Nationwide epitomises the kind of zombie lender the Government fears, writes SIMON CARSWELL
THE ANNOUNCEMENT of a €243 million loss by Irish Nationwide for 2008 makes the building society’s decision to pay its chief executive Michael Fingleton a €1 million bonus and a 12 per cent pay rise all the more bizarre.
Fingleton has since agreed to repay the bonus and is retiring this month, but concerns linger over the future of the building society that he ran for 37 years.
Irish Nationwide is struggling with its heavy exposure to property investment and development.
Setting aside €464 million to cover loan losses – close to 1,000 per cent higher than in 2007 – the building society is acknowledging the pain felt within this sector.
The building society did not release a profit-and-loss account but said in a statement released yesterday evening that operating profits were €260 million in 2008. However, absorbing loan losses and other items pushed Irish Nationwide deep into the red. The building society described 2008 as “a very disappointing year”.
The lender said it carried out “a very detailed examination” of its loan book which resulted in “a very robust figure of €464 million” being allocated for loan losses “in line with market expectations”.
The society said that it has a further €1.2 billion in reserve to absorb future loan losses.
Irish Nationwide shrank its loan book by a massive 15 per cent in 2008, so the building society is evidently closed for new business.
This epitomises the type of scenario that the Government is trying hard to avoid across the sector – a zombie lender focused on cutting loans, not selling them.
This is perhaps no bad thing for Irish Nationwide given that its loan growth over recent years was primarily to the development sector which is causing such difficulties across the banking system. Selling problem property loans into the State’s bad bank could see Nationwide sell a large part of its €10.4 billion loans to Nama.
The society referred three times in its statement to “systemically important” credit institutions. Irish Nationwide strongly believes itself to be such an institution but had to emphasise the point.
The building society even said it plans to re-start the process to sell the business, which was abandoned last year, in a bid “to release maximum value for members”. This seems wildly out of kilter with the building society’s pronouncement in the same statement that its “ability to remain a going concern” and achieve its business plan depended on the continued support of Government.
