Business Banking Inquiry

Wednesday 20 November 2019

Banking inquiry: 100pc mortgages were wrong - BofI's Boucher

Clodagh Sheehy

A liquidity problem of €4bn at Irish Nationwide bank was known a full three weeks before the night of the Bank Guarantee, it has emerged.

Bank of Ireland boss Richie Boucher told the Banking Inquiry he was “shocked and shaken” when the problems of Irish Nationwide bank were revealed to him at a meeting on September 7th 2008.

The Group Chief Executive described how his bank was called to the meeting by the Central Bank where Financial Regulator Michael Neary was present along with the Irish Nationwide company secretary and group treasurer. 

He described how “pieces of paper were being flown, thrown around” and there was no “coherent” position on the liquidity problem at Irish Nationwide they were being asked to solve.

He had even suggested to a colleague that they should leave the meeting at one point.

Mr Boucher said he was “extremely surprised and shocked” at the extent of the problem in Irish Nationwide and eventually they were asked to look at providing a figure of around €4bn.

They “fed back” to the financial regulator that they did not believe this was an accurate picture of what was needed but even if it was they were not in a position to provide it.

“The system was in much bigger trouble than I envisaged.  I remember being extremely shaken by that”.

Ulster Bank former Group Chief Executive and Director, Mr Cormac McCarthy told the meeting that his bank had lent too much to too many people on bases which turned out to be flawed and he deeply regretted this had happened when he was CEO.

Earlier Mr Boucher told the Inquiry that on the night of September 29th 2008 Bank of Ireland did not need a guarantee but  “did not appear to have any real choice in the matter” and had to become part of it.

He had been annoyed by rumours among his competitors that Bank of Ireland had sought a guarantee for itself.  It did not need one but might have if turbulent market conditions continued.

Mr Boucher understood clearly that night that there would be a “systemic guarantee” of six banks, a view at odds with testimony to the Inquiry by AIB ex chairman Dermot Gleeson who believed that only four banks would be covered that night.

He was at group headquarters on the night of September 29th 2008 and was called three times by phone from the Bank of Ireland team at government buildings.

He said had been surprised that in one of these phone calls they were told  that certain subordinated liabilities were to be covered by the Guarantee.

The Group Chief Executive told the hearing that his bank Board “made strategic mistakes and errors of judgement and I bear collective responsibility for these and my contribution to them”.

His bank had an over-reliance on wholesale funding  and too much of this was short term in nature.

The chief executive also defended his salary of €843,000 adding “My salary was approved by the minister for finance at that time and was voted on by the shareholders.

It was “poetic justice” that in the past he had  had reinvested his bonuses in bank shares.

Mr Boucher agreed that 100pc mortgages given by the bank in the run up to the collapse were wrong and tracker mortgages were also “a very big mistake”.

His personal letter of support for developer Sean Dunne’s proposals for the Jurys/Berkeley Court site which he sent to Dublin City Council in 2007 was also “one of the many stupid things I have done” he said in response to questions from Deputy Joe Higgins.

He told Inquiry chairman Ciaran Lynch that  Bank of Ireland had made a lot of mistakes and worked hard to repay them.  They could never repay in moral terms but had tried to do it in financial terms.

On 100pc mortgages Mr McCarthy said they had lent €1bn worth to 4,000 customers  between 2004 and 2008 and “the regulator did not object to our launching the product” he said in response to questions from Senator Sean Barrett.

They had introduced the product because they were losing share in the first time buyers market at the time but “I do regret that we did it” he responded to Senator Susan O’Keeffe.

Mr McCarthy had met with Minister Brian Lenihan the day after the Bank Guarantee because the Minister was attending a launch by Ulster Bank.

The banker  told the Minister they were already seeing deposits leaving Ulster Bank that day because it was not covered by the Guarantee.   He said the Minister had “listened”.

Mr McCarthy said that they were later invited to join the guarantee but the terms were impossible for them.

Ulster Bank is part of the Royal Bank of Scotland and was not covered by the Irish bank guarantee. It has received £14.9bn from RBS between 2009 and 2013.  RBS was bailed out by the UK government in October 2008.

Solicitor Brian O’Donnell who recently had to hand the keys of his Gorse Hill home in Killiney, back to Bank of Ireland, attended yesterday’s hearing where he sat in the public gallery along with Gerry Beades of the New Land League.

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