Red-light report on Fingleton's reckless lending was just ignored
KPMG sounded alarm nine years before crash
THE Central Bank, as well as the board, auditors and executive in Irish Nationwide, knew for nine years that internal controls within the toxic building society were either flawed or non-existent before it collapsed, costing the State €5.4bn.
A damning report by the society's auditors, KPMG, dated October 12, 2000, and which has been seen by the Sunday Independent, details the shoddy and lax practices inside the Michael Fingleton-led society.
The report, entitled Review of the Credit Function, was given to Michael Walsh, a professor of banking, when he became chairman of Irish Nationwide in May 2001.
Walsh failed to act on the 2000 report, as did the Central Bank. Instead, Mr Fingleton was paid millions as he recklessly lent out billions of euro year after year.
The report shows that Mr Fingleton grew lending by 34 per cent to IR£1.8bn in 1999, despite the society's lending practices being so poor that it arguably should have been stopped from lending at all.
The 44-page report details an array of problems within the society, such as that it had no "concentration limits".
Irish Nationwide was warned that it was over-exposing itself to individual borrowers, such as Sean Dunne and Tom McFeely, and particular sectors, including the development-land market.
The report states that the society had "no credit-risk rating methodology or credit-watch list" for its commercial loan book.
KPMG found that this and other important matters were not documented in the board's minutes, making it hard to know what they either did or did not know of the lending binges.
KPMG found that the board had been provided with "no analysis" of the society's loans "by product, by maturity, by vintage, by size, by loan to value, by interest rate, by geographical concentration or by number of customers".
Nevertheless, despite these failings -- which were later identified again in other internal reports -- neither Walsh, KPMG nor the Central Bank forced Fingleton to resign until it was too late.
Patrick Honohan, the Governor of the Central Bank, in his 2010 report on Ireland's economic collapse, refers to the State's long held knowledge of Irish Nationwide's deficiencies which he refers only to as "Bank A", a "persistently problematic" institution.
"Serious deficiencies in systems and controls, and failings in the bank's internal audit unit function, were routinely identified from at least the year 2000 onwards," Honohan concluded.
IBRC, which now controls the society, announced plans to sue Mr Fingleton, Mr Walsh and other Nationwide board members in legal papers filed last Thursday.
Reports into the questionable lending practices and corporate governance failings of Irish Nationwide were passed on to the gardai, Minister for Finance Michael Noonan revealed in February. The reports by McCann FitzGerald, the law firm, and Ernst & Young, the accountants, were also sent to the Central Bank.
Loans to a range of celebrity clients, including a number of politicians, are also likely to be re-examined.
Sunday Indo Business