Nationwide told to strengthen top management

THE FINANCIAL Regulator has directed the Irish Nationwide Building Society (INBS) to strengthen its top management team by appointing three new executives to work immediately below its chief executive Michael Fingleton, for decades the dominant figure in the business.

The reasons for the regulator’s intervention are unclear, but it is known to have called on the INBS to appoint a chief operating officer, a chief risk officer and a chief financial officer.

INBS, whose €12.43 billion loan book is heavily exposed to the sharp deterioration in the Irish and British property markets, is believed to have approached a number of high-ranking officials in other lending institutions in relation to these posts.

“The board recently approved a business plan which included a proposal to appoint a number of new senior executives. This decision was subsequently communicated to the regulator,” an INBS spokesman said.

A spokesman for the regulator would not discuss the affairs of the building society, one of six institutions covered by the Government guarantee scheme.

Stressing that he was speaking of regulated lenders generally, he said “one of our areas of focus is in relation to the strength of the management team and the management structure to ensure that each institution is properly managed”. This was “particularly so” in relation to covered institutions.

Given the turmoil engulfing the banking system, many industry participants believe the INBS, established in 1873, will struggle to remain independent in the long term.

The building society has been embroiled in controversy on two occasions in recent months. It received a €50,000 fine from the regulator last year after Mr Fingleton’s son, Michael jnr, an executive in its London office, circulated an e-mail soliciting new deposits on the back of the guarantee scheme. It was the first time in the regulator’s five-year history that it handed down a fine on a bank or building society.

INBS also became embroiled in the Anglo Irish Bank controversy when it first spilled into the open last month, leading last week to the nationalisation of that bank.

INBS provided short-term loans for tens of millions of euro in eight successive years to former Anglo Irish Bank chairman Seán FitzPatrick, enabling him to conceal the extent of his directors’ loans from the bank’s shareholders. The loans are the subject of separate inquiries by the regulator, the Irish Stock Exchange and the Director of Corporate Enforcement.

INBS denied any impropriety in relation to the loans, stating that they were part of its “ordinary” business. The loans were for €87 million at the end of Anglo’s last fiscal year in September, and reached €129 million in 2007.

Legislation to facilitate the demutualisation and sale of the INBS was passed by the Oireachtas in July 2006. The sale process did not begin until 2007, by which stage the downturn in the property market had started. Some 120,000 qualifying members of the INBS stood to receive a long-awaited windfall of more than €10,000 in the event of a sale, but there was no deal.