Somers 'shocked' by lax risk protocols

Only loans above €750 million went to the board of Allied Irish Banks for approval at the height of the boom so lax were the risk protocols, an Oireachtas committee heard yesterday.

Michael Somers, who was appointed to the board of the bank by the government in 2010, said he was “taken aback” by the risk assessment culture in the bank.

“One of the things that shocked me most was the size of loans that came before the board for consideration. It was only loans in excess of €750 million.”

Dr Somers said loans smaller than this amount were assessed by the management of the bank. “There was no risk committee when I joined AIB. It was a pretty chaotic organisation,” Dr Somers told the Committee on Finance, Public Expenditure and Reform. “There was also no chief risk officer, which was quite extraordinary.”

The former chief executive of the National Treasury Management Agency added that it was essential for any bank to have a risk committee.

The Government has injected €20.7 billion of taxpayers’ money into AIB to cover losses following the property crash.

Sinn Féin finance spokesman Pearse Doherty asked Dr Somers if the bank intended to change its approach to debt forgiveness, claiming only €600,000 of distressed residential mortgage debt had been written off by the bank since the crash, out of a total loan book of almost €95 billion.

Dr Somers said bank officials needed to be careful that they were “not being hoodwinked” when it came to writing down debt. He said 2,000 staff at the bank were employed in supporting customers experiencing difficulties with their loans.

However, Dr Somers said the bank had to deal individually with 37,000 distressed debt holders and “this would take some time”.

“We will not be throwing people out on the streets; some deal will have to be cut and if that involves the writing-down of debt then so be it.”

Dr Somers was appearing before the committee along with fellow public interest director at the bank Dick Spring, who said while AIB came late to the lending boom, “by God, they came fast and furious”.

Low trust level

Mr Spring, who was appointed to the board in 2009, said the level of trust between the Department of Finance and the bank was at an all-time low when he joined. While he had informal contacts with the late minister for finance Brian Lenihan, detailing to him the scale of the problems faced by the bank, there was no formal arrangement for reporting to the minister or the department.

Mr Spring said he believed the combination of the personal insolvency legislation and the forbearance on offer from the banks would eventually result in the State getting to grips with the mortgage arrears problem.

“We expect to see a rapid increase in the resolution of these types of cases in the next six months, where customers are working collaboratively with the bank.”

Business lending

Mr Spring said the bank was lending to business despite widespread complaints to the contrary and had already reached its small and medium-sized enterprise lending target of €3.75 billion for this year.

However, he acknowledged only €600 million of the total represented new loans, with the remainder constituting the refinancing of existing loans.

Mr Spring said he was paid €26,000 in 2009, €47,000 in 2010 and €59,000 in 2011 as remuneration for his role as a director, which, he said, involved 60 days of work annually.

Dr Somers said he was paid €98,000 in fees in 2010 and €150,000 in 2011, with the differential reflecting his appointment as board deputy chairman and chairman of the board risk committee in June 2010.