Thursday 22 February 2018

Bank boards can borrow millions in law loophole

New rules leave room for loans like FitzPatrick's to happen once again


A major loophole in rules introduced for banks in 2009 by the Financial Regulator -- in the wake of revelations that former Anglo Irish Bank chairman Sean FitzPatrick had borrowed €87m from his own bank -- has been uncovered by the Sunday Independent.

A detailed examination of amended licence conditions governing the reporting by banks of loans to their directors suggests that up to half the membership of the boards of Irish banks are not covered by the new regulations.

According to those conditions, only directors who were appointed or re-appointed to the boards of Irish banks on or after August 11, 2009, are required to disclose loans they have from their institutions.

A cursory inspection of the board membership of AIB, Bank of Ireland, EBS, Irish Life and Permanent, Anglo Irish Bank and now defunct Irish Nationwide Building Society shows that nearly half of all directors and non-executive directors are not legally obliged to disclose any borrowings they might have from the institutions they serve.

Last night, independent TD Shane Ross called on all bank directors exempt from the August 2009 rule to disclose any loans they might have from their institutions.

"Hopefully this doesn't mean that any directors are using this loophole to hide loans which they owe to their banks," he said.

"It is imperative that all directors' loans are declared, whether they pre-date or post-date the 2009 order, in the light of the controversy surrounding Anglo Irish Bank.

"I think all the directors should make it clear whether or not they are availing of this clause, and it would be an appropriate matter for the Dail Finance Committee to consider," Mr Ross added.

A note in the small print of the latest annual report for the Bank of Ireland Mortgage Bank outlines the regulation, saying: "Disclosure of such loans is only required where a director is appointed or re-appointed after the date of the imposition of the condition. Disclosure is also subject to certain de minimus exemptions and to exemptions for loans relating to principal private residences where the total of such loans to an individual connected person do not exceed €1m."

The glaring deficiency in the rules set down by the Financial Regulator is particularly worrying when one considers the extent of the borrowings which have been disclosed for bank directors to whom the rules apply.

The latest annual report for Bank of Ireland itself, meanwhile, shows how one unidentified person 'connected' to another director, Pat Molloy, had a loan of €35.2m at one point during 2010.

According to the bank's own definition, a connected person can be "a director's spouse, parent, brother, sister, child, a trustee where beneficiaries of the trust are the director, his spouse, children or a company which he controls, or a company controlled by the director or a person in partnership".

While the Molloy loan was reduced to €640,000 by the end of 2010, the decision to sanction the original multi-million euro loan angered shareholders at its recent AGM.

Further scrutiny of the Bank of Ireland's latest annual report reveals how 20 members of its so called Key Management Personnel (KMPs) and people connected to them saw their loans from the bank increase from €9m in April 2009 to an eye-watering €14m by December 2010.

Meanwhile, the latest EBS annual report shows that its Chief Executive Fergus Murphy had a loan of €600,000 from the institution recorded at the end of 2010, while the society's Finance Director Emer Finnan had a €1.5m loan on the same date.

Sunday Independent

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