Goverment admits Irish Nationwide could need extra funds
Irish Nationwide, the building society previously run by Michael Fingleton, could yet require further government assistance if NAMA discounts on its loans get any worse, the Department of Finance acknowledged yesterday.
Under a plan unveiled in March, the building society is to get €2.7bn of government capital, but, with discounts on its NAMA loans running at over 72pc, its original plan may have to be revisited.
The Department of Finance said yesterday the estimated capital requirement for Irish Nationwide stood at €2.7bn. "There has not been a revision to this figure, but it will be considered in light of the future transfers of loans to NAMA,'' added a spokesman.
Irish Nationwide has moved two tranches of loans, with the first batch attracting a discount of 58pc and the second batch attracting a 72.4pc discount or 'haircut'.
The third tranche, according to some bank sources, could tip over 75pc, as borrowers in that tranche availed of very high loan-to-values, as many of them were part of less well resourced property syndicates.
As first disclosed in the Irish Independent, Irish Nationwide extended a lot of its loans to property developers who used special purpose vehicles (SPVs). This means it has limited resource to these borrowers if they default on these loans.
Another trend impacting on the chances of Irish Nationwide making recoveries on loans is that the society rarely asked for personal guarantees from major developers. In fact, in many cases, the society took share holdings in development companies. The society was also an investor in property directly itself and owns an apartment complex in Booterstown, Co Dublin.
Irish Nationwide's discount on loans of 72.4pc compares with an average across other banks of 48pc. Anglo Irish Bank's loans in the first tranche were discounted by 50pc. That bank has yet to transfer its second tranche of loans due to the sheer scale of paper work and due diligence involved.
The role of former chief executive Mr Fingleton at the society is being scrutinised by a team of lawyers and accountants hired by Irish Nationwide. The findings of this trawl will be included in a 'legacy plan' to go to the Department of Finance.
So far, the Irish Independent understands that nothing has been found in this trawl that would be legally actionable. While decisions on risk and corporate governance have cropped up in this exercise, these issues will be reviewed by the Commission of Inquiry which is being set up by the Government.
Mr Fingleton, meanwhile, is holding on to a €1m bonus given to him by the society. Some suggestions have been made that it could be paid to charity.