• Terms were extended on certain loans in December 2008 without the request of the borrower.
The final point suggests that, probably like other Irish lenders, Irish Nationwide was trying to dress up the books by December 2008. This was three months into the state guarantee, and banks wanted to ensure that loan books and the position of borrowers looked as attractive as possible. It was giving its customers more time to pay back loans, without even being asked, to take some of the dirty look off their balance sheets.
The losses for 2008 and 2009 were astronomical. The society lost an amount in those two years alone (€2.7 billion) that was nearly twice the total profit it had made in the previous ten years (€1.4 billion). By 2007 the commercial loan book accounted for 80 per cent of the total. By 2009 half of all outstanding loans were owed by the top thirty borrowers.
After the guarantee in late September 2008 and the resignation of Seán FitzPatrick in December because of his warehousing of personal loans with Irish Nationwide, the Financial Regulator began to act tough. The society’s business plan, submitted to the regulator in December 2008, was rejected by the mandarins in Dame Street. It demonstrated a failure of Fingleton to understand and deal with the risks inherent in the strategies previously adopted. It must have seemed a bit rich, even to Michael Fingleton, to have his business plan rejected by the Financial Regulator’s office in that way. After all, they were aware of pretty much every aspect of the growth of the society’s loan book, concentration of risk and internal shortcomings since 2000. All it had done was write letters.
Ernst and Young also found that Irish Nationwide was frequently using the same solicitors in Britain as the borrower. This arose on sizeable commercial property loans in some cases. One of the preferred firms used for big British deals was Howard Kennedy in London. Using the same firm on both sides of a deal is not a breach of any rules and is perfectly legal, but it falls well short of best practice when it comes to lending tens of millions to property developers.
There was no formal process for extending loans. For big clients this was simply done by Fingleton, who made the decision himself.
The British lending operation was perhaps even more dysfunctional than the Irish one. Just two lenders, Gary McCollum and Michael Fingleton junior, lent more than €6 billion for commercial projects in Britain and continental Europe. In corporate governance terms, the operation was a shambles. But clearly all major decisions were sanctioned by Fingleton.
The investigating team found a payment to a firm called Value Designs with an address in Madison Avenue, New York. The payment was on foot of an invoice for €435,000. But the team found no evidence that the entity existed at that address. ‘The beneficiary appears to be a Luxembourg bank account,’ the report concluded. ‘There is no evidence that these invoices were challenged prior to reimbursement.’ There may ultimately be reasonable explanations for what this payment was about, but the society’s records were so poor that answers to such basic questions could not be found.
Some of the society’s biggest borrowers were British property developers, who borrowed heavily during the boom years. One of these, Cyril Dennis, was in business with his son. Ernst and Young found payments to a company called Capital Provident and Management. This was owned by a Jersey trust controlled by Dennis’s son. The payments were listed as covering ‘consultancy services’. A total of €6.6 million was paid to Capital and Amble Ventures, another firm linked to Dennis, between January 2007 and September 2008.
When asked about it, Gary McCollum said that management fees of that magnitude were appropriate at the time. The payments would have been linked to joint-venture property development projects between the society and Dennis firms. Again there is no evidence that there was anything untoward about these payments, but with regard to a lender’s corporate governance there appears to have been little professional assessment, paperwork or scrutiny of the background, value or breakdown of the payment of these fees. This is simply poor corporate governance by Irish Nationwide.
When it came to loans to Dennis, as with other Irish Nationwide clients, the society took all kinds of short-cuts. According to Ernst and Young, a lot of lending was done quite late in the property boom, and it continued despite the evident weakening in the financial position of the projects for which the client was borrowing. The review found issues with the draw-down of funds, including missing invoices, invoices presented more than once, invoices related to other developments, invoices from entities related to the borrower, and invoice amounts not related to the purpose as stated in the facility letter.
They found a payment of €10 million to the borrower to settle a dispute with a third party over ownership of land. There is no authorisation in the file for the facility to be used for this purpose; however, the British lending manager said he received verbal approval for this from Fingleton.
A payment of €1.4 million was also made from the Le Provençal facility for the deposit on land at St George’s before approval by the credit committee for the loan. There were draw-downs of €4.1 million from the Le Provençal facility that appeared to Ernst and Young to relate to invoices for other Dennis development projects. The British lending manager said this mixing was because the society viewed each of these developments as one, and that this treatment was approved by Fingleton. ‘We note however, that there is no formal cross collateralisation in place between the various entries,’ the report concluded, ‘and hence some funds advanced in this manner could be considered unsecured.’ It also found evidence of invoices totalling €2 million paid twice, as a result of being repeated on separate draw-down requests, and there was no evidence that they were challenged by the Irish Nationwide management.
The report again shows it was a bizarre way to run a bank. For the borrower it simply meant getting access to funds quickly and with ease. In that sense, all the culpability here rests with the society and not with Cyril Dennis. It was not his job to regulate how Irish Nationwide did its business.
By the end of 2009 Dennis’s loans to the society on a number of projects had totalled €486 million. Reports in late 2011 suggest that NAMA had sold approximately €600 million of his loans to the American investment group Orion Capital Partners for approximately €320 million. We don’t know how much NAMA paid for the loans, and it may have made a profit. Either way, the taxpayer loses about €250 to €280 million.
The Ernst and Young team also found some unusual connections between the society, a major borrower and a business venture by one of Michael Fingleton’s sons. They found some correspondence discussing activity with William Fingleton and a company called Beijing Gateway. William Fingleton was living in China, where he ran a pub called the Paddy Fields. Beijing Gateway is registered in the British Virgin Islands but with activities in China. An executive at Irish Nationwide said he believed the company was involved in selling apartments in China. William was the beneficiary of the company’s Irish Nationwide bank account in the Isle of Man. Ernst and Young found that one of the deposits to the account was challenged by the internal audit section in August 2009. According to the Ernst and Young report, there is evidence that Michael Fingleton himself had some interest in or control of the company, as e-mail traffic makes references to certain issues needing his action or approval.
A review of the bank account showed there were only five deposits to the account and no withdrawals since it was opened in 2006. The deposits totalled €443,500 and were all received from Ballymore Properties. This company, owned by Seán Mulryan, was a significant borrower from Irish Nationwide, being its biggest single exposure, and in fact one of its senior executives, David Brophy, sat on the board of the society. It is far from clear what these deposits were all about. It may simply have been that a plan to promote the sale of apartments in Beijing by Michael Fingleton’s son was financially supported by Seán Mulryan’s company. The company may have thought it was a good business idea and wanted to back Fingleton’s son. Irrespective of the explanation, it re
veals a further connection between Fingleton and the society’s biggest borrower, which should have precluded Fingleton from taking part in any commercial decisions about Ballymore Properties.
Another venture involving Michael Fingleton was New Fjord Developments. This was a company set up in Montenegro by Louis Maguire, an associate of Fingleton’s.
In Michael Fingleton he found a backer for a new resort in Montenegro. Fingleton invested about €5 million in a stalled hotel development in the coastal city of Kotor in 2005. The investment was part of a joint venture to build a €200 million luxury hotel.
Fingleton’s Montenegrin investment was investigated by Ernst and Young, because Maguire later raised questions about the role he played in the deal and the origin of the funds Fingleton put into the project. Maguire made the allegations directly to the society after Fingleton had resigned, and he also complained to the Central Bank.
In the meantime the Central Bank decided to conduct a number of follow-up reports, approximately five in total, delving more deeply into specific aspects of the original corporate governance report. It got Ernst and Young to continue the work it had done with more detailed follow-up reports. Once completed, these were all forwarded to the Central Bank by the board of Irish Nationwide. The board considered whether the information it had could form the basis of a possible legal action against Fingleton or other former directors or executives of the building society.
No final conclusions were made. The legal advice received seemed to question whether Fingleton had broken any of the society’s rules, because what he did was based on the special powers given to him by the board, but it was possible that some action could be taken if he had overstepped them. ‘It’s like saying that, Yes, Fingleton had special powers officially given to him by the board,’ one source close to the action said, ‘but what he did with those powers was nevertheless reckless and irresponsible.’
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The Ernst and Young report has never been published. Copies of it were given to the Department of Finance and the Central Bank in the summer of 2010. That October, Éamon Gilmore raised the issue of the report in the Dáil. He asked the Taoiseach, Brian Cowen, whether the report had been presented, and whether it would be laid before the Dáil, ‘as in effect this is a publicly owned institution.’
There has always been a feeling of inertia about going after those responsible for the destruction of the building society that cost the citizens €5.4 billion. Sceptics have suggested that Fingleton was so plugged in to political and business life that there was a lack of will to go after him. His connections in the political sphere included the two main parties. Certainly the coalition government of Fianna Fáil and the Green Party did not seek to publish the report, even an edited version, so as to provide some understanding of just how badly Irish Nationwide had been run.
The present Minister for Finance, Michael Noonan, has had the report in his department since he took office in March 2011. In that month a spokesperson for Éamon Gilmore, now also in government, said that while he remained of the view that the report should be published it was a matter for the relevant minister, in this case the Minister for Finance. it was not something the government had got around to deciding.
It is difficult to say whether this is all part of a strategy aimed at taking the right action at the right time or not doing anything that might jeopardise the chance of successful litigation or sanction being taken against Fingleton and other former board members. There is strong evidence to suggest that the late Brian Lenihan had an appetite for pursuing to the full any possible wrongdoing at the society. Just before he left the department he phoned a number of people he had worked with in relation to the banking crisis. One of them, who did not want to be named, said the phone call was the last conversation he had with Lenihan. The outgoing minister thanked him for his assistance in tackling various issues at the society and for all his co-operation. His final comment at the end of the conversation was, ‘Do you think we will ever get Michael Fingleton?’
Chapter 13
LIVING THE LIFE OF FINGERS
In September 2005 Michael Fingleton and his wife flew to Portugal to attend the wedding of Julie Gannon and Peter Reynolds in the baroque chapel of São Lourenço dos Matos in Almancil. The church’s exquisite eighteenth-century blue-and-white tiles depict the life of a local saint, surrounded by angels bearing medallions and garlands of flowers and leaves.
The church was packed for the marriage of the daughter of one of Irish Nationwide’s biggest borrowers, Gerry Gannon. Fingleton took his seat alongside two other close friends of Gannon, Tom Brown, Anglo Irish Bank’s gregarious head of lending, and Bill Barrett, the veteran Anglo Irish lender who had helped keep Gannon afloat during the 1980s when he ran into difficulties caused by the recession.
Gannon was in a mood to celebrate. At that point he owed Irish Nationwide approximately €130 million, making him its tenth-biggest client. He owed Anglo Irish Bank well over half a billion more, as well as having borrowings from other banks. Included in his Irish Nationwide borrowings was his half of the acquisition of the K Club four months earlier for €115 million, along with Michael Smurfit.
Despite only recently borrowing another €100-odd million, Gannon considered himself a very rich man, based on the bubble valuations of property and land that existed at the time. Having mountainous debts, much of them locked up in development land, was in his mind no reason to spare any expense.
White roses and candles adorned the altar of the church, and the plaza outside was festooned with white rose topiaries. It was bling, Irish developer style. Back then, such spending by the massively indebted was not considered crass. The Irish Independent’s social diary described the scene in gushing terms.
When the radiant bride entered this Algarve landmark on the arm of her father Gerry, there was an audible gasp from the congregation. In a gorgeous Vera-Wang designed couture gown of white charmeuse silk, Julie looked every inch the princess bride. The diamanté detail on each side of the deep V-front was picked up by her glittering diamond jewellery: studs, a solitaire necklace and a diamond headband which held her short veil in place. She carried a bouquet of tied white roses.
As Gannon stepped up the aisle with his resplendent daughter, his guests remarked with amusement that for once he was not wearing his trademark fedora.
Afterwards the guests retired to a champagne reception on the terrace of the Algarve Sheraton, a five-star golf clubhouse, before sitting down to a sumptuous dinner. As usual at these events, Fingleton took several turns on the dance floor after the meal.
A black-tie ballroom shindig back in the K Club was scheduled later to complete the festivities for those unable to make it to Portugal. Arriving back in Dublin, Fingleton was keen to impress the developer by giving his daughter a present before the K Club party. On 28 September 2005 a Mr M. Fingleton bought an ‘antique fruit basket’ from J. W. Weldon, the fourth-generation family-owned diamond and antique-silver retailers in Clarendon Street, Dublin. The basket, marked ‘London, c. 1758,’ was the work of the renowned silversmith Samuel Herbert. The payment was made with a cheque for €6,000 signed with just one signature, Fingleton’s. He described it as a ‘gift for Julie Gannon’ as he chucked the bill in with the other expenses that he charged monthly to Irish Nationwide Building Society.
In Fingleton’s mind, the building society’s money had blurred with his own. And it never seemed to cross the mind of anyone who dealt with this bill to question it, as Fingleton had for decades charged the society for anything that took his fancy.
But the way Fingleton had spent the society’s money on himself was the next area that came into sharp focus after the completion of the Ernst and Young report. The head of Irish Nationwide’s internal audit department, Killian McMahon, was ordered to prepare a report on the expenses claimed by Fingleton and a small bunch of his cronies between 2005 and 2010. He completed this report in September 2010.
The investigation was sparked af
ter it was discovered that a going-away present of a watch costing €11,500 for Fingleton had been purchased with an expenses cheque that had been cashed in the staff cheques account. The watch was a lavish gift for a man who had run a financial institution so badly that the state had been forced to take it over.
It was also discovered at about the same time that two significant claims had been made to benefit Meryl Foster, a close confidante of Fingleton in the society, that had not been taxed appropriately as a benefit in kind. Foster (also known as Meryl Coade before her separation) had been plucked from the ranks by Fingleton and accelerated upwards to be head of branch operations.
As Fingleton moved from the joy of recklessly expanding the society in its final years to brooding in his final months about how it all went wrong, Foster remained loyal. Often, according to other former staff members, she would work late into the night with Fingleton on whatever scheme was occupying him. McMahon’s task was to determine what benefits had been received and whether they had been appropriately approved and correctly taxed. As part of this task he looked at whether duplicate expenses had been claimed, what paperwork was supplied to support them, and whether they related at all to the society’s business.
Four individuals in particular were looked at: Michael Fingleton, Meryl Foster (Coade), Michael Fingleton junior and Gary McCollum.
Firstly, the circumstances surrounding the gift of the watch were looked at. What McMahon found surprised him. The society regularly paid for small departure gifts for staff members; but this time a very different mechanism was used that was very hard to spot. On 30 April 2009 Stan Purcell wrote a cheque for €11,500, using the society’s expenses account, which he lodged in the so-called staff cheques account. The purpose of this account was merely to facilitate temporary summer employees who had no bank account with the society in cashing their pay cheques.
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