INBS had no counter-balance to Fingleton, inquiry is told
Irish Nationwide had “no counterbalancing power” to stop managing director Michael Fingleton from advancing billions to UK developers in risky profit-share loans, a former INBS accountant yesterday told a Central Bank Inquiry into the bank’s financial ruin.
“The society was run by Mr Fingleton. He made the decisions. And there was no counterbalancing power centre that could have checked what he wanted to do,” said Karl O’Brien, who joined the bank’s new credit-risk unit in 2006.
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The Inquiry is examining whether Irish Nationwide Building Society (INBS) –which was dissolved in 2011 – ever drafted formal policies governing profit-share loans. Several witnesses have so far testified they did not.
Profit-share loans provided developers the full price of land and property being acquired, often in expectation that an asset would win rezoning approval and surge in value. INBS collected no repayments or interest until the asset’s sale, when the bank would take 25pc to 50pc of the envisioned profit.
Inquiry counsel Kelley Smith said a KPMG review found that INBS’ commercial loans had grown by the end of 2006 to €8.1bn, of which 59pc, or €4.8bn, involved profit-shares – with 77pc of that in the UK.
Declan Buckley, a former Ulster Bank executive who became Irish Nationwide’s head of commercial lending in 2009, told the inquiry that INBS had allowed the UK commercial book to swell far beyond the abilities of its two-man management team: the former Belfast-based head of UK lending Gary McCollum and the chief executive’s London-based son, Michael Fingleton Jnr.
“Development loans of this size and complexity needed clear monitoring. That was not being done. All they were doing was writing the book and hoping, with a prayer, that it [the money] was going to come back,” said Mr Buckley, who oversaw the mass transfers of INBS loans to Nama.
He said Mr McCollum and Mr Fingleton Jnr would have needed 30 to 40 more experienced loan officers to manage the UK book’s risks prudently.
“No two people in my view could possibly undertake that size of book. [It] couldn’t happen,” he said.
Mr O’Brien said the INBS credit committee could, in theory, challenge the terms of each profit-share deal – but not in practice.
Committee members received “a presentation for administrative purposes” of loans personally negotiated by Mr Fingleton Snr, he said adding that if members had expressed concerns, “I don’t think it would have made any difference”.