Profit at EBS to be hit by solicitor loan case

The new chief executive of EBS Fergus Murphy says the building society's 2007 profit will drop to a level "similar" to its 2006 profit because of loans provided to one of two solicitors who are being sued by financial institutions over their property dealings, writes Simon Carswell,Finance Correspondent

The society reported a 63 per cent rise in pretax profits to €43 million in the first half of 2007. Mr Murphy said the bad loans in the solicitor case, which arose in the second half of 2007, would "bring our profit back to a level that would be more similar to, say, 2006". EBS made pretax profits of €65.9 million in 2006.

EBS is owed one of the largest amounts of any of the financial institutions indebted to Dublin solicitor Thomas Byrne. It is not owed money by solicitor Michael Lynn. The society obtained a judgment of €12.6 million against Mr Byrne, of Lad Lane, Baggot Street, Dublin 2, in November after he failed to repay its loans.

The papers in the society's case against Mr Byrne were referred to the Garda Bureau of Fraud Investigation. Mr Justice Peter Kelly said EBS had contended that sums were loaned on foot of undertakings which were not put in place and were dishonoured "on a grand scale".

Mr Murphy, who took charge of EBS on January 7th, said the loans-to-solicitors scandal had "for all banks and financial institutions shaken their trust [ in solicitors' undertakings]".

"Solicitors' undertakings were a weak control mechanism and way of conducting business for this market. Obviously there were risks there, as identified. From EBS's point of view, we will show steady to slow growth, even allowing for this one-in-10-year event."

He said every Irish bank was putting in place controls "to make sure it doesn't happen again". He also said the loans would be "the only dent" in EBS's 2007 results.

Ethna Tinney, who unsuccessfully sought re-election to the EBS board after a public row last year, is seeking re-election again at the annual general meeting in April.

Mr Murphy said: "The politics of the past or the personality issues that were there - there were errors made on both sides. In hindsight, we have got to get it right and move on with the board that is appointed in a very positive way."