Banking inquiry: Lenihan aware of ‘impact’ of bank guarantee

Former chief executive of Ulster Bank Cormac McCarthy has told the Oireachtas Banking Inquiry that the late former minister for finance Brian Lenihan attended an Ulster Bank client event on September 30th, 2008, having spent all of the previous night deliberating on the blanket bank guarantee for domestic institutions at Government buildings.

Mr McCarthy said this was the first time he had met Mr Lenihan, and he spoke to him before the event about the impact the guarantee was already having on Ulster Bank.

“I explained to him what the impact [of the guarantee] was on Ulster Bank. We believed ourselves to be systemic.

“We had branches and business relationships across the country and already we had seen the impact of this, even though it was early in the day with deposits leaving us for the competition.

“The message I was giving was that it was having a significant impact on us and by implication would have an impact on our customers.”

On Mr Lenihan’s response, Mr McCarthy said: “He listened to me and heard what I had to say.”

Mr McCarthy said Ulster Bank spoke with Mr Lenihan and the Department of Finance about its possible inclusion in the Irish guarantee, but the decision by the UK government in mid-October to provide support to RBS and other institutions meant “our immediate stress was resolved”.

Ulster Bank ultimately did not participate in the Irish guarantee.

‘Seriously flawed’

Mr McCarthy had earlier told the inquiry that Ulster Bank lent too much money to too few people in the years leading up to the financial crash in late 2008.

Mr McCarthy said the economic assumptions that underpinned these lending decisions were “seriously flawed” and decisions made by the bank were “ill judged and mistaken”.

“I deeply regret that this happened when I was chief executive,” Mr McCarthy said.

Ulster Bank is owned by Royal Bank of Scotland, which has provided £15 billion of capital since 2008 to its Irish subsidiary to prevent its failure.

On Ulster Bank’s role in pushing 100 per cent residential mortgages from July 2005, Mr McCarthy said that with hindsight, it was a “detrimental initiative”.

He said the market share of its subsidiary First Active among first-time buyers was under pressure at the time and this was a response to moves by rival lenders to “stretch loans-to-value to 100 per cent or more” and the fact that many customers were using expensive short-term debt, such as credit cards, to finance their deposits.

Mortgages

Mr McCarthy, who is now the finance chief at Irish bookmaker Paddy Power, said the policy was to have been implemented in a “controlled and restricted way” and was notified to the regulator at the time.

He said Ulster Bank and First Active wrote about €1 billion worth of 100 per cent mortgages for 4,000 customers in the three years to mid 2008. This represented about 4 per cent of the total market but did little to change the bank’s overall share of mortgages from 16 per cent.

Mr McCarthy said he heard about the Government’s decision to issue a blanket bank guarantee in September 2008 through news bulletins on the morning after the decision was made. He was “surprised” by the decision, especially as he’d had two meetings in the previous fortnight with the financial regulator without the matter being mentioned.

He said it would be “wrong” for him to comment on the decision, as he wasn’t in the room when the decision was made on the night of September 29th, 2008.

“All of the decisions I made were made in good faith based on the information that I had at the time,” he said, adding that the regretted the impact these decision have had on “people’s lives”.

Mr McCarthy became chief executive of Ulster Bank in 2004 following its acquisition of First Active, a building society that he led at the time of the takeover. He left Ulster Bank in May 2011.