Wednesday 23 May 2018

Irish Nationwide 'failed to spot collateral fall' as property crashed

Former CEO Michael Fingleton
Former CEO Michael Fingleton

Gretchen Friemann

Irish Nationwide Building Society failed to undertake any detailed analysis of its largest loan exposures in 2008 despite the slump in property prices that helped to eventually cripple the now defunct lender and saddle taxpayers with a €5bn clean-up bill.

The lack of recognition of the true risks on the Society's books emerged yesterday in evidence given to the Central Bank's inquiry into alleged regulatory breaches at the organisation.

Vincent Reilly, a partner with KPMG, the long-serving auditors of Irish Nationwide Building Society (INBS), told the inquiry that in 2008 he was presented with a set of draft accounts showing "no underlying detailed analysis of the material loans".

He claimed the figures did "not take into account the decline in the value of collateral that had occurred" between the start and end of 2008 - Lehman Brothers collapsed in September of that year.

Mr Reilly noted the fall in property prices accelerated in the second half of 2008 but said INBS's credit gradings "suggested everything was relatively rosy".

He claimed a report from another big accountancy firm, commissioned by the Department of Finance, argued provisions were unnecessary.

Mr Reilly claimed INBS's prominent CEO, Michael Fingleton, "was standing over that [report] and saying we don't need any provisions".

Mr Reilly told the inquiry INBS received a derogation from the regulator in filing the accounts in April, as "the accounts were wrong as we saw them".

According to Mr Reilly, KPMG asked the Society's management to do a more thorough analysis and said the accountancy firm checked this and as a result "we made additional provisions of about €300m over a period of a month".

He claimed the provision work required at year end resulted in INBS's management revising its credit gradings on loans.

"We had credit gradings of A or B, when in fact we had provisions, when we did our work, that indicated C or D or worse, and that had not been reflected in the draft financial statements."

Mr Reilly was also asked whether he viewed it as KPMG's responsibility to ensure that recommendations set out in the firm's management letter to INBS had been complied with.

He insisted the "responsibility of the maintenance of a system in an organisation rests with the board".

Irish Independent

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