Lenihan was in agreement. He believed the banks needed to be pushed harder to accept pay cuts. Eugene Sheehy, chief executive of AIB, had given up his bonus, so he was down €1 million, but he was still on €1.1 million for 2008. Dermot Gleeson, AIB’s chairman, had taken a 10 per cent pay cut, but he was still making €427,000 a year. This was hardly hairshirt pay, and Lenihan wanted something done.
On Monday 16 February, Moody’s downgraded Irish Nationwide again, on concerns that it had too big an exposure to commercial property while also referring to its ‘poor quality’ residential mortgage book. The society was now one notch above ‘junk’ status, and the rating agency suggested that things were likely to get even worse.
There was now no way that any financial institution would lend to the society, making it dependent on the state for its survival. The game was well and truly up.
——
On Thursday 17 February RTE announced that Irish Nationwide’s chairman, Michael Walsh, had resigned. No reason was immediately available, as RTE had been unable to reach its spokesperson for comment. Clearly, however, someone reliable had been able to confirm his departure.
That night the society held an emergency board meeting to decide what to do next. Terry Cooney, who had been ineffectual for so many years, was appointed interim chairman.
The timing of Walsh’s exit was terrible. Despite his failings as a chairman, he had some credibility in the money markets, partially through his association with Dermot Desmond.
Things were very bleak for the society. The Irish Times reported the following day that the government had still not been given any reason for Walsh’s resignation, causing yet more confusion. Finally, later in the morning, the society issued a statement.
The board of Irish Nationwide Building Society accepts with great regret the resignation of Dr Michael Walsh as chairman of the board and a director of the society and thanks him for his enormous contribution as a director from April 1995 and chairman since May 2001.
Dr Walsh has informed the board that there are no commercial issues which would have impacted on his decision.
The board understands and fully accepts that he can no longer devote the increasing amount of time required to provide the necessary oversight and leadership in the current challenging times for all financial institutions.
After so many years of allowing Fingleton to reign supreme, Walsh had finally jumped ship, supposedly because of time commitments. The explanation simply wasn’t credible. The following day the Irish Times published two leaked letters from Walsh regarding his resignation, only a day after they had been written to the society’s secretary, Stan Purcell. The real reason for his departure emerged. ‘In the light of unfolding events at Irish Nationwide and my responsibility as chairman of the society, I believe that the board and ultimately the Minister should have an opportunity to provide new oversight and leadership,’ the first letter said.
His second letter gave greater insight. ‘It is clear to me that Irish Nationwide Building Society cannot survive without reorganisation and significant Government support.’ Having helped create an epic mess, Walsh had lost any interest he had in going down with the ship.
Lenihan moved fast to kill off such a dangerously frank letter, which admitted that the society was finished. Hurriedly he rang Walsh. A watered-down explanation was agreed. ‘Dr Walsh has informed the minister that his reference to Government support was in fact a reference to the importance of the Government guarantee. The minister wishes to state in the strongest possible terms that Irish Nationwide Building Society has all the necessary Government support it needs to conduct its business.’
Commenting in the Sunday Times that weekend, its Irish business editor, Brian Carey, made a prescient criticism of Lenihan and his decision to guarantee Irish Nationwide.
Of all the financial institutions covered by the guarantee, including those now being pilloried from pillar to post, INBS is easily the least deserving.
Before we vouch our support—in the ‘strongest possible terms’—it would be nice to know exactly what is going on.
Working ever harder to control the crisis, Lenihan was now frustrated with Fingleton. He wanted rid of him, but the society was in such a mess it would be difficult to replace him. Winging its way to the minister, however, was a more than adequate reason: Fingleton’s final-year bonus.
After Cowen’s comments earlier that month about reducing bankers’ pay, Lenihan had commissioned an expert review. This reported on 27 February 2009. The report, by the Covered Institution Remuneration Oversight Committee, recommended that the most any banker should be paid was €500,000. In the case of Irish Nationwide, it said, the chief executive’s pay should be €360,000—a small fraction of what Fingleton had been used to. During this review process his final-year salary came into sharp focus. Things went nuclear for Fingleton, and the board of the society, as a result. Lenihan was furious at what he discovered and demanded that something be done.
On 14 March a story was leaked to the Irish Times that Fingleton had received a bonus €1 million in November 2008. This was only weeks after the government had been forced to guarantee its debts, at a massive financial risk.
The story provoked an outcry. Lenihan wrote to the society, saying he believed the payment of the bonus was in breach of the terms of the bank guarantee. The society called an emergency board meeting before counter-claiming that the deal was above board, as it had been agreed before the guarantee.
Pressed on the issue, a furious Lenihan told reporters: ‘That is being investigated and the department are discussing the matter.’
The bonus became a major source of friction between Fianna Fáil and the Green Party, their minority partner in government, at a time when unity was needed. ‘He should have retired before now, and the extension of his employment has never been explained,’ Senator Dan Boyle of the Green Party said on 20 March.
In the media, Fingleton’s bonus became a totem for bankers’ greed. It was a dangerous distraction for a society that was fighting for its survival, but Fingleton showed no interest in budging.
Irish Nationwide had to repay a €1 billion bond in May and it was scrambling to come up with the money, but management time was being wasted on defending its chieftain’s bonus. It was all a long way now from Walsh’s boast in 2005 to the Financial Regulator about the society being offered €1 billion in one day from the money markets.
That Sunday, 22 March, the Sunday Tribune picked up a minor comment buried in a 73-page document prepared for investors in Irish Nationwide. This comment acknowledged that the society realised there was now a risk that it could be nationalised, despite its public protestations to the contrary. The same day, Fingleton’s reputation was further damaged in the Sunday Business Post, which reported the enormous size of his pension. Fingleton had transferred his pension out of a special Irish Nationwide scheme to a personal scheme in 2007. The amount in his defined-benefit pension pot was €27 million.
This figure had been declared in the society’s annual report that year, but it was heavily disguised. It was referred to as ‘one of the groups defined benefit schemes’ that had now been settled for the ‘members of the scheme.’ This gave the reader the false impression that the €27 million scheme was for more than one person, when in fact it was for just one: Michael Fingleton.
Fingleton’s pension was an enormous sum that had been compiled in the context of a society scheme that provided him with two-thirds of his salary on retirement.
That Sunday night the leader of the Green Party, John Gormley, claimed that the position of the bank boss was now ‘untenable.’ His colleague Dan Boyle said Fingleton’s conduct was a disgrace; ‘that he has remained so long in position while others have fallen on their swords is a complete mystery.’
As the news broke that the banker had been paid so much money, and that the bonus was paid after the guarantee, Lenihan demanded a meeting with the two public-interest directors he had appointed to the boar
d in the wake of the guarantee, Adrian Kearns and Rory O’Ferrall. On Monday 23 March they were summoned to the Department of Finance. They were told to conduct an internal inquiry into the precise circumstances of the bonus payment and how such a large pot of money could have been built up in Fingleton’s pension scheme. Lenihan wanted the report as soon as possible, but this was later extended to giving them a month to compile it. He also told them he wanted the board and the management reviewed.
In the meantime, political capital was being made from the bonus. On 24 March the leader of Fine Gael, Enda Kenny, said in the Dáil that Fingleton had ‘given fingers’ to the taxpayer by accepting the payment.
The leader of the Labour Party, Éamon Gilmore, said the matter should not be put on the ‘méar fhada’ or long finger, given that the taxpayer was going to be asked to take more cuts in an emergency budget that had been called on 7 April. ‘The public, who are being asked to shoulder the burden of the difficult economic circumstances, need to have this dealt with before budget day,’ he said, ‘not leave it until afterwards.’
The Green Party just wouldn’t shut up either. That night Senator Dan Boyle attended the launch of Deirdre de Búrca’s ill-fated campaign for the European Parliament in the Science Gallery of Trinity College. In the middle of the proceedings, he recalls in his political memoir, Without Power or Glory, he received a voice-mail message from the Department of Finance, asking him to contact its minister urgently. ‘I stole away from the function and rang the Department,’ Boyle recalls. ‘Brian Lenihan told me that he had met with the board of Irish Nationwide that day. The board was agitated, he claimed, at my criticism of its long-time chief executive Michael Fingleton.’
Even at this stage Fingleton’s board remained loyal to him. His house was now under a media siege, as journalists from radio, television and newspapers wanted to know how he got this bonus at a time when the society was clearly in dire financial straits. Fingleton explained very little publicly but said he wanted the board to spell it out that the bonus payment had been made on foot of an agreement reached with the board in March 2008, whereby Fingleton would stay on as chief executive for another year.
The chairman of Irish Nationwide, Danny Kitchen, contacted the Department of Finance and said it was a bonus for agreeing to stay on and not linked to the financial performance of the society, which was clearly on the brink.
Kitchen, it also emerged, turned down the opportunity to take on Fingleton’s job, because he believed the cap of €360,000 on pay for the post was too low. Asked by the Irish Times whether he would accept the job if the salary was increased to the government’s higher cap for senior bankers of €500,000, he replied, ‘It is what it is.’ This made it hard for Lenihan to simply sack Fingleton, as he needed somebody to replace him.
On 26 March, Lenihan finally acknowledged in the Dáil that he couldn't just take the bonus back without having more information.
I don’t have the power to do that, because the payment itself was sanctioned before the guarantee was given. In fact the particular issue is, there was a prior decision to make this bonus. Now, clearly it’s for the board themselves in the first instance to establish the facts on that, see what remedies are open to them, then at the conclusion of that, if they cannot progress this matter further, it goes to my desk. There is a process to be followed here.
The following day Lenihan attempted to dampen down the controversy by telling the Dáil he believed Fingleton’s €27 million pension fund had been badly hit by the stock-market crash. ‘The value of the amount transferred into the pension fund in the first instance is substantially less than the figures quoted,’ he told the Dáil. ‘The current value of the pension fund has substantially diminished with changes in stock values.’
Finally, after the controversy had raged for two weeks, badly distracting the society from its efforts to survive, Fingleton caved in. On 27 March he issued a statement saying he would repay his €1 million bonus, despite insisting that he remained legally entitled to it. He said he had decided to give back the bonus ‘because of the effect on his family with a continuing 24-hour media siege on his home and also because of his concern for the effect it may have on the society.’ He claimed, however, that the bonus was ‘a contractual and binding agreement with the society which he was legally entitled to receive and was entered into long before the implementation of the guarantee scheme.’
Fingleton described his bonus as a ‘pre-contracted incentive bonus,’ which had been agreed in April 2008 even though it was only paid that November, after the bank guarantee. He said he was ‘pleased’ that Lenihan had admitted earlier that week that ‘he could not be compelled to return this payment.’ The statement added that legal opinion obtained by the building society concluded that Fingleton had ‘full legal entitlement to this payment and that it has nothing to do with the Government guarantee scheme.’ The statement said it was ‘very clear that Mr Fingleton’s payment was paid under a valid binding contract entered into between himself and the society and that he has no obligation to be beholden to any other third parties in this regard.’
The decision to repay the bonus eased the public pressure on Fingleton. But Lenihan still wanted him out. Government sources immediately began to brief the media that Fingleton would step down ‘within days.’
On 30 March came much more worrying news. Standard and Poor’s removed Ireland’s AAA rating, its top grade. The country had held the coveted rating since October 2001; in less than six months it had lost it by tying its citizens to the reckless decisions of Fingleton and his like. The Department of Finance tried to play down the news by saying that Ireland remained ‘committed to restoring order.’ But Standard and Poor’s did not believe it, with Brian Cowen’s emergency budget only days away, on 7 April.
‘S&P has no confidence that the budgetary measures will be enough,’ the head of fixed-income strategy at Société Générale SA in Paris, Ciarán O’Hagan, wrote in a note. The downgrade ‘is worse than expected and will weigh on Irish gilts and AA sovereigns generally.’
There were already omens that Irish Nationwide and Ireland’s other banks would, over time, take the country with them over the edge. It was against this background that Fingleton’s selfish and arrogant decision to not immediately return his €1 million bonus must be seen.
On 2 April 2009 Lenihan finally got his wish. Irish Nationwide issued a statement that Fingleton planned to step down on 30 April. ‘The board wishes to thank Mr Fingleton for the enormous and unique contribution he has made to the society over the past 37 years and wish both Michael and his wife Eileen many happy years of retirement.’ It also revealed that the board of the society would be restructured, with Daniel Kitchen becoming its non-executive chairman following Michael Walsh’s departure two months earlier.
The long-serving director Terry Cooney had been filling in until then. He quietly retired not long afterwards. Lenihan had expressed frustration at the veteran director’s explanations for Fingleton’s €1 million bonus, but Cooney appears to have left of his own volition. Perhaps it was before he was pushed.
The decision by Fingleton to go, after thirty-seven years at the helm, was seen as bowing to government pressure. In fact it was widely believed that he had simply been fired. The real story is that he had served out the full extension to his employment agreed in March 2008. But this did not fully emerge for some time.
——
The society was now keen to focus on the scramble to keep going. On 8 April it settled a claim of constructive dismissal taken by its former home loans supervisor, Olivia Greene. She left the society in 2008, claiming she was picked on after she had testified in 2007 in favour of Brian Fitzgibbon, one of the society’s former home loan managers. Fingleton had tried to blame Fitzgibbon for bad lending to the rogue solicitor Michael Lynn, but Greene claimed that Fingleton himself had been involved in approving this lending, and it was unfair to blame Fitzgibbon. The fact that the society had continued to employ considerabl
e efforts to pursue a few former managers even during such a crisis reveals the petty and nasty side to Fingleton’s nature.
It was best to settle the case, as the society could ill afford to risk taking on Greene, who was armed with dangerous information about its careless approach to lending. This tidying up, however, did not kill off bad news for long.
On 16 April, Irish Nationwide revealed its first loss in its history under Fingleton. It made a net loss of €243 million after it wrote off €464 million in bad loans to developers. It was a dramatic U-turn for a society that had made a profit of €309 million in 2007.
Everything was going south. The loan book shrank by 15 per cent, to €10.47 billion, driven by a €1.3 billion hit from the decline in value of sterling. Operating profits halved, to €260 million, as the society’s business model of generating profits through doing deals with developers fell apart. Worse, the results stated that Irish Nationwide had to repay its bond-holders €2.3 billion that year, with €1 billion of that due the following month. It had €1.2 billion in reserves; but how long would that last?
Knocking on the door now was the state’s new property bank, the National Asset Management Agency. Once that began to pull the society’s toxic loans out, a huge hole of still unknown size would open up.
Not that Irish Nationwide was prepared to admit as much. Instead it insisted it was ‘confident that with the continuing support of the Government,’ and its reserves, it would continue as a ‘viable and stable systematically important credit institution.’ Incredibly, it still dangled before its carpet-bagging members the prospect of some day seeing a return. Once things had settled down, it said, it would go on again to ‘realise maximum value for members.’ The society was finished, but it was still in denial.
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