ANALYSIS:The figures just released by Irish Nationwide for 2009 are catastrophic, writes SIMON CARSWELL

GERRY McGINN, not yet a year as chief executive of Irish Nationwide, painted a horrific picture of the lending managed by predecessor Michael Fingleton that has led the building society to report a loss of €2.5 billion for 2009. This compares with a loss of just €243 million posted for 2008, Mr Fingleton’s last full year in charge.

The figures are catastrophic – proportionately far worse than the Anglo Irish Bank horror show. Irish Nationwide’s loss equals 24 per cent of its loan book, while Anglo’s recent €12.7 billion loss amounts to 18 per cent on the same scale.

Mr McGinn effectively described what was a private bank or equity house run by Mr Fingleton, the 37-year veteran of the society, for a select group of developers and land speculators where the building society was not just a lender but a player.

Land was purchased by borrowers using loans from Mr Fingleton, with Irish Nationwide taking a share of the profits when the land was sold at a higher value, driven by new bank lending. There were “a reasonably significant number” of profit-shares discovered at Irish Nationwide, said Mr McGinn, which he said was “highly, highly unusual” at banks he worked in from 1979 to 2001.

The top 30 borrowers account for €3.6 billion, or 43 per cent of the €8.5 billion of commercial loans, and some 75 per cent of the commercial loans are development.

In some cases, Irish Nationwide provided loans of up to 110 per cent of the value of the land backing them if the profit-share is taken into account, on top of already high loan-to-values (LTVs) and interest rolled up on the loans. All these practices give an appalling view of how select Mr Fingleton’s borrowing club was and how many eggs were placed in an extremely fragile basket.

“Up until 2007, the rate of increase and values in the property market – fuelled by the banks themselves – meant there was always an ‘out’, and they booked a profit. Everyone seemed to be content with that, until the music stops,” said Mr McGinn.

Irish Nationwide has written off loans of almost €2.8 billion – or 24 per cent of its €10.5 billion loans – of which some 85 per cent is being sold into the National Asset Management Agency (Nama).

It’s no surprise then, given what has been uncovered, that Irish Nationwide had the highest discount applied to the first loans moving into Nama. Mr McGinn said it was inevitable that the discount on the remaining €8.7 billion of Nama-bound loans would be “at the outer spectrum of discounts” due to the large level of development lending, high LTVs and “missing” loan documentation.

Mr McGinn likened his role and that of his team to paramedics.

“You arrive at the scene of the car crash and what do you do? You try to keep the patient alive . . . and you have very little people beside you to help you,” he said. He conceded he was “surprised” and “taken aback” with “sloppy practices” relating to loan documents and the security on loans after he started in June 2009. Just two lenders managed the €5 billion UK loan book, with four administrative staff and with a further five staff in Dublin. In all, 11 people looked after €10 billion in loans. Mr McGinn said there had also been a “dearth of experienced, skilled lenders”.

The most chilling aspect of the debacle is that Mr Fingleton’s player-manager role in development had been spotted by the referee and the purported guardians of the rules of the game before the frenetic years.

External reports by accountants and auditors – commissioned by the old Irish Nationwide board (which included Mr Fingleton) dating back to the mid-2000s – were forwarded to the Financial Regulator and detailed the “inadequate” credit checks and “well-below standard” lending practices. Now the building society requires a State bailout of €2.7 billion.

Mr McGinn was lukewarm on a possible merger with rival EBS, saying the European Commission “may not be positive” about it, as it will involve two institutions in receipt of State aid.

Selling the remaining €2 billion in home loans and €5 billion in deposits to Irish Life Permanent was an option, as was winding down the society.

“What has happened here is an outrage,” Mr McGinn said.