Emmet Oliver: Nationwide was not Machiavellian, just stupid
Banks and building societies taking huge writedowns in a recession is nothing new. Banks requiring fresh capital to mend their balance sheets after a property crash is nothing new.
In that context the annual losses unveiled by Irish Nationwide this week, while staggeringly large, fit a certain pattern.
The real shock is how much denial was present in the society even right up to the start of the credit crunch. This denial prevented the society from even taking modest steps to head off the disaster which has now resulted in a €2.7bn injection by the taxpayer.
Surreal as it may be to the rest of us, Irish Nationwide saw itself as a more conservative and risk-averse lender than other institutions, including the giants of Wall Street. Just sample the self-importance and condescension present in this paragraph from its 2007 annual report:
"Irish Nationwide never engaged in nor invested in any subprime or related financial instruments. Our treasury department's sole function is to source and manage our liquid funds which are held in short term cash deposits with highly rated financial institutions.''
The message was clear. The Irish Nationwide was not one of those far out "subprime'' lenders from America, but a building society lending to real people with real assets. This sneaking regard for itself, even stretched to the way the society saw itself as an acquisition target. It told members in the 2007 accounts that while it was prepared to be bought out, it wasn't going to settle for just any old price.
"We remain fully committed to a sale, subject to achieving a price which fairly reflects the value of the society's business,'' said its directors, among them Michael Fingleton.
This was from a society, speaking as the credit crunch deepened, which was still growing its loan book by a frightening 18pc. Far from battening down the hatches, the society was flinging them open with wild abandon. Was this recklessness, denial or just plain stupidity?
The other calls made by the society at the time suggest it was the latter. While Nationwide always took public flak over its obsession with property, the society itself liked to see this obsession as something more akin to expertise.
In the pre-credit crunch set of accounts, the society made a property forecast that would even make a pre-recession Irish economist blush.
"There is now every danger that in 2009 and 2010 there will be a shortfall of housing particularly in the Dublin area, as the current available stock is absorbed without sufficient ongoing replacement,'' the directors confidently predicted.
The silliness of this was then compounded by ludicrous comments that unemployment, resulting from the construction slowdown, would not rise very much because the laid-off building workers would get work painting and decorating people's homes.
Because Michael Fingleton managed to pull off the amazing feat of extracting a €1m loyalty bonus from the society in his final years at the top, there is a temptation to portray him as some kind of Machiavellian genius, brilliantly running rings around his own board and the regulatory system.
But this week's disastrous results and the level of denial the society exhibited going into the credit crunch suggest there was no brilliance there, just stupidity.
St Matthew could falter yet
According to some critics, there is a danger of the financial media "canonising'' Matthew Elderfield, such is the disenchantment that built up with his predecessor as financial regulator, Patrick Neary.
St Matthew is certainly enjoying the honeymoon of honeymoons, but he is presumably clever enough to realise the "build 'em up, to knock 'em down'' ethos of the media will gradually take effect.
What brings down regulators and company executives are hostages to fortune and public statements that later turn out to be hollow or inaccurate. Post-credit crunch, regulators and company execs are prized for telling the world the financial pain is passing and everything is going to be okay.
Elderfield has administered to an Ireland in pain by saying the recaps later this year, likely to involve a large amount of government money, will be the last and the banks will finally be ready to stand on their own two feet.
He claims his instruction to them to hold an 8pc core tier 1 capital cushion should be enough to absorb any tidal wave of loan losses, whether it be from mortgages, SMEs, consumer loans or general corporate lending.
Let's hope he is right.
If not, it is the biggest hostage to fortune ever pledged by a regulator, or indeed by a company director, and no saintly qualities will be able to absorb the public wrath likely to result if the forecast is wrong.
Take the shackles off ESB and Bord Gais
The best and brightest minds have tried to regulate the Irish electricity market over the last decade, but yet we still have the second highest prices in Europe after Cyprus, according to the statistics from Eurostat.
Industrial prices to large users are also well above the eurozone average, hardly a help when it comes to selling Ireland abroad.
Whereas 10 years ago the mantra was all about getting private sector competition in, nobody expects that to happen now. The Irish market is too small, we are told. The domestic market has been open to competition for five years now and, apart from Bord Gais, the ESB has faced very little concerted competition.
Instead the best kind of competition we can get is competition between two semi-states, with huge cost bases and monopolistic traditions. Is it better than nothing?
Certainly the big switch campaign by Bord Gais chief executive John Mullins has been extraordinarily successful and helps to keep the ESB honest.
The ESB have not been allowed to drop their prices, helping Mullins to pinch their lunch. The ESB's Padraig McManus says he'd ultimately like to be able to compete fully and maybe its time to let the two of them at it.
The company with the most in-built inefficiencies and higher labour costs should presumably come off second best.
A full on, bare-knuckled brawl between the two companies could only be good for consumers and Ireland's faltering competitiveness.
Let the battle commence.