Other loans to Fianna Fáil politicians included €7 million to Francis ‘Francie’ O’Brien, a former senator, €3 million for Don Lydon, another former senator, and €300,000 for Seán McCarthy, a Fianna Fáil councillor.
Joan Burton seized on the programme’s findings. ‘The question now arises as to whether or not other figures in Fianna Fáil, including figures at senior level, were customers of Irish Nationwide, and whether the institution operated a system of favoured relationships for particular clients.’
Fine Gael’s spokesperson on enterprise, Leo Varadkar, said: ‘The year on the calendar has changed but another generation of Fianna Fáil politicians and their friends in banking and building have succeeded in bankrupting the country. A 21st-century golden circle has corrupted our banking system and destroyed our economy. The drivers of this phase of economic destruction were, again, a cheerleading Fianna Fáil Government and greedy speculators and banks.’
The leader of the Green Party, John Gormley, called for a banking inquiry that would include an investigation into the links between bankers, developers and politicians. ‘I think it would be helpful in the context of any sort of inquiry. [Fingleton] had a habit of giving loans and mortgages to a lot of people … Mr Fingleton seemed to foster good relationships with these people, for whatever reason, and it is important to establish why this was so.’
The idea of such an inquiry, like so much else that concerned Irish Nationwide, was somehow allowed to fade away.
Chapter 11
SIFTING THROUGH THE WRECKAGE (DECEMBER 2009 TO MAY 2010)
On Sunday 12 December 2009 Miriam O’Callaghan interviewed the former Minister for Finance Charlie McCreevy and his wife, Noeleen. It was a soft Sunday-morning style of interview, which delved into the ups and downs of their lives together, broken up with a choice of songs. But, as usually happened with O’Callaghan, some tough questions were added to the mix.
‘Do you ever doubt yourself?’ she asked McCreevy, then a member of the European Commission.
‘I don’t stand up every day and say, I shouldn’t have done that,’ McCreevy replied, ‘We did what we did, and they were in the best interests of the people.’
Steadfastly, he defended all his actions, from introducing tax relief for property development to weakening the civil service by pursuing a mad plan called decentralisation to scatter its offices around the country. It was the sort of bull-headed refusal to accept any blame that must have been familiar to Fingleton, who also remained in denial about his failings.
A few months earlier, McCreevy recalled in his interview, he had launched Bertie Ahern: The Autobiography in the Shelbourne Hotel. Brian Cowen had also been at the launch, but, unlike Ahern and McCreevy, he said nothing as the two men delivered self-congratulatory speeches.
‘It was a great night, it was like a mini-ard-fheis.’ McCreevy laughed as he remembered a night of pints and back-slapping.
‘People said it was like you were living in a parallel universe,’ O’Callaghan replied. ‘You were both singing the praises of the past, and people were going, Hello, have you been living in Ireland in the past few months?’
‘Well, hold on,’ McCreevy replied. ‘My dad died in 1954. You weren’t born then. Ireland in the 50s and 60s, compared to the Ireland of the 2000s—there’s no comparison. Even if the economy retrenches in ’08, ’09, ’10 it’s a damn sight far better place than it was even fifteen or twenty years ago. People have to get things in perspective in this particular country. Things are tough at the moment, but it’s up to ourselves to get out of it … People should have been around when it was really tough … Times are tough, people are finding it difficult, but we have to be somewhat positive.’
Noeleen McCreevy added: ‘As I keep saying to James [the McCreevys’ son], it’s a great time to be a student. Stay there for another while.’
The McCreevys could afford this sanguine attitude towards the bust. Charlie McCreevy was well insulated from the consequences of his political mistakes, with a TD’s and minister’s pension of €125,000 a year, paid by the taxpayer, on top of his EU commissioner’s salary of €238,000. Not everybody was so lucky.
Ireland had not gone back to 1954, but a decade of growth was in the process of being wiped out. Ordinary people were now really beginning to feel the price of bailing out Irish Nationwide and Ireland’s other toxic banks. By December 2010 unemployment had reached 13 per cent, compared with less than 5 per cent during the boom. Figures from the Central Statistics Office showed that emigration was at its highest level since the late 1980s.
Even the rich and the formerly rich were beginning to feel the pain. Nowhere was this more evident than at the K Club, whose acquisition with borrowings from Irish Nationwide was a high-water mark for the property bubble. The resort was still luxurious, with paintings by Jack Yeats and John Lavery adorning its walls, as well as a display case containing a uniform worn at the Battle of the Bulge by General Patton. But it wasn’t the same. There was no longer as much money around as there had been in the glory years, when Michael Smurfit had worn Patton’s uniform during a birthday cruise around the Mediterranean, to the amusement of his guests, including Michael Fingleton. Smurfit was now at loggerheads with Gerry Gannon over ownership of the resort, where income was falling as its former members’ cash dried up. Residents like Séamus Ross, Noel Smyth and Seán Dunne were now on their way into NAMA. The agency wanted them at their desks working and not socialising and wheeler-dealing on the golf course.
Like his fellow-developers, Gannon, a former bricklayer from Co. Roscommon, was no longer a very rich man. He owed his Irish banks €1.7 billion and in return for NAMA support was preparing to accept a salary of a mere €150,000 to €200,000 a year. He had no interest in paying the bills at the K Club to keep it going and was instead anxious to sell his stake. Michael Smurfit was not amused. In a letter to members at the tail end of 2009 he wrote: ‘I am the sole financial supporter at this time.’ Members were pressing him to reduce their annual fee from €6,950 plus VAT, but the tycoon declined, citing the additional expenses he had to pick up.
It was a constant battle for the ill-equipped society to keep things going. At every level it had slipped up, and it was hard work trying to unravel the past. On 28 January, for example, Tadhg Feeney, a businessman from Thomastown, Co. Kilkenny, was given a two-year suspended prison sentence for non-payment of tax on almost €1 million lodged in bogus non-resident accounts. In April 2009, Fingleton’s final month in the hot seat, Feeney had opened twenty-nine Irish Nationwide accounts with a bogus address in England. It was incredible that he could manage to open so many accounts without this being picked up. But then, this was Irish Nationwide.
The society was dead on its feet. Gerry McGinn and his stretched management were under enormous pressure. It was constant firefighting to keep clients afloat and to claw back whatever money it could. As he dug deeper into the society’s Belfast office in particular he was agog at the reckless lending and the poor quality of records. At the same time he knew that in September, only nine months away, Irish Nationwide had to refinance €3.7 billion of its bonds, a third of its entire business. This was an impossible mountain to climb.
Making it worse, in total that month Irish banks had to refinance €24 billion worth of bonds. Irish Nationwide would face fierce competition as it tried to raise funds. The September deadline was dubbed by the Royal Bank of Canada the ‘wall of worry’ for Ireland.
The clock was ticking; if Irish Nationwide couldn’t manage to come up with this money, the state would have to intervene—assuming it had the money to do so. It was essential, then, that the society should get its commercial loans off its books and get new money in by transferring them to NAMA before September.
The dire situation the society was in was underlined when, in January 2010, Moody’s published its global league table for bank financial strength. From being rated as having some of the best banks in the world three years earlier, Ireland was now in the bottom qu
arter, behind Bolivia, Uruguay, Tunisia and Pakistan. Bank of Ireland, AIB and Irish Life and Permanent were graded D, making them well below investment grade. Anglo Irish Bank was rated E, placing it firmly in the toxic high-risk zone.
As always, however, Irish Nationwide did worse again. It was crowned by Moody’s as Ireland’s worst bank, with a rating of E–. This put it on a par with banks in Kyrgyzstan, then under a particularly corrupt and murderous regime, where Moody’s considered the worst banks in the world to be.
As February began, Charlie McCreevy, who had been Minister for Finance from 1997 to 2004, finished his stint as EU Commissioner for the Internal Market. He was given a golden handshake worth €378,288 to ease his transition back into everyday life. Asked if he believed his actions had helped create the economic crisis, he replied: ‘I don’t. I have always said I certainly don’t.’ Asked if he believed Michael Fingleton should repay his €1 million bonus, he was more circumspect. ‘Nothing to do with me. I’ve no opinion on any of these matters. They are Irish matters.’
On 9 February, a few days after McCreevy’s comments, the new governor of the Central Bank, Patrick Honohan, told an event in Trinity College, Dublin, where he had previously lectured, that the state would have to take bigger stakes in the banks. NAMA, he warned, was going to blow holes in their balance sheets when it acquired their toxic property loans. ‘It’s pretty clear the government will be acquiring additional equity stakes,’ Honohan said. It was ‘possible’, he said, that the state would have to take a majority stake in Bank of Ireland and AIB, where it already had an indirect 25 per cent holding. Tough spending cuts would be needed, he warned, to pay for the banks. However, he said he was hopeful that the crisis in Ireland’s economy was bottoming out, as its gross national product had now shrunk by 16 per cent and its gross domestic product by 11 per cent. Honohan would be proved wrong on this issue: bad decisions both behind and ahead of the state would ensure years of future austerity.
Later that day Bank of Scotland (Ireland) announced a plan to shut down the forty-four branches of Halifax and other retail businesses, leading to the loss of 750 jobs, almost half its total work force. The announcement was made at 3 p.m. that day in a conference call throughout the group, which sent shocked workers spilling out into the streets afterwards. The company said that part of the reason it had decided to shut up shop was that its attempts to be amalgamated as a ‘third-force’ bank with Irish Nationwide and others had come to nothing. Under its chief executive, Mark Duffy, it had competed hard with Irish Nationwide to give loans to rural developers and competed for deposits in towns around the country but was finally chucking in the towel.
Other banks were also downsizing rapidly, with National Irish Bank shutting 25 of its 58 branches and First Active putting 49 branches up for sale.
It now seemed inevitable that Irish Nationwide too would have to swing the axe, to fire employees and close some or all of its fifty branches.
Speaking to Brian Carey in the Sunday Times, the former chief executive of Irish Life and Permanent, David Went, said he wasn’t very surprised at the vicious banking retrenchments. ‘We put too much capital and too much competition against a small market the size of Manchester,’ he said. ‘With hindsight, it was like putting a flame-thrower to a can of petrol.’
On 17 February the Irish Times reported that Irish Nationwide had suspended Gary McCollum, the head of its British operations. The society refused to comment on the suspension, which came as Ernst and Young were working their way steadily through the society’s commercial loan book. McCollum had set a rental record in Belfast in April 2008 when the society had leased space in the ten-storey Centrepoint building. He would never again get to enjoy its views.
On 21 February there was further evidence of Fingleton’s extravagance. The Sunday Independent reported that he was among a group of Irish business people who stumped up millions to pay for the restoration of the historic Pauline Chapel in the Vatican Museum. Three of the society’s clients who made large donations were Johnny Ronan of Treasury Holdings, Seán Mulryan of Ballymore Properties and Paddy McKillen. Others who donated were Seán FitzPatrick, the former chairman of Anglo Irish Bank, and Denis O’Brien, the telecoms magnate. Donors were given special medallions after a private mass in the chapel celebrated by Cardinal Giovanni Lajolo in July 2009. Michael Fingleton’s name is engraved on a five-foot-tall marble plaque in the sacristy of the chapel. The Vatican gave him a special gold-plated medallion for his donation of more than $100,000. It was another reminder of Fingleton’s hubris and self-regard that in his own eyes made him bigger than the man in the street who had been saddled with the bill for his appalling mistakes.
Far from the glories of Rome, Ireland’s sprawling so-called solution to the property loans sinking its banks was coming together. On Friday 26 February the European Union gave NAMA the green light. ‘This impaired asset measure, which is specifically targeted at real estate assets, is [the] key to cleaning up Irish banks’ balance sheets,’ said the EU Commissioner for Competition, Joaquín Almunia. The EU was firmly behind the socialising of bad property debts onto the backs of Irish citizens.
Irish Nationwide had already packaged close to €1 billion worth of property loans to be transferred to NAMA. The haircuts being applied had originally been estimated at about 30 per cent, but as February ended it was widely speculated that the cut for the society could top 50 per cent.
‘I am advised by NAMA that issues have arisen during the due diligence process regarding the quality of legal title and related matters,’ Brian Lenihan said. ‘Clearly this justifies the thorough and detailed due diligence process undertaken by NAMA.’
The work load within the society was now intense. With NAMA beginning to come together, a clamber began to explain to the public just what happened. Patrick Honohan said he would prepare a report on the crisis at the same time that two outside experts, Klaus Regling and Max Watson, were selected to interview the bankers and their watchdogs to determine what had happened.
On 18 March, Seán FitzPatrick was detained in Bray Garda Station and questioned for twenty-four hours on goings-on inside Anglo Irish Bank. It was a very public fall from grace for one banker at least.
The following day it emerged that Michael Fingleton junior had been moved from Irish Nationwide’s London office and was now installed in Belfast. It was extraordinary, given who his father was, that he was still working in Irish Nationwide, though the society had to be careful not to mistreat him because of this.
With Irish Nationwide crawling with outside consultants and its ordinary staff working late into the night, Danny Kitchen wrote again to Fingleton on 23 March to ask for his bonus back.
Dear Michael,
I am writing to enquire if your situation with regard to your undertaking to repay the bonus has changed. Clearly I am not aware of any contact you may or may not have had with the government in relation to this matter and would therefore be obliged for an update.
On a separate matter I enclose a letter received by us today requesting your attendance at the inquiry being carried out by Klaus Regling and Max Watson. Could you reply directly to them as per the contact details contained therein.
Yours sincerely,
Daniel J. Kitchen
On 27 March, James Morrissey parted ways with Irish Nationwide after representing the society for fifteen years. He had staunchly defended Fingleton against any and all attacks by journalists like Bill Tyson as the society lurched from controversy to scandal.
As March ended, the focus turned to Brian Lenihan and Matthew Elderfield, the Financial Regulator, who were due to reveal the new post-NAMA banking landscape. Both Bank of Ireland and the EBS delayed issuing their results in order to allow this announcement. There was a sense of dread in the twenty-four hours beforehand as the market steeled itself for what promised to be savage haircuts. ‘This is the big one’ was how Goodbody’s banking analyst Éamonn Hughes described it, ‘when we find out about National Asset Managem
ent Agency haircuts, target capital levels and levels of state ownership.’ An analyst with NCB Stockbrokers, Ciarán Callaghan, said: ‘Tomorrow is shaping up to be a defining day in the history of the Irish banking sector.’
The night before that seismic ‘bail-out Tuesday,’ AIB’s share price fell by 19 per cent, while Bank of Ireland was down 10 per cent. Things were so fraught that Lenihan decided to make his speech after the markets closed that Tuesday, 30 March. To a tense and ill-tempered Dáil, he stood up and began to make his speech.
This country has come a long way since we introduced the state guarantee eighteen months ago. Back then, our banks were on the brink of financial collapse and our economy had gone into reverse. Revenue had fallen steeply, and unemployment had risen sharply. For the first time in a quarter of a century we were experiencing negative growth. Economic activity remains weak, and we face further difficult decisions. But the crucial difference is that we now have a credible fiscal position. As a result, we are now in a position to stabilise the deficit, and we are on a firm path to economic recovery.
This adjustment has imposed a heavy burden on our citizens. Taxes have increased, public-sector workers have suffered significant reductions in their pay, and social welfare payments have been reduced.
It is regularly suggested in this house and outside it that these painful measures have been necessitated by our banking crisis—that the cuts in pay are funding a bail-out of the banks. That is simply wrong. The reason we have had to make very substantial savings is because of the huge gap that opened up between the revenue we take in and the cost of running this state. We are borrowing for day-to-day expenses, and that is not sustainable.
Fingers Page 30
