INBS inquiry may last over two years, hearing told

Michael Walsh warned Central Bank ‘financial crash was coming’ in 2007, says barrister

Former Irish Nationwide Building Society on Grafton St. Photograph: Frank Miller

Former Irish Nationwide Building Society on Grafton St. Photograph: Frank Miller

 

Irish Nationwide Building Society’s former chairman, Michael Walsh, warned the Central Bank in 2007 of the impending financial crash and presided over a decision by the now-defunct firm to stop lending at the end of that year, an inquiry heard in Dublin on Wednesday.

Michael Collins SC, who is representing Mr Walsh in an inquiry into alleged lending practice breaches at the failed lender, said “there is no dispute but that Mr Walsh was not guilty of any form of dishonesty or bad faith or impropriety”.

Mr Walsh is one of five men subject to the inquiry, which was set up by the Central Bank in 2015. Substantive hearings only began on Monday. It is alleged that at least some of the five men failed to ensure that commercial loan applications at the building society were processed and approved correctly, and that they failed to ensure commercial lending was effectively monitored in line with internal policies.

“There was one person who wasn’t slow in recognising the impending crisis” in 2007, Mr Collins said. “One person uniquely said that the financial crash was coming and warned the Central Bank. That banker was Michael Walsh.”

He said at the end of 2007 Mr Walsh succeeded in securing board approval “that commercial lending would cease”, well before other lenders started to tighten credit availability.

Fines

The inquiry, comprising a three-person panel led by solicitor Marian Shanley, has the power to impose fines of up to €500,000 on individuals. Mr Collins said on Wednesday that the inquiry into a total of seven so-called suspected prescribed contraventions between August 2004 and September 2008 will “conservatively” last two years.

Mr Collins said he doesn’t know how a case can be made against Irish Nationwide Building Society (INBS) and, by extension, former senior executives and directors, as it is structured in such a way that no one is making a case.

He noted that the Central Bank’s enforcement division, which submitted an original investigation report to the inquiry panel, and the inquiry’s legal practitioner team have both made clear they are not making a case.

“Here we have an inquiry where nobody is making any case against anybody,” Mr Collins said. “It’s not enough to say that there are hundreds of thousands of documents and the evidence is in there somewhere. Somebody has to make the case.”

Mr Collins repeatedly questioned how Mr Walsh can be accused of “participating” in the commissioning the alleged breaches when he was a non-executive chairman with no management functions. He noted that the Central Bank, which started investigating INBS in 2012, decided early on to drop plans to level allegations against the other non-executives.

“In law, there are no further obligations or duties on a chairman than on other non-executives,” said Mr Collins.

“What is this inquiry about? The one thing it’s not about is an inquiry into why Irish Nationwide Building Society collapsed or why it became insolvent,” said Mr Collins. “There is no causal link between the suspected prescribed contraventions and the collapse of the society.”

Mr Collins claimed that the Central Bank has an “enormous conflict of interest in this inquiry”, noting how it “quietly dropped” an original allegation that the board had given Mr Fingleton an “extraordinary delegation” of power and that it failed to monitor this.

Evidence from INBS’s former finance director, John Stanley Purcell, who is among the five men subject to the inquiry, shows regulators “expressly approved” Mr Fingleton’s powers, Mr Collins said.

“Can you imagine the meal they would have made if they decided to proceed with this wrong or extraordinary delegation of power allegation”, he said.

The inquiry has been adjourned until January 9th.