Friday 23 February 2018

Nationwide was 'not taking punt' as bubble burst

Tom Lyons

Chairman Walsh told Regulator curbs not needed

MICHAEL Walsh, the former chairman of toxic building society Irish Nationwide, told the Financial Regulator attempts to curb its rampant lending were "not justified" and dismissed claims it was "taking a punt" by lending billions of euro to developers four years before the society collapsed, costing the taxpayer €5.4bn.

In a 20-page letter dated February 1, 2005, obtained by the Sunday Independent, Walsh -- a former professor of banking -- defended the society against an array of serious concerns put forward by the then Financial Regulator Dr Liam O'Reilly about the conduct of the society.

Incredibly, Walsh even argued that restrictions imposed on the society by the bank watchdog to dampen down its reckless lending to property developers should be lifted.

The society -- which relative to its size has cost the taxpayer more than Anglo Irish Bank -- was, Walsh insisted, run in a "professional manner" as evidenced by its "unbroken record of increased profitability over 30 years".

Walsh, who chaired the society from May 2001 to February 2009, made these claims despite both the society's auditors at KPMG and the Financial Regulator telling him there were massive problems in the field of "corporate governance", "internal audit" and "commercial lending".

KPMG said it feared the society would be unable to handle things if a big borrower got into trouble because of a "lack of experience in dealing with a workout of a major facility". Walsh, however, insisted in his letter the society had "sufficient expertise to deal with loans in difficulty".

KPMG also said the society was too dependent on international money markets for support. In an eerie prediction, four years before Lehman Brothers collapsed, it said it was concerned about the "effect on liquidity of a delay in cash-flow associated with a workout of a major facility".

Walsh was having none of it. He instead boasted that the society was being offered €1bn in one day alone by German and French banks. He said this was "clearly an endorsement by the financial markets of the society's performance and business strategy".

Walsh also dismissed concerns that the society was getting in over its head in various mega deals, including a €109m deal with London-based property investor Giris Rabinovitch and a member of the United Arab Emirates royal family; and various joint ventures with Sean Mulryan and Gerry Gannon.

Walsh said the society "disagreed" with concerns that being in joint ventures with developers could lead to "conflicts of interest".

He also defended the society's habit of rolling up of interest rates for its developer pals. "The society is not taking a 'punt'," Walsh insisted.

Walsh admitted in his letter the society had lost €1m of its members' money when it went out on its own and built a housing estate in Dungarvan, Co Waterford. The site he said was not only "too remote", but had also been devastated by a "freak tide".

Asked for comment last week, Walsh said: "I'm not happy to talk to any journalist. Thank you," before hanging up.

Evidence of intense engagement between Irish Nationwide and the Financial Regulator long before the bust again raises the question why it was not stopped before it required a €5.4bn taxpayer bailout.

Sunday Indo Business

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