hit levels witnessed during the peak of the market.

8. Top News Stories Taoiseach Enda Kenny has told European Union leaders that Irish families are “worn out” with dealing with the economic downturn. The Irish Times reported him as making the statement after arriving in Brussels for an informal summit of European leaders. Mr Kenny said: “I did point out to the council that in Ireland we have had five to six years of very difficult circumstances, that many families are really strained and worn out with the challenge that they’ve faced and put up with.” He added that while on paper unemployment continues to fall, improvement is being felt by families on a daily basis. AIB has returned to profitability for the first time since it was bailed out. AIB said it returned to profit in Q1 2014 as a result of reduced losses on loans and lower costs. Total impaired loans stood at €28.2 billion at the end of March, a decline from €28.9 billion at the end of Q4 2013. AIB also revealed that its new lending volumes climbed by 60% to €1.1 billion. David Duffy, chief executive officer at AIB, said: “We are delivering our stated objectives which include increases in new lending drawdowns, the recent EU Commission's approval of our restructuring plan, improvement in the cost of funding and capital position, supporting customers in financial difficulty and a decrease in overall impaired loans.” Consumer sentiment in the residential property sector is improving, according to a new survey by AIB, Property Industry Ireland and Sherry FitzGerald. The Residential Property Outlook Report noted that 74% of potential buyers want to purchase a home within the next six months. Just under a fifth plan to buy within the next year. Almost 80% of first-time buyers (FTBs) are currently renting, while 16% live with a relative. However, there is not just demand from FTBs, but also from homeowners who wish to trade up. According to the report, 23% of potential property purchasers in Dublin want to trade up, while this stands slightly higher at 25% in Cork. Ulster Bank has made a profit for the first time since 2009. It noted an operating profit of £17 million (approx€14 million) for Q1 2014, the first time it has posted a profit since the same quarter five years ago. Impairment losses have fallen by 80%, with chief executive Jim Brown commenting: “Improving customer demand, our ongoing focus on underlying expenses and the benefits of our work in helping our customers in mortgage arrears will continue to drive the momentum in the recovery of our business.”