LAST NIGHT AN RTÉ programme lifted the lid on just what went wrong at the Irish Nationwide Building Society (INBS) that led to it receiving a €5.4 billion taxpayer bailout in August 2010.
Journalists Richard Curran, from the Sunday Business Post, and Tom Lyons, from the Sunday Independent, have spent the last few months researching the building society which has proved every bit as problematic as Anglo Irish Bank which it was rolled into two years ago.
Central to the Irish Nationwide story is its former chief executive Michael Fingleton who features heavily in the programme and who faces many questions if there ever is a banking inquiry. Here are a few things we learned from the programme.
1. The warning signs were there long before its collapse
The programme notes that in the 1990s INBS had been become known as a ‘predatory lender’ which charged 20 per cent interest on borrowers who were in arrears. The practice eventually ended after court challenges but the view is that this should have raised alarms about the practices that Fingleton was overseeing.
In 2000 a KPMG report found deficiencies in the systems and practices at the building society at the same time that it was growing at a rapid pace with profits and lending on the rise. The lack of an effective credit committee – a group tasked with assessing the ability of prospective borrowers to repay- was also highlighted as being problematic.
Con Power (above), who sat on the INBS board between 2000 and 2006, noted how there were just six people including himself on the board and meetings would normally begin with the chairman asking Fingleton: “Well Michael, what have you got for us today?” with no agenda and no documents before the board members.
Power said that the whole experience of sitting on the board and interacting with Fingleton who referred to him as “Conny boy” left him feeling “slightly uncomfortable”. One former branch manager told the programme there was a feeling that you “didn’t have to tick all the boxes” to get a loan with INBS.
2. Scary charts show how Irish Nationwide grew at a rapid pace.
If there’s one thing that’s good at showing you the scale of a financial problem it’s a good bar chart and this one shows the sharp rise in lending by INBS in the late 90s and 2000s.
The amount lent and the rate at which it increased should have worried regulators many believe:
Irish Nationwide’s pre-tax profits were also sharply rising with 2007′s so big they couldn’t even fit it on the screen but again this is the kind of growth which, if it were to happen now, would be cause for concern as to what’s driving it.
We know now it was the doomed property bubble.
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3. Irish Nationwide made rubbish investments
In one case the building society is said to have invested some €80 million in the purchase of a Updown Court (below), hailed as the world’s most expensive house on its website, in Surrey near London in 2005.
This property – with 102 rooms, five floors and a cinema seating 50 people – was later sold for €40 million with Irish Nationwide and therefore us taking a €30 million hit. “Irish nationwide should simply never have gotten involved with this,” Tom Lyons said.
By 2007, 30 property developers accounted for around half of the building society’s loan book of €12.4 billion.
Among the developers were Seán Dunne who had loans totalling €131.5 million, Gerry Gannon who had a liabilities of around €137.4 million the infamous Priory Hall developer Tom McFeely who with Larry O’Mahoney had exposure of €186.2 million.
Top of the pile was developer Sean Mulryan whose Ballymore Properties accounted for €265 million of the loan book.
5. Michael Fingleton tried to sell INBS too late
Had Fingleton managed to sell Irish Nationwide before the property collapse then perhaps the taxpayer would not have had to have picked up the tab. Once government legislation was passed to allow the sale of the building society there was significant interest including a €1 billion bid from a pre-crash Icelandic bank but a final offer never materialised before the global financial crisis hit and any prospects of a sale were ended.
The main revelation from the work Curran and Lyons is the uncovering of a pretty damning and hitherto secret report from the accountants Ernst & Young which was tasked with finding out what went wrong with INBS after Fingleton left in 2009.
The programme-makers gave the report to the former deputy director of the IMF, Donal Donovan, who was pretty shocked by it all saying the report gives “all the gory details”. Chillingly, the chartered accountant Michael Flynn described the report as “terrifying”.
7. Michael Fingleton did not have a computer.
We thought it particularly noteworthy that a man who was chief executive of one of the biggest lenders in the State for 37 years did not have access to a computer in his office. That kind of says it all.
8. INBS was dysfunctional
“A dysfunctional financial institution that was taking major decisions involving huge potential liabilities without there being in place the basic requirements of financial prudence,” said Donal Donovan (above).
Yikes.
Among the findings of the Ernst & Young report were that prices for loans went up by one or two million euro on the last day, €2 million of invoices was paid twice, and €435,000 was paid to a company whose address did not exist.
Underlining all of this was a complete lack of documentation in many places which was described by Donovan as “absolutely staggering”.
9. Michael Fingleton said he had a secret agreement with the government
In letters obtained by the the programme, Fingleton claims in a letter to the management at the newly-formed IBRC that he had entered a secret agreement with the government “at the very highest levels” which said that if he paid back his bonus of €1 million he would not be pursued any further.
Brian Lenihan claimed in a 2009 letter that “no such agreement ever existed”. Fingleton has not yet paid back his bonus, nor the gold watch he was given as a retirement present and there currently isn’t any legal obligation for him to do so.
10. Michael Fingleton likes bottles of wine, antique fruit baskets and rugby
Among the revelations of some extravangent expense claims lodged by Fingleton are:
Another revelation from last night’s programme was that Fingleton wrote to the IRFU asking that six season tickets for the Aviva Stadium – at a cost of €6,600 – be sent to his home address and not the building society after he had left.
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Fingleton declined to appear on ‘Inside Irish Nationwide’ to address any of the issues raised by the programme. Curran and Lyons are writing a book about the decline of Irish Nationwide which is due for release later this year.
All pictures: Screengrabs via RTÉ Player
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