At the board of directors his salary was never really challenged either. Con Power had made sure there was an independent review of Fingleton’s salary after it was criticised by a member at the society’s AGM in April 2003. Michael Walsh selected an experienced independent human resources consultant from the Hay Group to review Fingleton’s pay; the consultant concluded that his pay at that time was reasonable relative to that of his peers. In any event, Fingleton was one of the best-paid executives in Irish business for many years.
His most lucrative year was 2008, when he earned €2.4 million. This was the year in which the society made a loss of €243 million. Again he got a bonus of €1 million, plus the additional payment of €400,000. The society went on to lose more that €5 billion over the next three years on the strength of loans sanctioned by Fingleton.
The value of Fingleton’s pay each year, including salary and bonus, was determined by the remuneration sub-committee of the board. Extraordinarily, this included David Brophy, a non-executive director who was also an executive of Ballymore Properties, owned by Seán Mulryan, Irish Nationwide’s biggest borrower. The remuneration committee was chaired by Michael Walsh; the third member was Terry Cooney.
Journalists could see a potential conflict of interest but could not easily have found out the extent of Mulryan’s borrowings from Irish Nationwide. But the Financial Regulator would have known how much the society’s exposure was. If he didn’t, he probably could have found out with a single phone call. Yet he did absolutely nothing about this glaring conflict.
Now, with the bank guarantee, Irish Nationwide’s warehousing of the FitzPatrick loans, the €1 million bonus paid after the guarantee and the €27.6 million pension pot all public knowledge, Fingleton’s position was untenable anyway. Brian Lenihan’s inability to forcibly reverse the €1 million payment had left him looking powerless and frustrated. The Financial Regulator too was beginning to look ridiculously naïve about what was going on in Anglo Irish and Irish Nationwide.
In June 2009 Gerry McGinn was finally appointed chief executive. A 52-year-old with a degree in French and philosophy from Queen’s University, he had spent eighteen years working for Bank of Ireland in Dublin, London and Belfast. In 2001 he changed direction to become permanent secretary at the Department of Education in Northern Ireland, under its then minister, Martin McGuinness. After that he worked in the Department of Regional Development, where he ran the North’s transport network. For the two years before joining Irish Permanent he headed the Belfast office of Goodbody Stockbrokers.
At Irish Nationwide, McGinn found an organisation that had been dominated by one man for a generation. It was now in free fall. There had been no real management team: real power had rested with Fingleton. Administration was chaotic.
NAMA had been set up to buy bad loans, including billions in loans from Irish Nationwide. Yet another report by Price-Waterhouse Coopers for the Department of Finance was finally uncovering how bad the loan book really was. The society was now effectually in state hands, and the big question was, How much is it going to cost the taxpayer from loan losses?
Against this backdrop McGinn and the recently appointed chief financial officer, John McGloughlin, approached Danny Kitchen and said they needed a competent third party to assess what had gone on inside the society. ‘They weren’t sure if skulduggery had gone on’ was how one former insider at Irish Nationwide put it, ‘but from all they could see, the whole think stank.’
The society hired the accountants Ernst and Young and the solicitors McCann Fitzgerald to conduct a review of corporate governance at the society over the years. What they would find was mind-blowing, but finding it wasn’t easy. Files and documents were spread out all over the society’s head office and its various branches.
During the first months of 2009 there had been extensive shredding of files and documents, but it was hard to know what they contained. ‘How could you prove that what was shredded was bank documents and not personal documents?’ a society source said.
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While the Ernst and Young review was taking place in painstaking secrecy, the saga of the €1 million bonus rumbled on. On 24 July, Kitchen picked up the baton again and replied to Fingleton’s refusal on 11 May to return his bonus.
In light of the fact that the report by the government appointed directors has been completed for several weeks I wondered what progress or otherwise you had made regarding the bonus.
Clearly the likelihood of adverse press comment looks much less remote so whatever you choose to do should stay below the radar.
On another matter could you let Meryl know some dates which would suit regarding the dinner we discussed.
I hope you are keeping well, yours sincerely, Daniel Kitchen.
The letter received no immediate reply. On 1 September, after enquires from the Irish Times, Irish Nationwide stated: ‘The society has written to Mr Fingleton on a number of occasions seeking the return of the money. As of now, the money has not been returned to the society.’ By text message, an unnamed spokesperson for Fingleton said that ‘the question of repayment does not arise at this time. There are several outstanding issues in relation to this matter and until such time as those issues are resolved Mr Fingleton has no comment to make on this subject.’ The Irish Times admitted it was baffled by what these issues might be.
The Fine Gael spokesperson on finance, Richard Bruton, said:
To be getting a payment after the taxpayer had extended a guarantee seems to fly in the face of everything that is fair and reasonable. He made a commitment which I think people accepted that he was going to honour. It’s not acceptable at a time when ordinary people are facing very severe constraints and are having to dig deep into their pockets to protect the financial system.
The issue was hugely embarrassing for Brian Lenihan. Internationally, politicians were trying to end the global culture of short-term decision-making linked to bonuses that had so devastated the world’s economy. Lenihan was eager to join in.
At a meeting of EU finance ministers on 2 September to discuss bankers’ bonuses Lenihan mingled with Europe’s heavy-hitters and nodded his approval when the Swedish Minister of Finance, Anders Borg, whose country then held the EU presidency, said that bankers were still ‘partying like it’s 1999, and it’s 2009.’ Pressed afterwards by the media, Lenihan admitted that he couldn’t just take the €1 million back from Fingleton. ‘The government doesn’t have a right to sue for this money—it is between the society and Mr Fingleton.’
The bonus controversy was again an unneeded headache for Lenihan. He was in the thick of working out a new strategy for Irish banking, but over and over again the media quizzed him on Fingleton’s bonus. ‘It’s been a very busy year,’ he admitted to the Sunday Tribune on 6 September.
Almost a year after the bank guarantee Lenihan continued to defend that night’s fateful decision, saying that forcing investors to pay for banks’ mistakes would hit the consumer, as bank bonds were held by pension funds, credit unions and insurance companies. Burning those institutions, he argued, would affect the consumer by wiping out their pensions or making their premiums go higher. ‘Let’s be clear: who are these investors? Who are they? I think the “Who are they?” is an important issue in this debate.’
Indeed it was. The fact that it was German and French institutions and individuals who would take the worst hits in such an eventuality was an important distinction that Lenihan did not make. Nor perhaps could he, as Irish banks were by now dependent on the European Central Bank for billions of euros in liquidity. Antagonising Europe was a strategy Lenihan could not risk.
He also told the Sunday Tribune that he was working hard on setting out a new direction for the banking industry, which he would reveal on 16 September.
On 7 September part of that strategy arrived. Mike Aynsley, an Australian banker, began work in Anglo Irish Bank. A thirty-year banking veteran, he faced the difficult task of trying to hold the bank together.
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br /> Aynsley had worked in Australia, New Zealand and south-east Asia. He had been attracted to Ireland after his old friend Mike Soden, former chief executive of Bank of Ireland who resigned after an internet pornography scandal, tipped him about the job. Aynsley had diverse banking experience, including risk management, liquidity management and governance risk assessment, which were all among the challenges facing Anglo Irish.
Two days later Irish Nationwide made its own important appointment towards fulfilling Lenihan’s strategy. Valerie Mulhall, who had worked with Barclays Bank and State Street, was named head of the society’s NAMA unit. The society was in the thick of picking through its messy commercial loan book, and Mulhall faced a heavy work load. After her years working to the high standards of State Street she was shocked by the poor quality of record-keeping at Irish Nationwide. Files for borrowers who owed the society a small fortune were poorly kept. Some documents appeared to have been lost, while others were only half filled in. Time and again Michael Fingleton’s signature or initials popped up as the society made reckless decisions, lending billions with little regard to best banking practices.
NAMA was not impressed by the standard or the security of documents dug out of boxes and files by Mulhall and her team. From early on, Irish Nationwide was, in NAMA’s eyes, easily the worst of all Ireland’s banks. NAMA began to gear up to give the society’s valuation of its loans a massive haircut. The black hole inside the society was going to be enormous.
While the society’s staff and board worked hard, its old boss was holidaying abroad with his wife. Fingleton, always so eager to speak to journalists, suddenly stopped answering his mobile phone, which more often than not now had an overseas ringing tone.
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It was now clear that Irish Nationwide was finished, even if Kitchen and his crew continued to maintain that this was not so. The idea of a so-called ‘third force’ bank began to emerge at government level, which would merge Irish Nationwide with the EBS and Permanent TSB. The fact that such a radical combination was being looked at showed both how bad things were and how poorly the government still grasped the problems facing it. While millions would be spent working on what this third force might look like, it would in fact never emerge.
On Monday 14 September, Irish Nationwide’s despised rival, the EBS, reported interim results. It said it expected that it would transfer €1 billion worth of loans to NAMA. It would need, as a result, €300 million from the state once NAMA took over its commercial property loan book. Most of these losses had been accrued in a few years when, under pressure from its members and some elements of the media, the EBS had abandoned its traditional conservative approach to chase Irish Nationwide. If €300 million was the hit for the relatively conservative EBS, then Irish Nationwide had to be many, many times that.
After the results the chief executive of the EBS, Fergus Murphy, spoke openly for the first time about the possibility of heading a new ‘super-mutual’, which would include EBS, Irish Nationwide and possibly Permanent TSB. ‘This entity would act as the “ultimate good bank” and would be built on the tradition of mutuals—building up savings from members and providing home loans,’ he said.
This was a million miles from the direction in which Fingleton had so disastrously taken Irish Nationwide. The idea that EBS would take over his beloved society must have galled him.
That Wednesday, in a dramatic speech to the Dáil, Lenihan revealed just how bad things were for Irish banks and, by extension, its blanket guarantors: the taxpayer. NAMA, he said, would pay €54 billion for loans with a face value of €77 billion from the banks, a discount of about 30 per cent. In total, this would cover 21,500 loans owed by 2,000 people. Half the €77 billion, it would later emerge, was borrowed by a mere 150 people. The cost of any losses associated with these loans, however, would be shouldered by the Republic’s 4½ million citizens. ‘The final figure will depend on the detailed evaluation of each individual loan,’ Lenihan said. Irish Nationwide would pass over €8 billion of its loans to NAMA; this compared with €24 billion from AIB, €28 billion from Anglo Irish, €16 billion from Bank of Ireland and €1 billion from the EBS.
The extent of the haircut for each bank was still not known, but banking analysts estimated that Irish Nationwide, with its big land-bank loans, could expect its loans to be bought at a discount of 40 per cent. This estimate put the cost of the society to the taxpayer at €3.2 billion—a huge sum but one that would turn out to be a gross underestimate. After so many years of trying, Irish Nationwide was now punching very much above its weight, although in the most horrendous way.
The Labour Party’s spokesperson on finance, Joan Burton, spoke out against NAMA, which she was worried was putting too heavy a burden on the taxpayer. Anglo Irish and Irish Nationwide, she pointed out, accounted for a big chunk of the huge cost of the state bailing out its bankers and developers.
That’s Fingers [Fingleton] and that’s Seánie [FitzPatrick]. That is half of what the Irish taxpayer is having to carry. Do we trust Fianna Fáil and the Minister for Finance to head up the largest property firm on the planet? Do we trust a Taoiseach who pleaded that Ireland’s economic fundamentals were sound when it was plain to see we were teetering on the brink of disaster?
Shares in the banks surged at the news, as investors snapped up shares. It now seemed clear that the taxpayer was to be landed with the bill for the stupid decisions that only two years earlier had been cheered by shareholders and stockbrokers. AIB surged by 30 per cent, pushing its value to €3 billion, while Bank of Ireland rose by 18 per cent, putting its value at €3.4 billion. The increases, however, would only prove temporary as the months dragged on and the truth about Irish banking in all its ugliness seeped out.
Nobody minded the two banks’ shares picking up. There was an unshakeable general acceptance among politicians that neither of the two big banks could be allowed to go bust. The same, however, was not then true about Anglo Irish and Irish Nationwide.
On 22 September the leader of Fine Gael, Enda Kenny, voiced his concerns at the scale of the combined €30 billion allocated for Anglo Irish and Irish Nationwide. ‘This will not result in one single person being taken off the dole queue,’ he said, while clearly implying that if he was in charge things would be different.
As the month ended, the news from Irish Nationwide just kept getting worse. On 22 September the Department of Finance released new figures on the society, showing that in the first six months of the year €899 million had been pulled out of the society by worried depositors. It now had deposits of €5.8 billion; this was a full €1.7 billion lower than where it had been in June 2008, before the worst of the crisis hit. A run was under way.
Irish Nationwide’s carpetbagging depositors, who had so happily piled in, giving Fingleton some of the money and the regulatory freedom to keep lending to developers, were now voting with their feet. The society’s lending, meanwhile, had ground to a halt as it fought to survive. After years of Fingleton firing out cash every which way, now, in the first six months of 2009, it had approved only nine mortgages, worth a grand total of €340,000. Irish Nationwide was going bust, and the cost to the state already looked huge.
It is against this background that an extraordinarily arrogant letter from Fingleton must be read.
The five-page letter was written to Kitchen on 25 September 2009. The editor of the Sunday Independent, Aengus Fanning, knew about the letter. Over many months he tried to convince his old friend to leak his side of the story to him. Fingleton would take his battered version of the letter out of his jacket pocket when they met and dangle it; but he steadfastly refused to let Fanning publish it.
Finally, in a coffee shop in Blackrock, Fingleton handed a copy of the letter over to Fanning, who published it in April 2010. The leaked version of the letter, however, was only a draft. The sentences in bold type below are the parts Fingleton left out when he leaked the letter. They paint a terrible picture of a man delusional in his self-importance
.
Fingleton began his letter by responding to a report in the Irish Times on 1 September in which a spokesperson for Irish Nationwide was quoted as saying, ‘Michael Fingleton had been contacted several times but had not responded.’ Piqued by this comment, Fingleton said he been contacted only twice by the society, on 8 May and 12 July. He had responded to the society’s letter of 8 May, he said, and now he wanted to give his reply in detail.
On reaching retirement age at the end of January 2008, the Board of the Society requested that I be retained for a further year-long contract which was to expire on 28th February 2009. It was agreed that in exchange for agreeing to this extension that my total remuneration for 2008 be not less than my total remuneration for 2007.
The constituent parts of my 2007 remuneration package included a one million euro ‘bonus’. At no point did the Board of the Society discuss or agree a performance bonus in relation to my remuneration for 2008. However for some reason, the one million ‘bonus’ payment became part of the contract in the official records of the Remuneration Committee.
On 23rd January 2009 the Chairman, Vice-Chairman and the two Government-appointed directors met with the Covered Institutions Remuneration Oversight Committee (CIROC), a Government body established to examine the remuneration of executives in the six covered institutions under the Credit Institutions (Financial Support) Scheme 2008. At this meeting, the payment of one million euro as part of my 2008 remuneration was discussed extensively and exhaustively.
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