Senior INBS lender says he never understood 'profit-share' loans
The former head of commercial lending at Irish Nationwide Building Society (INBS) told a Central Bank inquiry he never understood or had explained to him how the bank's "profit-sharing" loans to developers worked.
"This profit-share concept was totally new to me. This was driven by a very, very senior official. I was basically the note-taker there," Tom McMenamin told the Inquiry which resumed public hearings yesterday.
McMenamin did not name the senior official. At the time the bank was headed by INBS managing director Michael Fingleton who has been excused from attending the current module of the Inquiry due to ill health.
Inquiry chairwoman Marian Shanley and the lead counsel, Brian O'Moore SC, advised Mr McMenamin that he could specify the roles of individual INBS officials in his testimony during a private session at the end of yesterday's public evidence. Media were excluded from hearing this evidence.
Mr McMenamin - who in December was fined €23,000 by the Central Bank and barred from holding company directorships for 18 years - is the first of an expected 17 witnesses due this month. They will tell the inquiry what they know about the INBS practice of extending billions of euro in profit-share loans in the decade before the bank's 2010 collapse.
Such loans allowed the borrower - often a newly-formed company with no other assets called a special purpose vehicle (SPV) - to receive 100pc up front to buy land or property. No payments would be due until years later when the asset was sold, and INBS would receive 25pc to 50pc of the profit.
In his testimony, Mr McMenamin repeatedly said he had no role, or any detailed understanding, of how such loans were constructed - even though by 2006 these had ballooned to more than €4bn and 65pc of the entire INBS commercial loan portfolio.
When asked whether INBS ever produced a formal written credit-risk policy on such loans, Mr McMenamin said: "I formed a strong view that there wasn't a specific policy in place in relation to the profit-share arrangements."
In his public comments, Mr McMenamin said "a very, very senior figure" negotiated all of the shared-profit loans up front, and he had never received an explanation as to how they worked.
Mr McMenamin initially insisted that he never saw the share of profit negotiated for INBS on such loans, before being shown a loan document he had signed.
"There was a very senior official always at those meetings. I never was at the meeting when profit-share arose. Normally I'd be told: 'Mr X (the borrower) is coming in at 11 o'clock, we'll do a profit share'. I wasn't advised whether it was a 5pc or 20pc share of profit, how it was calculated, and I never knew."
Mr O'Moore said this must be wrong. The barrister showed him one such loan document providing €10.9m to buy a plot of land on condition that INBS receive 40pc of profits once the land was rezoned and sold. He asked Mr McMenamin to view his own signature on the document.
"The evidence you gave is clearly wrong, when you said you were never aware of the breakdown of profit shares," Mr O'Moore said, adding that the loan in question was a sample from a much larger pool.
"Look, I wasn't involved in the calculation of the profit share," said Mr McMenamin "I was informed by a senior official whom I can't name that so and so was coming in to do a profit share. My input into it was in note-taking... and I'm very sorry, it wasn't my intention to tell a lie."