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Irish Times
28-05-2025
- Business
- Irish Times
Like grief, banking inquiries have five stages and closure is never guaranteed
The Central Bank' s investigation into the collapse of the Irish Nationwide Building Society (INBS) – which concluded with publication of a report last week – followed a depressingly familiar pattern. First there was anger. Lots of anger. The collapse of the building society in 2010 led to a €5.4 billion bailout. It was a disproportionately large part of the €45.7 billion bill for bailing out the banking sector during the financial crisis. The debacle confirmed decades of suspicion that the building society was run as a personal fiefdom by chief executive Michael Fingleton . It led to more public outrage during a very angry time. Then came fear. Fear on the part of politicians – correctly as it turned out – that all of this anger would be vented on them come election time. After fear comes the third stage of Irish inquiries; activity masquerading as action. The Central Bank – then known as the Financial Regulator – began an investigation into the INBS's activities between 2004 and 2008. This confirmed what it already knew: that the building society's governance and risk management were a joke. READ MORE [ Fifteen years, €24.3m and 1,384 pages later, was the Irish Nationwide inquiry really worth it? Opens in new window ] This five-year investigation concluded that a wider investigation was needed to see if the INBS had broken the law and if its management was involved. This led to the setting up of the second inquiry in 2015, which delivered its findings last April and finally wrapped up last week. But before that, we had two more phases to go through. The next was apathy. A constitutional challenge by Fingleton and his lieutenant Stan Purcell effectively put the whole thing on hold for two years. It also took much of the heat out of the inquiry before it finally got going in 2017. It then sat for 105 days over the next four years amid waning public interest. The Central Bank reached settlements – involving sanctions and fines – with former chairman Michael Walsh and former executive Tom McMenamin in 2019. It settled with William Garfield McCollum in 2021. A permanent stay was put on inquiries into Fingleton on medical grounds, leaving only Purcell in the inquiry's sights. He was fined €130,000 and disqualified from being a director for four years. We finally arrived at stage five last week: resignation. The publication – 15 years after the event – of the final report on how a small and badly run building society played an outsized role in our national bankruptcy has been met with barely a shrug. It might seem overly cynical, but the five-stage Irish inquiry process would seem to serve the interests of everybody involved, except for those looking for a timely explanation of how something went seriously wrong and who is responsible. The delay suits politicians well enough – as long as the inquiry is set up promptly enough. A quick start, followed by years of hearings and legal challenges is just fine. They are pretty much in the clear once the inquiry is set up as commenting on the work of statutory inquiry – no matter how slow or badly run – breaks the convention that they can't interfere in the work of inquiries. And of course, they can take no remedial action until the inquiry is finished as that would prejudge the outcome. The attractions of the five-stage process for the subjects of an inquiry are equally obvious. The more time passes, the less the public care about the result when it comes. That makes it easier for all concerned to dismiss the findings as past tense and move on. The legal profession is happy to facilitate all of this, but the real enablers are us. We have bought into the notion that it is not possible to get answers to any serious institutional or regulatory failure in less than half a decade. The Central Bank, in fairness, appears alive to the unsatisfactory nature of the INBS inquiry. It published a market commentary along with the inquiry report that touched on this. There is a section devoted to the 'importance of the Central Bank's investigation and inquiry into INBS'. It leans heavily on the lessons the bank can take from the process, noting that: 'As the inquiry proceeded, the Central Bank continuously reflected on what it could do better; developing improvements to both its internal investigative and inquiry processes.' It concluded that 'this investigation and inquiry have had an enduring and positive effect on the Irish regulatory environment'. It sets out various measures put in place to ensure the smoother running of inquiries. The Central Bank was less effusive about how the 15-year €24.3 million process bolstered its authority as a regulator. 'The Central Bank's ability to bring inquiries to conclusion is critical to the effectiveness of its enforcement regime,' it commented, somewhat elliptically. It said it was important that 'individuals understand the Central Bank will use the full extent of its powers to pursue cases to their conclusion and to hold relevant individuals to account.' That is not exactly the message conveyed by yet another five-stage Irish inquiry.
Irish Times
24-05-2025
- Business
- Irish Times
Fifteen years, €24.3m and 1,384 pages later, was the Irish Nationwide inquiry really worth it?
The ability of corporate lawyers and big-name accountancy firms to make hay in good times and bad is borne out in the final cost of the regulatory investigation and inquiry into Irish Nationwide Building Society (INBS) , which collapsed during the financial crisis after receiving a €5.4 billion taxpayer bailout. The €24.3 million Central Bank bill, revealed on Wednesday as 15 years of investigations and inquiry came to an end, lends itself to fantasy alternative uses. It could have paid for 540 teachers on a starting salary; 56 housing tsars, based on the salary current National Asset Management Agency (Nama) chief Brendan McDonagh would have earned had he ended up taking the job; or, if you were feeling particularly flaithúlach, about 200 X-ray scanners along the lines of the one bought by the National Gallery eight years ago but never used. Three firms alone shared €10 million of the inquiry fees: accountancy group EY and law firms Arthur Cox and Mason Hayes & Curran. READ MORE [ INBS inquiry finds litany of regulatory breaches by collapsed lender Opens in new window ] But was the drawn-out affair worth it? Especially when, in the end, the only one of five former senior INBS figures put forward for inquiry a decade ago, after a five-year initial investigation into the failed lender, was still in focus. That individual, INBS's former finance director John Stanley Purcell (71), has been fined €130,000 for his role in a series of regulatory breaches at the lender before its collapse during the financial crisis, and disqualified from holding a senior position in a financial firm for four years. Between 2018 and 2021, three of the men – former chairman Michael Walsh; one-time head of commercial lending Tom McMenamin; and former head of UK commercial lending Gary McCollum – reached settlements with the regulator, resulting in individual fines of €20,000-€200,000 and disqualifications of up to 18 years. In 2019, the inquiry permanently 'stayed' the case into Michael Fingleton , now 87, as he was in ill health after a suffering a stroke. [ Michael Fingleton for beginners: Former head of Irish Nationwide faces civil trial Opens in new window ] The High Court is, however, currently hearing a civil case against Fingleton brought by the Irish Bank Resolution Corporation (IBRC), which took over INBS in 2011, for alleged negligent mismanagement of the lender. It follows failed bids that Fingleton's enduring powers of attorney – his wife, Eileen, and son, Michael jnr – brought all the way to the Supreme Court to stop the case going ahead. Proceedings such as this are possible because Irish legislation allows for individuals who lack capacity – or are even deceased – to sue or be sued in civil courts. The bar is higher for Central Bank inquiries, where the person concerned must have capacity to give evidence and speak to their own actions. The drawn-out nature of the investigation and inquiry is regrettable and undermined the process. Of course, there was a period of lost time between 2015 and 2018 when Fingleton and Purcell challenged the constitutionality of legislation that gave the Central Bank the power to hold such an inquiry. But the inquiry itself was unwieldy, spread over a number of modules, with substantive hearings occurring sporadically over 105 days between December 2017 and July 2021. It would take almost a further three years before the inquiry delivered its findings to Purcell in April 2024. The inquiry panel decided that 27 of the 42 so-called suspected prescribed contraventions – or regulatory breaches – INBS was alleged to have committed between 2004 and 2008 were proven. Purcell participated in 13 of these, it found. While INBS itself admitted a series of regulatory breaches in a settlement agreement with the Central Bank in 2015, this carried no weight in the inquiry. The case essentially had to be relitigated, with the inquiry finding first against INBS before concluding whether an individual participated in the contravention. But the final report does provide plenty of colour on individual loans where INBS broke its own policies, mainly as it built up a large commercial property portfolio in the UK, but also lent to projects in France, where the focus was on French Riviera and ski resorts, and Italy. One example was INBS's participation in a £336 million (€399 million) loan with UK banking group HBOS to a buyer – whose identity is redacted – of 869 pubs in the UK. This is known to relate to pubs giant Admiral Taverns' purchase of a portfolio from rival Punch Taverns, as the latter struggled with a mountain of debt. INBS provided £59 million of the loan and had a 25 per cent profit-share arrangement on the side. It was approved by the board on April 24th, 2007. Problem was, the inquiry found that most of the funds had been drawn down eight days earlier – with no sign of INBS's urgent credit decision approval procedures being used to get around this. The inquiry found that INBS failed to seek personal guarantees, as required by its policies, from the owners of the company – members of the London-based Landesberg and Rosenberg property families. It also extended the term of the loan without appropriate approvals. At the end of 2009, INBS had written off the entire facility, plus follow-up funding and interest, totalling £64.3 million. Central Bank officials insist lessons have been learned from its first public inquiry. These resulted in new guidelines in 2023 and helped inform a complete overhaul of the regulatory regime, including legislative changes that now make it much easier to hold finance executives to account for failings on their watch. Crucially, the regulator can now sanction individuals without having to find initially against their firm. Individuals will always be more inclined to resist agreeing to settlements than firms. Some will be right. But the fact that the INBS inquiry persisted to the bitter end should act as a powerful deterrent to wrongdoing. Perhaps, then, it was worth it.
BreakingNews.ie
21-05-2025
- Business
- BreakingNews.ie
Former Irish Nationwide manager 'shocked' that Fingleton issued 'get-out-of-jail card' to borrower
A former senior commercial manager at failed lender Irish Nationwide has told the High Court he was left "absolutely shocked" that Michael Fingleton Sr, referred to as "the boss" at the bank, confirmed an alleged "get-out-of-jail card" to a borrower who could not repay a multi-million euro property loan. Conal Regan, who joined the bank after Mr Fingleton left the society in April 2009, on Wednesday told the High Court that the defendant allegedly wrote a letter to a lender, Louis Scully, who borrowed almost €6 million to purchase land in Co Meath in October 2007, confirming that the sum loaned to him was a "non-recourse" one. Advertisement A non-recourse loan means that debt on a loan is secured by the collateral and cannot be pursued by the lender from the borrower. The High Court civil case, which is in its third week, against the former Irish Nationwide Building Society (INBS) chief executive and managing director Mr Fingleton alleges that he negligently mismanaged the building society and engaged in property "gambles" with high-net-worth individuals in an informal and speculative manner in the mid-2000s, leading to fatal losses. Mr Fingleton (87), who cannot give evidence due to ill health, joined the building lender in 1971 and retired in 2009. He held the roles of both managing director and chief executive in that time. At its height in 2007, INBS had reported assets of €16 billion but was a high-profile casualty of the financial crisis of 2008. Liquidators for Irish Banking Resolution Corporation (IBRC) have taken the case against Mr Fingleton, who denies the allegation of negligent mismanagement. Advertisement The total losses at INBS had been estimated to be €6 billion. However, only €290 million in damages is being pursued by IBRC, relating to five specific loans, allegedly approved by Mr Fingleton. The court has been told that Mr Fingleton was allegedly 'nodding through' top-ups and extensions to certain clients without the knowledge of the society's board. At the High Court on Wednesday, former INBS manager Mr Regan, who joined the society in late October 2009, said he was dealing with "significantly" distressed credits at the lender. When Mr Regan queried and tested loans issued to Mr Scully, he was told by letter from Mr Scully that the monies advanced to him were all "non-recourse" loans. Advertisement Lyndon MacCann SC, for IBRC's liquidators, was told by Mr Regan that a February 2009 letter from Mr Scully to Tom McMenamin, then-manager of commercial lending at Nationwide, referred to a list of borrowings by Mr Scully and other individuals that stated "nobody was getting any younger". Mr McMenamin wrote back saying that all loans to Mr Scully were made on a non-recourse basis. Mr Regan said he could not find any reference "anywhere" in the paperwork about a non-recourse element in a loans to Mr Scully for Meath land – measured at 21,700 acres – at €598,7850, arising from a value of €275,000 per acre, which Mr Regan said seemed "exceptional, very, very high". Mr Regan said he reacted by thinking "why in the name of God was a get-out-of-jail card given here, given the level of funding that had been provided?" "I just could not understand that somebody could possibly believe that letter would trump agreements or legal documents signed and on a 'normal-recourse' basis. All of a sudden there is this and it just didn't make sense," Mr Regan told the court. Advertisement Mr Regan said he had looked at the files regarding Mr Scully's loans and that "non-recourse was mentioned nowhere. Nowhere". Mr Regan told the court he asked Mr McMenamin "why in the name of god" was the letter of confirmation issued and claimed that Mr McMenamin told him: "I was only doing what the boss told me to do". Mr MacCann asked who was being referred to as "the boss" to which Mr Regan said he was told by Mr McMenamin that this was a reference to Mr Fingleton Sr. Later in December Mr Scully wrote to Mr Regan saying as far as he was concerned all of his business with the society was on an non-recourse basis and that this had been agreed by Mr Fingleton. Advertisement Mr Regan told Mr Justice Michael Quinn that it was a "shocking assertion" and that "individuals were not even putting hands in their pockets" if they had a "free bet" on getting planning or zoning for lands. Ireland Michael Fingleton engaged in 'solo run' trading wh... Read More "It was a get out of jail card. It was incredible. I have never, never come across it before," said Mr Regan. In response to a request for any documentary evidence as to the agreement between Mr Scully and Mr Fingleton, Mr Scully writes back on March 25th, 2010, enclosing a letter of confirmation of the non-recourse loans from Mr Fingleton and writes "I trust this brings matters to a conclusion". Mr Regan said he was left "absolutely shocked" by the letter from Mr Fingleton. The case continues at the High Court.
Irish Times
21-05-2025
- Business
- Irish Times
INBS inquiry finds litany of regulatory breaches by collapsed lender
The written decision of the regulatory inquiry into Irish Nationwide Building Society (INBS), published on Wednesday, concludes a litany of regulatory breaches occurred in the run up to the 2008 property crash – as the lender repeatedly issued large sums to developers without proper paperwork, security and internal approvals. The inquiry panel decided that 27 of the 42 so-called suspected prescribed contraventions (SPC) – or regulatory breaches – INBS was alleged to have committed between 2004 and 2008 were proven. Its former finance director John Stanley Purcell, alone among five former INBS figures originally subject to inquiry not to have settled or had proceedings dropped by the time case had concluded, participated in 13 of these, it found. One example case in the report related to a £155 million (€184 million) loan to a borrower (whose name is redacted) to purchase a 7.8-acre site in London in 2007 with planning for 948 flats and commercial and retail outlets and follow-up £26.3 million facility early construction loan. READ MORE These breached the lender's own policies because three-year audited accounts were not sought from the borrower, which was incorporated in 1997, and loans were advanced prior to a quorate credit committee meeting. There was also no evidence personal guarantees, required by INBS when the borrower was a private company, were sought. The loans would ultimately be transferred to the National Asset Management Agency (Nama). [ EY, Arthur Cox and Mason Hayes main winners from €24.3m INBS inquiry Opens in new window ] INBS also failed to set a formal policy on profit-sharing lending, in spite of warnings from regulators from 2004 that its commercial lending should be 'conducted in a prudent and responsible way', according to the report. Profit-share lending, where INBS would take a cut of gains from a development project, eventually represented 65 per cent of INBS's €8.18 billion commercial loan book by the time of the 2008 crash. [ Irish Nationwide Building Society inquiry cost reaches €24.3m Opens in new window ] The inquiry concluded that rapid growth of profit-share lending between 2004 and 2008 meant the board could not have properly considered individual loans. For example, in July 2006 board minutes showed that 40 loans were approved at a single board meeting involving in excess of €450 million. In October of the same year 38 loans totalling more than €500 million were given the nod. 'It is clear that the sheer volume of loans that were presented to the board for approval made it virtually impossible for the board to apply appropriate oversight and rigour in approving these loans,' the report said, adding that the profit-share deals were particularly complicated as they often included repayment moratoriums, up to 100 per cent funding, the use of special purpose vehicles, and very large sums of money. This made them very vulnerable in a property market downturn. While the inquiry accepted Mr Purcell was not directly involved with day-to-day commercial lending, it said he was a board member and was aware of regulators' concerns 'that commercial lenders were, in some cases, not obtaining the required information from borrowers in order to properly assess their capacity to repay the loan being provided.' Between 2008 and 2010, INBS suffered financial losses in excess of €6 billion, leading to a €5.4 billion taxpayer bailout. It ultimately collapsed.
Irish Times
21-05-2025
- Business
- Irish Times
Irish Nationwide Building Society inquiry cost reaches €24.3m
The Central Bank's long-running inquiry into former senior figures at Irish Nationwide Building Society (INBS) has reached a total of €24.3 million, the regulator revealed on Wednesday, as the final subject in the case was sanctioned. The inquiry panel fined INBS's former finance director John Stanley Purcell (71), €130,000 for his role in a series of regulatory breaches at the lender before its collapse during the financial crisis, and disqualified him for a period of four years. The Central Bank will now apply to the High Court to confirm the inquiry decision. Mr Purcell is not appealing the outcome. Colm Kincaid, the Central Bank's director of enforcement, insisted the cost over the last 15 years of running both its initial investigation, and the full public inquiry that followed it, was 'absolutely' worth it. READ MORE He said it helped inform a complete change in the regulatory regime, including legislative changes that now make it much easier to hold finance executives to account for failings on their watch. 'The system of regulation we have today is a quantum step forward from the period that this inquiry relates to, in terms of the powers that we have, the resources we have, and the capabilities that we have,' Mr Kincaid said. He said 'the fruit' of the reforms have been borne out in how the Irish financial system has weathered a series of shocks in recent times, including Brexit, the Covid 19 pandemic and the cost-of-living crisis. The final decision on Mr Purcell comes almost a year after the inquiry panel revealed it had made findings against the former executive. Mr Purcell was the only remaining individual among five originally subject to the inquiry when it was established in 2015. Since public hearings started in late 2017, the Central Bank has reached settlement agreements with three of the original five – former INBS chairman Michael Walsh; one-time head of commercial lending Tom McMenamin; and former head of UK commercial lending Gary McCollum. They were fined a total of €243,000, with the largest amount paid by Mr McCollum. It dropped its case against the failed lender's former long-standing managing director, Michael Fingleton, now 86, in December 2019, as he was in ill-health after a stroke. The High Court is currently hearing a civil case against Mr Fingleton brought by the Irish Bank Resolution Corporation (IBRC), which took over INBS's assets in 2011, for alleged negligent mismanagement of the lender. He is not in a position to give evidence in this case. The inquiry, which has held public hearings sporadically during its lifespan, was set up to look into seven sets of alleged regulatory breaches between July 2006 and September 2008, including that INBS allegedly failed to process loans in line with its own policies, failed to obtain property security for commercial loans, failed to get proper valuation reports on assets it was lending against or to establish credit risk policies for profit-share agreements with developers during the boom. Between 2008 and 2010, INBS suffered financial losses in excess of €6 billion, primarily arising from the impairment of its commercial loan book. INBS cost taxpayers €5.4 billion to rescue during the financial crisis before its remains were folded in 2011 into IBRC, previously Anglo Irish Bank. The inquiry found that between 2004 and 2008, Mr Purcell, as a board member of INBS, participated in breaches of financial services law by the lender relating to its commercial lending. The commercial loan book surged from €3.59 billion to €8.18 billion over the period, to account for almost 80 per cent of total loans. It found that INBS was run in a 'seriously deficient manner in relation to its commercial lending, credit risk and associated corporate governance', according to a summary published by the regulator. Profit-share agreements between INBS and property development borrowers eventually represented 65 per cent of INBS's commercial loans. Louise Gallagher, head of enforcement investigations at the regulator, said the inquiry found 12 instances where commercial loans, totalling €161 million, were granted without approval by INBS's credit committee or board, as required. She highlighted how the board often approved large volumes of loans in single meetings, which, she said, could not have allowed for proper scrutiny. A board meeting in October 2006 sanctioned 38 loans totalling more than €500 million, while one the following month approved 39 loans of a similar gross value, according to the summary report. The Central Bank has imposed more than €400 million of fines on firms and individuals over the past two decades. The bulk related to bank fines over the tracker mortgage scandal. Fines collected are passed to the Exchequer.
