Irish Nationwide ‘much improved’ ahead of crisis - KPMG

Guarantee would eventually cost the taxpayer €5.4 billion

Workers remove signage from the exterior of the Irish Nationwide offices on  Dublin’s O’Connell Street. Photograph: Alan Betson

Workers remove signage from the exterior of the Irish Nationwide offices on Dublin’s O’Connell Street. Photograph: Alan Betson

 

KPMG told the financial regulator just three months before the bank guarantee that controls in Irish Nationwide Building Society (INBS), an institution it audited, were “much improved”.

The accountants were “satisfied” with the board and “happy” with the society’s business model of doing deals with developers.

Within three months of KPMG meeting the regulator on June 12th, 2008 Irish Nationwide would require a guarantee from the taxpayer that would ultimately cost €5.4 billion.

Billy Clarke, deputy head of banking in the financial regulator, quizzed Vincent Reilly, a partner in KPMG, and his two colleagues, about the society’s prospects. According to KPMG abbreviated minutes, the meeting lasted 75 minutes.

Mr O’Reilly said when it came to INBS: “controls – key processes, much improved in the past six years.”

Expert reports prepared by accountants Ernst & Young and others after the society’s collapse in 2009 concluded that controls in the society were between poor and non-existent in many cases, and this was a contributing factor to the society losing billions.


Going concern
The minutes show that Mr Clarke asked KPMG: “How much change is needed before INBS not suitable for going concern?” – in other words, what would it take for it to go bust?

KPMG replied “do not foresee an issue” in 2008, but 2009 could be “more challenging.”

Mr Clarke questioned the society’s ongoing lending to developers, freezing of capital repayments on loans, and whether loan reviews were adequate.

KPMG said the “track record” of INBS was “historically very good” but it admitted the society “may need increase resources in this monitoring.”

Mr Clarke asked KPMG if it was “satisfied with the level of response to issues from the board.” Mr Reilly replied: “Satisfied with board of directors, take considerations and recommendations of board.”

Mr Clarke wanted to know who said the issue about “management improvement” in INBS was “closed”. KPMG said this was its “judgment” but “if not will be carried forward.”

KPMG, as liquidator of IBRC, the merged former Anglo Irish Bank and Irish Nationwide, is suing Anglo’s former auditor Ernst & Young for €50 million.

It is not suing itself as auditor of Irish Nationwide but is suing the society’s old board.