As Fingleton’s final days in Irish Nationwide approached, John McGloughlin, an experienced banker, quietly joined the society as chief financial officer. He had worked as an executive with Citibank and as an accountant with Arthur Anderson. Stan Purcell stayed on as finance director and secretary but was now reporting to McGloughlin.
McGloughlin joined the society without fully realising the challenge ahead of him. He would later say to friends, ‘I was really shocked, really taken aback by what I saw.’ He knew Michael Walsh, who was widely regarded in banking circles as a brilliant banker, making all the more surprising what had been allowed to go on unchecked for so many years. As McGloughlin entered the society, Fingleton exited.
The night before he retired, Wednesday 29 April 2009, Fingleton enjoyed a dinner that turned back the clock to when he was in his prime, a powerful man to be feted. In the stately National Yacht Club in Dún Laoghaire a group gathered to celebrate the annual dinner for the Sunday Independent International Cricketer of the Year awards. Fingleton had been an avid supporter of the Sunday Independent Cricket Society, formed by the editor, Aengus Fanning. Over the decades Fanning had grown fond of Fingleton, who inevitably got the inside track on any big story. ‘Most of what Fingleton said was unprintable but highly entertaining,’ a source who knew both men well said, ‘so it wasn’t surprising that Aengus got on with him. He knew every secret, from the state of somebody’s marriage to what was really happening inside a big business deal.’
Bertie Ahern, less than a year after he resigned as Taoiseach, was one of the guests, along with the Irish cricket star Andre Botha and the former English cricket star Graham Thorpe. Fanning had tried to get Lenihan to go to the dinner too. Lenihan liked Fanning but he cried off, as he was snowed under, trying to deal with the fall-out from the decisions of his predecessors.
Fingleton was in fine fettle amid the celebrations. Despite the scandals of the previous six months, it all appeared to be behind him. He quaffed wine like the old days. Ahern saw no reason not to be drinking with the building society boss.
It was a sociable crowd of about 150 people, which also included the former Minister for Defence Willie O’Dea, the law-and-order Fianna Fáil TD from Limerick; the Fine Gael senator Eugene Regan; and the former Minister for Justice Michael McDowell. Also there were Jack Kyle, the rugby player; Ulick O’Connor, the writer; Michael Mortell, the designer; Anne Harris, deputy editor of the Sunday Independent; Nigel Blow, then managing director of Brown Thomas; and Trevor White, former publisher of the Dubliner. Nobody objected to the presence of Fingleton, who had so recently agreed to return his €1 million bonus to the state.
In his speech the president of the cricket society, Charles Lysaght, praised Ireland’s sporting greats. But he also complimented the goateed building society chieftain, despite having had a spiky enough relationship with him in the past. ‘He was a wonderful young fellow, and his work in Nigeria is of particular note. He built up a building society from nothing to the major force it is today. Turbulent times have come, but we shouldn’t forget his benevolence. He will be remembered when others’ benevolence is forgotten.’
Fingleton lapped up the praise. Most of those attending assumed he had something to do with paying the bill for the evening, and he was described afterwards as having jointly hosted it. It appears, however, that the taxpayer was asked to pay part of it.
Earlier that month Fingleton ensured that two cheques totalling €4,000 were handed over to the Sunday Independent Cricket Club. This was in the same month that the society announced a colossal loss. No invoice was supplied to say what the society’s money was used for, but it seems almost certain that some or all of it was to pay for that wonderful night. Irish Nationwide stopped sponsoring the cricket society in February 2010, quite a while after Fingleton stepped down, when it made a final donation of €5,000. After it ceased sponsoring the dinner Fanning convinced Richie Boucher, chief executive of Bank of Ireland, to pick up the bill.
The next day was Fingleton’s last at Irish Nationwide. He had already painstakingly cleared out his seventh-floor office. His filing-cabinet, which ran along an entire wall, was now empty. His meeting-room table, where, over maps and drawings, he would plot with his favourite clients the society’s next move, was clear. He left nothing behind him.
As his last day ended, Fingleton’s trusty sidekick Stan Purcell, who had been rewarded so richly down the years, said a few words to a small group who gathered to say goodbye in the society’s boardroom. He recalled how Fingleton as a dynamic young man had taken the society by the scruff of the neck and shaped it into a much bigger institution. He wished his old boss all the best in the future.
Then, like the parties of old, the beer, brandy and whiskey flowed. Fingleton finally relaxed. He reminisced about the deals he had done and the celebrities he had met.
Then it was over. He put on his trilby and walked out the door of the society for the last time.
Chapter 10
I’M KEEPING THE €1 MILLION (APRIL–DECEMBER 2009)
Michael Fingleton was now gone from Nationwide House. With the chieftain finally down, it fell to Danny Kitchen to rally the shell-shocked staff. Their morale was low, as they had endured lower-than-average pay for years while they awaited a pay-off from the society’s sale. Now many of them feared they might lose their jobs if the society disappeared.
Kitchen told them the society had a five-year plan for moving out of commercial lending and more into residential lending. He said its emphasis from then on would be on bringing in more deposits, and that a number of new senior appointments were in the offing. He dismissed the belief that the society had no independent future and insisted that Irish Nationwide would live on and that its staff could rest assured that they had a future there.
This, however, was looking increasingly unlikely. By that summer NAMA was beginning to step up its preparations to take over the society’s commercial loan book, worth some €8 billion, or 80 per cent of its entire book. The society’s days had to be numbered.
‘If they set up NAMA in the way that they say they are doing, it will leave Irish Nationwide with a very small loan book,’ Oliver Gilvarry, head of research at the stockbrokers Dolmen Securities, told the Irish Times on 1 May 2009. ‘The vast majority of the €8 billion will be moved into NAMA. Irish Nationwide as an independent entity will not be sustainable.’ This would leave a rump residential loan book of €2.3 billion and substantial customer deposits, which might be better run by another institution.
Gilvarry raised the prospect that Irish Nationwide might be rolled into a so-called ‘super-mutual’ or ‘third force’ in banking to counter AIB and Bank of Ireland. This might see it merged with its once-loathed rival, the EBS, or even stuck together with Permanent TSB, the troubled banking division of Irish Life and Permanent. Everything was certainly being looked at by the government. The only thing certain was that Fingleton’s dream was going to be killed off.
Like Kitchen, however, the Department of Finance was not prepared to admit this publicly. In the first week of May the Labour Party’s spokesperson, Joan Burton, who had been questioning why the state had guaranteed the society at all, got her answer. William Beausang at the Department of Finance wrote to Burton to tell her that the state had to guarantee Irish Nationwide because ‘the society is an important actor on the Irish banking system and has many dealings with other covered institutions and customers of other covered institutions.’ He claimed the society was of systemic importance because it had forty-nine branches and €6.7 billion in customers’ deposits, which had to be protected.
In an argument very similar to Michael Walsh’s in the period before the bank guarantee, Beausang said that any perception that the government ‘would adopt a selective approach’ to supporting individual guaranteed institutions ‘is likely to be interpreted negatively by international markets, including in relation to the credibility of the guarantee overall.’ The counter-argument to this—that it was madness for c
itizens to be asked to pick up the bill for every reckless decision made by a society that lent primarily to thirty-odd property developers—was not made or considered. The government still did not understand the scale of the losses facing it by guaranteeing banks like Irish Nationwide, and so it ploughed blindly ahead.
The immediate priority for Irish Nationwide now was for something to be done to replace Fingleton as chief executive. The previous month Danny Kitchen, its non-executive chairman, had tentatively agreed to become Fingleton’s successor.
Kitchen was already familiar with the society’s loan book in Britain, having been deputy chief executive of Gerald Ronson’s Heron Group from 2003 to 2008. Ronson was a larger-than-life character who had survived the Guinness share-trading scandal in 1990 to become one of Britain’s most successful developers and philanthropists. He was one of Irish Nationwide’s top ten borrowers, but this was not seen as a conflict of interest or as an impediment to the experienced Kitchen being a potential successor to Fingleton.
Kitchen knew the London market and was a credible figure to the society’s bigger clients, such as the Landesbergs and Rosenbergs. Kitchen might indeed have been capable of running the society had he been bothered to.
It was now more than a week since Fingleton’s departure. He had not, however, got around yet to repaying his €1 million bonus. On 8 May 2009 Kitchen wrote to Fingleton at his home address in Shankill.
Dear Michael,
On Behalf of the board I would be obliged if you could let me know when you intend to repay your 2008 bonus to the society, as per your press statement.
Yours sincerely,
Daniel J. Kitchen, chairman.
It was a tame enough letter, more a gentle reminder than a demand.
Fingleton fired back a response on 11 May. He had changed his mind. He was keeping his €1 million.
He was annoyed by Lenihan’s insistence on digging further into his financial affairs. He felt his decision to return the money was enough. His sources inside the society told him that the investigation was much more than a cursory review of his pay and pension. He was very displeased.
‘Because of the Minister’s decision to continue to pursue this matter by seeking a full investigation by the government appointed directors,’ he wrote, ‘I have decided to defer this repayment until this matter is concluded to my satisfaction.’
He recalled a meeting on 23 January 2009 at which the society had told the government’s review group on executive pay that his bonus
had nothing to do with the government guarantee scheme or indeed constituted in anyway a performance bonus.
In response to the Minister’s letter of the 12th March the board responded in clear detailed unambiguous manner again stating that this payment had nothing to do with the government scheme and was simply a contractual agreement with me to continue as CE [chief executive] for a further year.
I had an undertaking at a senior government level that on my promise to repay the bonus there would be no further government interest in this or any other matter and that the timing of my departure from the society would be my own decision.
This final comment by Fingleton is intriguing. He states that he believes an unnamed senior person in the government had offered him a deal whereby if he returned the bonus the state would agree not to pursue him on anything else. The person who Fingleton believed offered this deal was the Taoiseach, Brian Cowen, according to a source who has spoken to Fingleton. Brian Lenihan, a source said, told them before he died that he had never made an offer to Fingleton, but admitted that others had. There was certainly no formal deal sanctioned by the government. Fingleton was furious that the government, as he saw it, had backed out of its deal. However, even if Cowen did make such an offer, either directly or through an intermediary, it is unlikely that he made it as open-ended as Fingleton believed it to be.
As the cracks in the society worsened, such an offer was simply impossible to fulfil. It would have been political suicide to let Fingleton off the hook. The secretary-general of the Department of Finance, David Doyle, also distrusted Fingleton and was opposed to any action that might favour him.
Three days after writing this extraordinary letter Fingleton flew to London and booked into the five-star Dorchester Hotel on 14 May with his wife. He met his old developer clients in London to assure them that the society would still respect all their old agreements.
A bill for £2,300 was submitted to the society for his stay. It was duly paid, even though Fingleton was no longer working for the society. Somebody within the society’s walls believed he was still worth picking up the lavish bill for.
The same week Brian Lenihan was ploughing through his paperwork, trying to cope with the crash. An inexperienced Minister for Finance, he was under enormous pressure, staying up late at night attempting to read himself into his brief. He had a lot more serious things to worry about than Fingleton’s bonus; but the building society’s impunity and arrogance meant he had to make it a priority.
On 12 May, Lenihan received the Kearns and O’Ferrall report on Fingleton’s pay and pension, which had been completed with the help of KPMG. It showed that under the society’s rules Fingleton had to step down from the board of Irish Nationwide once he turned seventy. This happened in January 2008. He remained as chief executive but he was not happy with the situation and wanted the board to change the rules at an AGM to allow him to remain as a director. The board did not accede to this request and instead the then chairman, Michael Walsh, opened up negotiations with Fingleton about staying on. The board wanted him to remain as chief executive, saying that his knowledge of the clients and his experience were important in steering the society through difficult times as the property market began to soften and the credit crisis first reared its head.
Fingleton negotiated an incredible deal. He agreed to stay on if he got a 10 per cent increase on his 2007 salary, bringing it up to €893,000; a bonus equal to his 2007 performance bonus of €1 million but irrespective of the performance of the society; and the additional €400,000, in monthly instalments, that had been agreed in 2007. It was as if he knew things were going to get rough and he was going to stick around to take the flak but wanted to be paid a total of €2.4 million to do so.
The Kearns-O’Ferrall report failed to adequately explain the additional payment of €400,000. Despite producing a 54-page report with the assistance of KPMG, the solicitors Arthur Cox and others, they fudge what these payments were about and why they were given.
The 2007 accounts say that Fingleton’s bonus for that year was €1.4 million. In March 2008, in agreement with Walsh, he was to receive a bonus of no less than his 2007 bonus in return for staying on. He was awarded €1 million. There is what is described as an additional payment of €400,000, awarded in 2007, but it is not clear if this was paid. It was paid in 2008. No clear explanation was provided for how this came about.
The report explained Fingleton’s pension situation in great detail. He had joined a private defined-benefit scheme for executives in 1981, which provided him with two-thirds of his final salary after his retirement. In 1991 Fingleton took over the investment strategy of this pension fund, so he decided where the money should be invested. Then in 1995 a separate pension fund was set up for him, and two years later the board agreed that the definition of terminal salary in any year should include the basic annual salary plus the bonus payments averaged over the three previous years.
The incredibly generous board decision in 1997 meant that Fingleton was in an extraordinarily fortunate financial position. The more profit he earned for the society, the bigger his bonus. The bigger his bonus, the greater the amount he would receive after he retired. Pushing profits up for the three years before he retired would multiply the value of the pension he would receive for the rest of his life.
Fingleton had been given a massive incentive to blow the lights out when it came to short-term profit, especially in the three years leading up to his retirement. This re
quired a massive financial gamble; but the property market was on fire, so it looked like paying off.
The decision in 1997 to include bonuses in the calculation of final salary meant adding €12 million to the pension fund needed to fulfil the obligation to Fingleton. A further decision to upgrade his wife’s pension entitlement, should he die, from two-thirds of his pension to 100 per cent of it added another €2 million to the cost.
Yet, despite building up a €27.6 million fund, the society had to put in only €4.3 million of its own money; the rest had come from investment gains that the fund made under the direction of Fingleton himself. He primarily invested his fund in bank shares, and by 2007 it had €12 million worth of shares in AIB alone. He also had €6.8 million in Bank of Ireland and €1.3 million in Irish Life and Permanent. He didn’t invest a cent in Anglo Irish Bank, the report found.
The report of the public-interest directors, which was presented to the Committee of Public Accounts, also found that by managing the pension investments himself Fingleton had saved the society €2 million in fees that would have been charged by a pension advisory or investment company. But, irrespective of how his investments performed, he was on track to receive a pension of €890,000 per year. It was one of the most gilt-edged pensions in Irish corporate history. As it happened, Fingleton invested wisely during those stock-market boom years. However, the Midas touch he showed in investments ran out, and his investment portfolio of bank shares collapsed after 2007.
It is not known, however, whether Fingleton switched the investments out of those shares and into something else. If he didn’t, according to an analysis by KPMG, by 2009 his pension fund of €27.6 million would have had assets worth less than €4 million.
Fingleton has never disclosed the present value of his pension fund, but when pursued in the High Court by Ulster Bank for an unpaid loan of €13 million and pressed to provide a full list of his assets he did not include any value for his pension at that time, something the court described as ‘remarkable.’ Clearly Fingleton’s personal wealth in 2007 was well above €30 million when his pension is included. He had also been earning more than €1 million per year since 2003. In fact in the six years 2003–8, inclusive, he was paid a total of €11 million. His pay was criticised, but not unduly so, as year after year the society turned in record profits. ‘Shovelling out shed loads of money in this manner is considered to be the natural order in the corporate jungle,’ Frank Fitzgibbon concluded in his Sunday Times column in April 2003.
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