Business Irish

Monday 21 May 2018

Regulators 'feared INBS curbs would scupper sale'

Former watchdog Patrick Neary described INBS governance as “very, very poor”
Former watchdog Patrick Neary described INBS governance as “very, very poor”

Gretchen Friemann

Former financial regulator Patrick Neary yesterday described the corporate governance record at the now defunct Irish Nationwide Building Society (INBS) as "poor". He'll face questioning today from former INBS boss Michael Fingleton.

The cross-examination sets up a potential showdown between two of the key players of the crash. It also comes after a revelation yesterday by Mr Neary that INBS escaped harsh regulatory measures in early 2008 because of concerns a public clampdown might affect a long-planned sale of the lender.

Mr Neary made the disclosure at the Central Bank's ongoing inquiry into INBS.

Speaking as a witness to the inquiry, the country's former regulator conceded the financial watchdog failed to act upon numerous signs of lax governance at INBS, which collapsed into State ownership in 2010, leaving taxpayers with a €5.4bn clean-up bill.

Under lengthy interrogation by Senior Counsel, Brian O'Moore, a member of the Central Bank's legal team, Mr Neary, claimed he was warned against "engaging in ... high-profile" measures to rein in INBS's poor governance regime by his own organisation's board, the now-disbanded Irish Financial Services Regulatory Authority (Ifsra).

He said the board, which he describes as the Authority, "cautioned me about any actions that would cause any concerns to arise about the standing of the society and its perception in the market".

He added he was "very worried about that".

Mr Neary said regulators instead sought to increase the number of directors on the INBS board and also requested an assessment from Goldman Sachs, the then advisers to INBS, on "all the options" if a desired buyout failed to materialise.

Mr Neary noted that the Wall Street bankers were asked to consider a partial sale of the loan book and said "interestingly ... Goldman Sachs never suggested there was any major issue with the loans or the valuation of the loans".

He claimed KPMG, the lender's external auditors, also conducted due diligence on INBS's books to prepare the lender for sale and "nothing arose from that process".

In what started out as a rather testy exchange, with Mr O'Moore tersely instructing Mr Neary to answer the questions, the former regulator concluded his evidence by describing the governance at INBS as "very, very poor".

He also acknowledged consistent concerns about the credit review function in the building society.

He said the "control environment in the society was less than it should be" and acknowledged there were fears about the "over-reliance" on the CEO, Mr Fingleton, who led the society for 38 years.

He claimed that as "a counter-measure to those weaknesses" the capital requirements for INBS were increased in 2008 to 11pc.

While INBS had already started to curb its commercial lending by then, he said the more onerous capital requirements could be viewed as a "form of a penalty..[being] imposed".

Mr Fingleton has repeatedly blamed the authorities for the society's collapse. He previously told the inquiry the regulator did not protect the financial system until "it was too late".

Irish Independent

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