The collapse of Irish Nationwide Building Society (INBS) at a cost of €5.4 billion to the taxpayer did not happen overnight, but instead was flagged for many years as report after report identified serious failings, which shamefully were never fully addressed.
Pound for pound Ireland’s worst financial institution, its huge losses were, more than any others, preventable because the Central Bank and others knew in specific and granular detail that it was out of control.
Internal estimates in Irish Nationwide, post its nationalisation, state that INBS’s new management believed about €1 billion of the society’s losses related to loans that should never have been given out. This was because in their opinion these loans failed to meet the society’s own rules.
From the start of the millennium on, the problems of INBS were known, from its over-reliance on its domineering managing director Michael Fingleton to its poor documentation and highly unorthodox lending practices.
They were known not only to INBS’s board but also to the Central Bank and to its auditors KPMG.
In 2000 KPMG said in a report sent to INBS’s board and the Central Bank that “there are no concentration limits applied to the components of the commercial (lending) portfolio in its entirety . . . the ongoing monitoring process of commercial loan facilities is not formalised and not documented.”
Irish Nationwide, this KPMG report concludes, was operating in a manner where there was insufficient oversight of its lending and not enough focus on the risk of expanding lending by billions to developers year after year.
This report should led have led to drastic changes in the society but it did not.
Fingleton remained firmly in charge as he ramped up lending to ever greater heights.
Year after year KPMG produced more management letters and reports identifying failings, often pretty much the same as those highlighted before.
The Central Bank was informed every step of the way, notably in 2005 when yet another major KPMG report concluded that the society’s internal audit and controls on lending were insufficient.
Again, not enough was done, and Fingleton remained in charge.
Ordinary members of the society knew nothing of the behind-the-scenes concerns of KPMG and the Central Bank.
As a result, most but not all of its members cheered Fingleton to the rafters as he announced record profits each year.
The prospect of a windfall from the society’s long-promised sale was dangled tantalisingly in front of members, further ensuring their support.
Never once in the society’s annual accounts was there a reference to the serious problems which been allowed fester for years.
Fingleton ran Irish Nationwide as he chose. He was challenged at times by rebel members and even by one of his directors, but it was not enough.
Irish Nationwide gradually collapsed from 2008 on. It had leant recklessly to developers for years and a lack of documentation and poor security meant it had the heaviest losses relative to its size. Its top 25 customers owed it €4.8 billion or about half of its entire book.
Remarkably the taxpayer ended up on the hook for a building society set up to help teachers, nurses and guards get a foot on the property ladder but which was allowed to mutate over the years, gambling recklessly on property.
It is blackly hilarious that at the end of it all the Central Bank and KPMG, now as special liquidators of the society, have so far decided only to hold the society’s former board to account by either investigating them or suing them.
What happened is much bigger than one boardroom table, and as a result the defence of INBS’s former board will rely hugely on just how much the Central Bank and KPMG knew about what was going on.
KMPG, after reports by The Irish Times and criticism from politicians such as Sinn Féin's Pearse Doherty, has decided to conduct an external review of its actions as auditors, as it weighs up whether or not to sue itself.
The results of this report, KPMG says, are near. The Central Bank meanwhile remains unscathed by the debacle.
For years something was deeply wrong with Michael Fingleton’s building society. But somehow, nobody shouted stop.