Nationwide's reckless lending
Published 20/04/2010 | 05:00
HOW could a small building society like Irish Nationwide incur a loss of €2.5bn in one year -- a sum of money greater than the cumulative profits made by the society in its entire history? To answer that, it is not necessary to plough through the financial complexities. The reason is simple. Under the reign of its previous chairman, Michael Fingleton, Nationwide departed from its traditional role and adopted what, to use the most polite term available, may be called a new business model.
It continued to grant mortgages and take in deposits. But the vast bulk of its business in recent years has consisted of loans, often massive loans, to the construction and property markets in Ireland and Britain.
And when bust followed boom the society emerged, in relative terms, as the worst example of reckless lending and its consequences. The €2.5bn loss, the €2.7bn pumped in by the Government, all or most of which will be added to the existing scores of billions in taxpayers' liabilities: these figures may seem manageable by comparison with the taxpayers' exposure to the banking bailout and the National Assets Management Agency. But Nationwide remains in astonishing ways the extreme of two enormous failings: disastrous corporate governance and absence of regulation.