Business Irish

Saturday 20 October 2018

Where now for Central Bank INBS inquiry as Fingleton illness leaves probe in limbo?

Ex-chairman Michael Walsh and right, ex-chief executive Michael Fingleton at the Irish Nationwide AGM in Dublin in 2005
Ex-chairman Michael Walsh and right, ex-chief executive Michael Fingleton at the Irish Nationwide AGM in Dublin in 2005
John Stanley Purcel, INBS's former company secretary

Gretchen Friemann

The Central Bank's post-mortem into the collapse of Irish Nationwide Building Society has taken another twist after the failed lender's former chairman Michael Walsh stuck a settlement deal with the regulator.

Mr Walsh, once one of the nation's banking elite, is now excluded from the Central Bank's long-running inquiry into the governance of the notorious INBS, which imploded spectacularly in August 2010, saddling taxpayers with a €5.4bn cleanup bill.

His exit comes as the inquiry appears locked on the horns of a dilemma. Michael Fingleton, the high-profile former chief executive of INBS and architect of its rapid expansion during the boom era, is gravely ill.

His poor health has prevented the inquiry from resuming its public hearings and it remains unclear when and how the investigation will continue.

Legal experts claim this sudden change in circumstances plunges the whole enterprise into a quandary. The inquiry's scope is likely to be severely curtailed and potentially vulnerable to charges of a breach of natural justice.

So far Mr Fingleton, who resigned in April 2009 with a €30m pension, has refused to engage a lawyer, opting to represent himself. In December, at the inquiry's first substantive public hearings, Mr Fingleton complained about the "enormous" and "unjustified" costs that have accrued over the eight years since the Central Bank embarked on its investigation.

It was an argument he also ran at the High Court, when he then engaged senior counsel, Bill Shipsey, to mount a case aimed at preventing the regulator's inquiry. In an affidavit sworn in Marbella, Mr Fingleton claimed his "financial position is by no means strong, particularly in respect of having available liquid funds". He claimed he had suffered "difficulty in discharging legal fees in the recent past and in this regard had to rely on support from my family members".

Counsel for the Central Bank countered that Mr Fingleton received a total remuneration package of €9.7m from 2003 to 2008, in addition to his retirement sum. In a lengthy judgement, Justice Seamus Noonan dismissed the case on all grounds. He described Mr Fingleton's "complaints about equality of arms and the unfair costs burden on him of participating in the inquiry" as ringing "somewhat hollow".

The case is now before the Appeals Court.

John Stanley Purcell (below), INBS's former company secretary also attempted to halt the inquiry in the courts, to no avail.

Stan Purcell.jpg
John Stanley Purcel, INBS's former company secretary

But the decision to settle with Mr Walsh may trigger another legal debate about the inquiry's structure.

The probe came under sustained fire from the five executives under examination in December with each denying some seven counts of so-called special prescribed contraventions that cover a range of alleged regulatory breaches, including the credit-committee's failure to monitor non-performing loans and a lack of internal controls over profit-share arrangements with partners on property joint ventures.

From the outset however, INBS's former executives, have accused the Central Bank of running an unfair investigation. The inquiry's basis stemmed from a mea culpa from the failed lender's board in 2015. A fine of €5m was imposed - the maximum possible at the time - but never collected as INBS was bust.

By that stage the main actors were long gone and the new directors had no hand in the organisation's lending frenzy, which resulted in its commercial property loan book ballooning from €2bn in 2000 to €9.8bn in 2007, mostly in the form of high-risk site financing.

As previous employees have recounted in the past, Mr Fingleton, who turned 80 last month, drove the society's breakneck growth, cementing relationships with the State's biggest developers, including Sean Mulryan of Ballymore Properties and Gerry Gannon, who reportedly accounted for some of the biggest exposures.

INBS's executives however have consistently argued the regulator failed to maintain proper oversight of the organisation.

Mr Fingleton, a trained barrister, launched a bitter attack on the inquiry in December accusing it of mounting an "artificially trumped-up case" designed "to deflect attention from the Department of Finance, the regulator and the Central Bank, who were statutorily charged with protecting the financial stability, which they failed to do until it was too late". He recounted how the former financial regulator Patrick Neary pleaded with him to remain as managing director in October 2007 , claiming it would "be highly detrimental to the society if I left at that time".

A similar line was delivered by Mr Walsh's lawyer, senior counsel Michael Collins, who asserted he had remained in his post only at the urging of the regulator and his resignation from INBS's board in February 2009, following a credit downgrade from ratings agency Moodys, was against the wishes of the then Finance Minister Brian Lenihan.

Both Mr Fingleton and Mr Walsh pointed up the inherent conflicts in the Central Bank's role as the investigator of a debacle in which it played a key role. The inquiry, the first of its kind, has no power to foot legal costs incurred by the executives it is examining but can award costs against them. It may also levy a maximum fine of €500,000 and impose a range of sanctions.

In a withering attack on the inquiry Mr Collins claimed the regulator had failed to establish an "articulate case" against his client and described its approach to the investigation as "lop-sided". He said the Central Bank had made the case on "every single level" against INBS' former directors and executives even though it too was "a major player in the events".

He stressed an investigation into other non-executive directors of the defunct lender's board was abandoned and accused the Central Bank of sustaining its inquiry into Mr Walsh solely on the basis of his role as chairman.

Both Mr Fingleton and Mr Walsh emphasised that at no time had the regulator threatened to revoke INBS's licence while recommendations for governance reforms came with a relatively low level of urgency.

In 2011, the nationalised lender was shunted into the carcass of Anglo Irish and its assets flogged off at a hefty discount. In December, Mr Collins claimed this "terrible loss" could have been mitigated and said his client, Mr Walsh, resigned after it emerged the State-appointed consultancy, Jones Lang LaSalle, had in 2008 valued the INBS book at a 40pc discount.

Similar protests at the inquiry's scope and its core allegations have been mounted by the three other executives under scrutiny, Mr Purcell, the once loyal lieutenant of Mr Fingleton, as well as Tom McMenamin, the former commercial lending manager; and Gary McCollum the former head of UK lending.

Irish Independent

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