Business Irish

Monday 21 October 2019

Developers strongly linked with Irish Nationwide Building Society ‘avoided offence’ of seeking paperwork, inquiry hears

Probe: The Central Bank set up an inquiry into the actions of executives at the former INBS in 2015
Probe: The Central Bank set up an inquiry into the actions of executives at the former INBS in 2015

Shawn Pogatchnik

DEVELOPERS with strong links to Irish Nationwide Building Society were not asked by the lender for paperwork to verify their profit projections, for fear of causing offence, a Central Bank inquiry examining its collapse has heard.

INBS provided billions of euro in payment-free loans to buy land and property, on condition the lender get a share of the profits when the asset was sold on, the inquiry into suspected breaches before the bank’s nationalisation heard on Wednesday.

Legal counsel Brian O’Moore SC, who is advising the inquiry chaired by solicitor Marian Shanley, said investigators had identified instances when senior INBS figures encouraged property investors to take out 100pc loans financed by INBS, on terms that required no payments until the asset’s eventual sale.

INBS would be entitled to receive 25pc to 40pc of the profits. Mr O’Moore outlined details of five loans from 2004 to 2008 involving land in Ireland, penthouse apartments in London, and hotels in the UK and in France. In some instances, he said, the only security provided to safeguard the building society against losses was the property to be acquired.

He said INBS officials approved such loans sometimes before the borrower had even filled out the application, for fear of giving offence. The examples each involved borrowers who had strong personal connections to INBS.

“You have a phenomenon, if I can describe it like that, of the society not even asking for verification of the profit thrown up or produced by a development,” he said, adding that INBS executives behaved as though “they don’t want to offend the borrower (and) put them off doing further business with the society, by doing anything as pedestrian as looking for a document that shows the profit was as the customer has described it”.

The Central Bank inquiry set up in 2015 is looking at the actions of former INBS chief executive Michael Fingleton, former finance director John Stanley Purcell, former head of UK lending Gary McCollum, and former head of commercial lending Tom McMenamin, in relation to a series of alleged breaches of financial law between August 2004 and September 2008.

The current module runs until July 26 and will look at the lack of a formal credit risk policy for so-called ‘profit share agreements’. Mr O’Moore said the inquiry would hear evidence that such deals grew to represent 65pc of INBS’s commercial loan book by 2008.

Irish Nationwide was nationalised in 2010 at a cost of €5.4bn to taxpayers.

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