Anger and sadness as INBS 'tragedy' enters final act

Even the layout of the building is telling, says chief executive after €3.3bn losses unveiled

AT IRISH Nationwide’s head office on Grand Parade in Dublin there were only two rooms to hold meetings with the top customers – the seventh-floor boardroom and the adjoining office which used to belong to chief executive Michael Fingleton.

“What does that tell you?” asked Fingleton’s successor Gerry McGinn who has had to clean up a €5.4 billion mess left by Fingleton.

“One guy made the decisions here – the layout of the building reflects that,” said McGinn, speaking in the top-floor office.

Yesterday Irish Nationwide reported a loss of €3.3 billion for 2010 on top of a €2.5 billion loss the previous year. “What we are seeing today are the underwriting decisions of the former management team,” said McGinn.

He described the losses as “catastrophic”. While there had been a sharp deterioration in economic conditions, the losses were exacerbated by the historic nature of Irish Nationwide’s business – how it was set up and how it was run.

The results were the final set of financial figures for “Irish Nationwide as we have come to know it”, said McGinn, as the building society, which dates back to 1873, is to be merged with the State’s other toxic bank, Anglo Irish Bank, over the next two months and wound down over 10 years.

McGinn, who started the clean-up operation in mid-2009, said that the word catastrophe was associated with the “final act of a tragedy” and that this was fitting given that yesterday marked the final results for Irish Nationwide.

The new management at the building society had brought forward the date from mid-June to the end of this month to remove the Irish Nationwide name and all the building society’s signage from all 49 of its branches, except the Grand Parade head office.

This includes the massive sign on Irish Nationwide’s landmark building at the corner of O’Connell Street and Eden Quay overlooking O’Connell Bridge in Dublin.

A staggering 50 per cent of Irish Nationwide’s €11.5 billion loans have been written off, primarily as a result of the 64 per cent haircut – the worst of any bank – applied to the €8.9 billion in loans transferred to the National Asset Management Agency (Nama).

This put the building society “worst in class”, said McGinn, making it a contender for one of the worst banks on the planet.

It explains the vast losses and the extent to which Fingleton ran this one-man lender to property developers and land speculators.

McGinn said he was presenting the figures with a mixture of anger and sadness.

“Anger because of the extent of the losses and what the taxpayer has to meet and it is tinged with some sadness because two days ago with the Grand Parade branch we closed the branch network.”

McGinn blames three factors for the society’s troubles – the property mania, Irish Nationwide’s aggressive growth strategy that “fattened the calf for sale” and the extraordinary powers bestowed by the board on a dominant chief executive, Fingleton.

Speaking to The Irish Times, he said it was a decision of the board to grant and renew extraordinary powers to Fingleton. McGinn queried how they could have allowed this to happen.

“I assume that they asked questions of him and they were satisfied with the answers,” he said.

The fact that the building society’s reported profits rose every year seemed to give them comfort on any concerns they had, he said.

John McGloughlin, who joined the lender with McGinn as chief financial officer, described the business model as “fatally flawed”.

He said that in “a very significant proportion” of the building society’s €8.9 billion Nama loans Irish Nationwide had no recourse to the client, particularly in the UK where property deals were set up using special purpose vehicles.

McGinn said the building society was “heavily over-reliant” on property values and financing “land and early-stage property development”. This is the riskiest end of development lending.

Matters were made worse by the lender’s “appalling” files and documentation and the fact that there was “no orthodox management structure”, said McGinn.

Just two lending executives – Gary McCollum in Belfast and Fingleton’s son, Michael jnr, in London – managed Irish Nationwide’s loan book of €5.5 billion in the UK and the rest of Europe.

“We have had to reconstruct a commercial bank,” said McGinn.

Now, almost two years into the job, McGinn will see the remnants of Irish Nationwide moved into Anglo Irish Bank by mid-July.

There will be significant overlap in terms of staff skills on the €600 million in commercial property loans being merged with Anglo’s €36 billion post-Nama loan book.

Anglo has no mortgages; Irish Nationwide has €2 billion and one of the worst performing mortgage books in the country with 90-day arrears of 27 per cent – more than four times the industry average.

The building society’s mortgages have been described as “Ireland’s answer to subprime”.

McGinn said work being carried out by lawyers McCann FitzGerald and forensic accountants at Ernst and Young into “legacy issues” at Irish Nationwide was now being directed by the Central Bank.

They were examining whether “anything untoward” had happened at the building society and what remedies were available. He couldn’t comment further as this was a matter for the Central Bank.

As for the €1 million bonus paid to Fingleton after the bank guarantee, McGinn does not see him repaying it as he promised, although they will continue to write to him to try to get it back.

“We are not going to give up,” he said, “but it is two years on and we haven’t seen the bonus. That leads me to the conclusion that it is not going to be repaid.”

Irish Nationwide: by the numbers

€3.3 billion – the building society’s loss for 2010 announced yesterday.

€5.8 billion – combined losses for 2009 and 2010.

€11.5 billion – INBS loans at the peak of the market.

50 per cent – the losses as a percentage of total loans at peak.

€8.9 billion – total loan transfers to Nama.

€2.6 billion – loans left behind to be merged with Anglo and run down.

€5.4 billion – the amount pumped in by the Government.

27 per cent – arrears in the €2 billion residential mortgage book.

6.3 per cent – average arrears across Irish mortgages.

42 per cent – arrears on INBS buy-to-let mortgages.

464 – total employees last year.

217 – employees after the sale of deposits to Irish Life and Permanent.

49 – number of branches open last year.

0 – number of branches open today.