Terry Cooney and Stan Purcell, who had acted as faithful yes-men to Fingleton for more than a decade, lacked either the financial skill or the strength of character that was needed in the months ahead.
David Brophy, who had joined the board in March 2006, was better qualified. At the time of his appointment he was an executive with Smurfit Kappa, the packaging company founded by Michael Smurfit. At the end of 2007 he went to work for Seán Mulryan’s Ballymore Properties, one of the society’s biggest clients and a partner of the society in a British property development joint venture. He continued to be a non-executive director of Irish Nationwide despite this conflict of interest. ‘All financial institutions face situations where directors find themselves in potential conflicts of interest because of their personal business interests,’ Irish Nationwide said. The Central Bank must have agreed, as it allowed Brophy to remain.
Brophy had financial ability, but, like Con Power, who he replaced after the latter’s departure in February 2006, he was only a part-time non-executive director.
There were no new faces around the boardroom table who might have asked awkward questions as Irish Nationwide faced into the toughest year in its 135-year history. This would have consequences for the state. An uncompromised outsider might have taken a harsher view of the challenges facing the society and blown the whistle on some of the extraordinary things that happened that year.
2008 began quietly after a bad 2007 for Irish Nationwide, when it got caught up in the scandal of lending to the rogue solicitors Michael Lynn and Thomas Byrne, the embarrassment of former staff members suing the society, and the continuing war of attrition with Brendan Burgess. What was ahead could not be batted off by the right phone call, a word in an ear, delay or subterfuge.
A cataclysmic fall in confidence in world banking had been sparked by the American sub-prime mortgage crisis. Fingleton and other senior Irish bankers had insisted all through 2007 that Ireland was insulated from this crisis. 2008 would prove them wrong.
Irish bankers’ claims that losses incurred from the reckless packaging of bad home loans to the poor in America by investment banks had nothing to do with them would be shown to be nonsense. In 2008 it became clear that sub-prime loans were going to blow massive holes in the balance sheets of America’s biggest banks that would prove big enough to sink them.
In a world where banks were all interconnected through the international money markets, this had to have a knock-on effect on Ireland. Banks around the globe began to fail like dominoes, and Irish banking shares all began to fall. Global investors fretted about their exposure and sought safe havens for their deposits. The global money markets, which had sloshed with cash from France and Germany, dried up.
These were the steroids that had driven Irish property values ever higher. Suddenly, the Irish banks were racked with pain as their overseas drug-pushers ceased supplying them. Month by month, Irish property prices fell into a dizzying decline as the banks, cut off from their foreign suppliers, simply stopped lending.
On 17 March things came to a head when the shares of Bear Stearns, the American investment bank, collapsed. This caused what became known as the St Patrick’s Day massacre in Ireland. The value of the Irish stock market fell by €3½ billion in a single day, and the shares of Anglo Irish Bank fell by 15 per cent. Anglo Irish’s woes were worsened by the secret punting on its shares by the country’s richest man, Seán Quinn. This made it especially vulnerable to being shorted by hedge funds in London and New York. From March onwards the Financial Regulator became preoccupied with trying to sort out the terminal connection between Anglo Irish and Quinn. It took its eye off Irish Nationwide as a result.
Irish Nationwide wasn’t listed on the stock exchange, so it escaped the drama of a plunging share price. But away from the limelight, every day it had to battle to assure depositors that their money was safe. The society pointed to its big deposit book and its decent credit rating from international agencies as proof that it was in a strong position. But clever investors weren’t convinced. They could see that the society had a big exposure to the Irish and British property markets, and as the year went on they became less enthusiastic about the society’s fortunes.
At the same time the society’s big developer clients, who had huge lumps of cash on deposit with the society, either on or offshore, came under strain. As they watched the share price of Anglo Irish, AIB, Bank of Ireland and Irish Life and Permanent shudder downwards, suddenly the society’s top hundred developer clients became afraid. They began to think about how much they had borrowed just as their banks began to urgently ring them and ask them when they would be paying it back. Developers who had cash in Irish Nationwide, whether in Ireland, Britain or its overseas branch in the Isle of Man, began pulling their money out to pay their bills to other banks. Irish Nationwide’s lax lending practices made it harder for the society to grab the developers’ cash before their rivals. Money was leaking away, causing fissures in the society’s balance sheet.
Irish Nationwide offered high interest rates on deposits to try to counteract this. It also had a much smaller balance sheet than its peers, so it was in less danger early in 2008. In addition the society had a residential mortgage book, which it could use to obtain liquidity from the European Central Bank. This was an option not open to its rival Anglo Irish, which was involved only in commercial lending, further ensuring that it was the most vulnerable card in the house of cards that was Irish banking.
But the fissures remained, and grew larger every week. Fingleton could see daily his life’s work straining under the pressure of the international crisis. His underpaid managers struggled to stop the widening of the fault lines that Fingleton had created over many decades of greed and neglect by failing to invest in his staff. The society’s boasts about its spending on staff versus income being at a record low ratio of 10 per cent acted against it when really skilled people were needed to hold things together. The decision to ignore warnings from KPMG in 2000 and again in 2005 that it needed to employ more experts in such areas as risk and treasury left it vulnerable when it needed all hands on deck.
Fingleton, who had begun his career when the society kept its documents in tin biscuit boxes and who still didn’t use e-mail, did not fully recognise the danger. He insisted to all-comers that his society would survive the crisis.
His chairman, Michael Walsh, did not agree. Walsh was a banking expert who worked for the financier Dermot Desmond in his investment vehicle International Investment and Underwriting. He had a much better grasp of the scale of what was going on and what it would mean for the society. He privately warned Fingleton that the society could be in real trouble. He began turning up in the society more often, and there was some friction between him and Fingleton, according to building society sources.
Stan Purcell remained steadfastly loyal to Fingleton but at the same time tried to help Walsh. The society was sinking.
Fingleton, however, still had confidence in his Frankenstein monster. He knew there was a lot of work ahead. Lending had stopped and he remained focused on trying to get more deposits by raising interest rates. The society spent heavily on advertising, plugging its latest offers.
Fingleton’s concern about trying to keep money inside the society, however, did not extend to his own salary. Every week he was personally making very big money—a consolation prize for missing out on his ultimate pay-day from selling the society. Just how well he was doing was revealed in April 2008 when the society published its annual report. While ordinary staff members plodded away on pay below industry norms, among the small number at the top things were different. The report showed that Fingleton was paid €2.3 million in 2007—an increase of €477,000, or 26 per cent, as the society turned in pre-tax profits of €391 million. His basic salary was €812,000, but his board had approved a bonus of €1.4 million—a third higher than in 2006. This was a year in which Fingleton had failed to sell the society because nobody wanted it. But in the topsy-turvy world of
Irish Nationwide this meant he was paid more, not less. A bonus of €1 million was approved by the society’s remuneration committee for what it described as ‘the excellent performance of the society in very difficult market circumstances.’ An additional payment of €400,000 was also paid, which was not specifically explained although it was classified as a bonus. In total, Fingleton was paid €2.3 million for steering the society onto the rocks.
In the space of two years Fingleton’s salary had doubled, under the approving eyes of his board. What the annual report didn’t say was that Fingleton had quietly struck a deal with his board whereby, in order to stay on as chief executive in 2008, he would be paid at least as much as he was in 2007. This meant he believed that not only his salary but also his bonus of more than €1 million would be matched, come what may for Irish Nationwide. This decision by the board would prove a very controversial one in 2009.
There is no known evidence of any complaints at the top of the society about Fingleton’s salary, or his lucrative new deal for staying on. But then, why would there be? In 2007 Stan Purcell was paid €486,000 (€80,000 more than the previous year), while the society stuffed €492,000 into his pension scheme. Meanwhile its wealthy chairman, Michael Walsh, who approved executive salaries on the remuneration committee, took home €100,430.
To put this in context: Fingleton was now being paid more than AIB’s chief executive, Eugene Sheehy, who took home €2.1 million while running a much bigger bank, which made €2½ billion in 2007. It was still less, though, than David Drumm in Anglo Irish Bank, who, at €3.2 million, was paid most of all.
A statement by Irish Nationwide in its annual report for 2007, which was signed off on 10 March 2008 by Walsh, Cooney, Purcell and Fingleton, showed that the society was as delusional about its prospects and performance as it was about the value of its chief executive. ‘We have built up a very strong balance sheet with the net book worth of the society now standing in excess of €1.5 billion. Because of the present uncertainty in the financial markets and the weakening economy it is as stated earlier the society’s policy in 2008 to manage its affairs in a prudent and conservative risk adverse manner.’
This assertion that the society was acting in a ‘prudent and conservative’ way would come back to haunt all four signatories when it emerged that a series of extraordinary decisions was taken that year by the society.
Later that month there was more keeping up of appearances and claims that the society was fundamentally in good shape. Nonetheless, its AGM in April in the RDS was a boisterous affair. Among Fingleton’s once well-wishers there was now considerable ingratitude. Twenty months had passed since the government had removed the last remaining legal obstacle to the 133-year-old society being sold, and members wanted to know when they would finally get their windfall. Elderly member after elderly member took the floor to ask Fingleton, who sat up at a high table flanked by his board, when they were going to get their windfall from the sale of the society.
Fingleton told the meeting that two potential buyers had jilted the society at the altar. He said the European arm of one potential buyer had been ‘all for it.’ A deal had been agreed in principle, only for its international board to shoot it down because a change in corporate strategy meant that ‘everything was put on hold.’ Another institution was ‘very anxious to buy us’ but ‘they were obliged to merge with another major institution for other reasons, and that put an end to that.’
‘We weren’t slow off the blocks,’ Fingleton insisted. ‘We weren’t wasting our time.’ He said the society had got firm offers but they would not represent ‘fair value’ for its shareholders. ‘We are not going to give the institution away.’
Casually, Fingleton reinforced his old mantra that only he could run the society, as both potential buyers, he told members, had insisted that he stay on for two years.
Although Fingleton and his members did not know it then, the society’s boss and his deferential board, in an act of greed or stupidity, had let slide the last chance they would have to sell the toxic society. This would later prove to be the most expensive single missed opportunity in the history of the country.
Far from realising that the society might collapse, its members retained their bubble mentality of easy money. They complained to Fingleton that a delayed sale would allow yet more carpetbaggers to clamber on board. They called for Fingleton to make it harder for new depositors to become full members of the society, at a time when what the society needed was to get hold of every euro it could.
Fingleton tried to reassure them. He told reporters that his wife qualified for a windfall the previous year and hinted that she would be among the last. ‘I don’t want any more carpetbaggers coming in,’ he said. At the same time he was wary of frightening new members away, so he made things ambiguous. ‘What we’re after is deposits. We will not turn down a deposit. We’re open for business,’ he said.
Walsh, however, presented a downbeat assessment of the outlook for the society, in contrast to his rosy statements over the previous seven years. He said it could be two years before the markets returned to normal and the society could be sold. ‘We are continuing to work with our advisers to see if there is a way to realise value. We have to unfortunately balance that ambition with where the financial markets are at the current time.’
Fingleton remained more confident. He was not prepared to admit to being fallible. ‘Markets will have to normalise, and two years might be a very long time. But one thing is sure: we are determined to effect a trade sale of Irish Nationwide at the earliest opportunity. We ain’t hanging around.’
Pressed about whether he intended to remain in charge, for the first time Fingleton gave a hint that he was thinking of life beyond the society. ‘I don’t intend to stay there for ever. I have a finite life, and I intend to enjoy some of it.’ He dismissed a suggestion from one member that he should stay on for another seventy years. ‘The genes aren’t that good,’ he replied.
Walsh said he planned to appoint more members to the board now that a sale was off the table. He added that the society planned (too late in the day) to become conservative and that it did not plan to grow its loan book that year. ‘We are not out there looking for market share,’ he said. He told the members that the society’s liquidity had remained unchanged since the end of the previous year. Deposits accounted for 63 per cent of loans at 31 March 2008, compared with 59 per cent at the end of the previous year.
Only the pugnacious Brendan Burgess caused Fingleton to lose his cool as he provoked him from the floor. He harangued Fingleton for his treatment of borrowers. He said the society had levied interest of up to 20 per cent and tried to repossess people’s homes in the past, and the board of the society must ‘take him [Fingleton] off the backs of borrowers.’ He did acknowledge, however, in his mini-speech that Fingleton seemed to have a ‘great nose’ for mega-property deals, while he was ‘not good at looking after people in trouble.’ The plucky borrowers’ champion simply didn’t see that the real problem facing the society was not Fingleton’s bullying of the little guy but the big guys who owed it vast sums.
‘Did you or did you not serve as chairman of the consumer advisory group?’ Fingleton barked in response to Burgess.
After Fingleton repeated the question a second time, Burgess quipped, ‘Do you play golf?’
When Burgess finally admitted that for two years he had chaired the consumer advisory panel set up by the Central Bank, Fingleton rounded on him. ‘I didn’t hear you on other institutions who came in offering sub-prime loans.’ Fingleton’s sense of being persecuted unfairly yet again revealed itself.
Walsh, as usual, could be relied on to defend Fingleton publicly, even if behind the scenes he may have had his doubts. He said that Irish Nationwide had changed its rules and no longer imposed penalty rates on borrowers who got stuck in arrears.
Burgess said this was only for those with home loans and did not apply to ‘other loans.’ Eventually the drama fizzled out
.
Fingleton glided from the hall. It was his last AGM.
Just as Fingleton’s reign was coming to an end, so too was Bertie Ahern’s as Taoiseach. Ahern’s reputation was in the process of being destroyed by tribunal investigations into his financial affairs. More importantly, however, it was also becoming clearer that he had blown the profits of the boom by allowing public expenditure to run out of control. Ireland didn’t have much in the tank, despite collecting huge sums in taxes over the previous decade.
Wednesday 7 May 2008 was Ahern’s last day as head of the government. He dashed from the Dáil to attend the INBS-Sunday Independent Irish International Cricketer of the Year awards. It was a measure of the Sunday Independent’s success and influence under its brilliant commercial editor, Aengus Fanning, that Ahern was prepared to travel to the awards in the National Yacht Club in Dún Laoghaire on his final day as the country’s second-longest-serving Taoiseach and second-longest-serving leader of Fianna Fáil.
He was greeted warmly at the soirée, at which the attendance included Senator Eugene Regan, Ulick O’Connor and George Hook and which was paid for by Irish Nationwide. The Sunday Independent reported that weekend: ‘Michael Fingleton, chief executive of the awards’ sponsors the Irish Nationwide Building Society, was in good voice and said Bertie Ahern was the best Taoiseach the country has had and predicted that he would continue to hit his critics for six.’
By the summer of 2008 Fingleton hoped to have pocketed millions from flogging his society and to be spending more time making himself even richer by working on his plan to build a holiday resort in Montenegro. He had also hoped to spend more time on holidays. ‘Barbados, Marbella, Portugal were among his favourite spots,’ an old friend said. ‘He was very sociable, and liked the sunshine.’
Fingleton usually holidayed with his wife, but he also liked spending time with a select group of his business buddies. The tensions between Fingleton and his wife over his relationship with Fiona Couse seemed to have melted away. ‘He told me at the time it was very rough for her,’ an old friend recalled, ‘but “She’ll get over it” was his attitude.’
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