Fingers

by Richard Curran

  Equally worrying was the continued downgrading of Ireland’s banks as rating agencies fretted that talk about burning even low-ranked bond-holders in Anglo Irish or Irish Nationwide might spread to AIB or elsewhere. On Sunday 10 October, Lenihan landed in New York after attending the annual meeting of the IMF and the World Bank in Washington. He was interviewed by Bloomberg Television on 11 October in a carefully staged media outing designed to calm investors’ nerves. ‘We have already reduced public-service pay by nearly 14 per cent on average … Likewise, we’ve looked at our welfare bill, at our pensions bill,’ Lenihan said. ‘All of these areas will have to be looked at. They’re on the table.’ Increasing taxes on the general population would also have to play some part.

  Lenihan also publicly defended Ireland’s low rate of corporation tax, at 12½ per cent, designed to lure foreign investment. ‘We want to encourage investment, not discourage it.’ And, he insisted, ‘exports have retained a lot of their strength.’

  The following day Patrick Honohan was also asked by reporters about Ireland’s low corporate tax regime, after giving a speech at the Philadelphia Federal Reserve Bank. ‘A lot of people have been talking about there being pressure,’ he said. ‘So far I don’t actually see that pressure being made explicit.’ As a member of the Governing Council of the European Central Bank, Honohan would have been expected to know if there was any. ‘I think there is definitely a general view in Ireland, “Why change this system? It works reasonably well”,’ he said.

  The view outside Ireland wasn’t as benign. Behind the scenes, Ireland’s low tax rate—the basis for its success in attracting some of the world’s biggest transnationals, including Facebook, Google, Intel and Microsoft—was now under threat. Elements in France and Germany were beginning to push for the tax to be raised in return for further support. The price that might have to be paid for leaving the likes of Fingleton unchecked for so many years was growing ever larger.

  On 4 November the Department of Finance published a new document, called Information Note on the Economic and Budgetary Outlook, 2011–2014. In bleak terms, which did not break down spending cuts and tax increases, it said the government planned to cut its borrowing by €6 billion the following year. A total adjustment of €15 billion over four years—double the €7½ billion previously estimated by Lenihan—was required to put the economy back on a sustainable path, it said. It was a huge sum to take out of a small economy like Ireland’s in a relatively short period.

  On 8 November the business news service Dow Jones reported that two hedge funds, Satin Finance SARL and Trimast Holding SARL, had begun a legal action against Irish Nationwide to prevent any write-down of the value of the subordinated bonds they held. Instead they tried to force the society’s liquidation. The two funds held more than a quarter of the €250 million of subordinated bonds issued by Irish Nationwide, so there was a good deal of money at stake. But it was hard to know why they would want to liquidate the society, unless, as Dow Jones speculated, they had hedged for such an eventuality by buying credit default swaps to make sure they would get paid if the society went bust.

  Irish Nationwide said it planned to ‘vigorously defend’ the action. A few days later it applied in London to have the case struck out, arguing that it was a ploy by its bond-holders to force full payment.

  Brian Lenihan, however, had more to worry about than this sideshow. Late on Tuesday 16 November he was anxious to reassure the media and investors after a meeting with EU finance ministers. ‘Ireland is now engaging in an intensive, and disclosed, engagement in relation to the problems in the banking sector,’ he said. ‘We will take whatever decisive measures that are required to stabilise our banking system as part of the stability of the wider euro zone.’

  The following week representatives of the European Union, the European Central Bank and the International Monetary Fund were to visit Ireland to advise it on what to do. Lenihan tried to play down the visit, but it was becoming clear that Ireland was going to struggle hard to keep going under the burden of its banks. He was adamant that it would not need a bail-out.

  The EU Commissioner for Economic and Monetary Affairs, Olli Rehn, said of the talks: ‘This can be regarded as an intensification of preparations of a potential programme, in case it is requested and deemed necessary.’ The head of the Euro Group, the sixteen states that use the euro, Jean-Claude Juncker, said that Ireland is making ‘significant efforts’ to deal with its budget deficit. ‘However, market conditions have not normalised yet, and pressure remains.’ He added that ‘we will take action as the Euro Group … to safeguard the stability of the euro if that is needed.’

  Yields on ten-year Irish treasuries hit 8.24 per cent that Tuesday. This was too high a level even if Ireland still maintained that it did not need to go back to the market for additional funding until June 2011. Combined with rising bond yields in Greece, Portugal and Spain, Europe had a lot to worry about.

  The next day Brian Cowen tried to play down the prospect of a bail-out by telling RTE television:

  We have still not applied for a facility. We haven’t started any negotiations. There is no solution yet formulated for us. We have not decided we are putting forward a proposal, because we need to decide what the best option is, and that is what these discussions are about … It is urgent. We accept it is urgent and we need to deal with it, but we will deal with it in our own interests as well.

  Just how urgent things were was revealed the following day. The Central Bank disclosed that it had provided nearly €35 billion in exceptional liquidity assistance to its banks up to the end of October. It had been forced to put €13.4 billion of this amount into the banks in the month of October alone.

  That Thursday morning Honohan pulled the rug on Cowen and Lenihan, who were still resisting being pushed into a bail-out. On the ‘Morning Ireland’ programme he said that Ireland needed a ‘very substantial loan, tens of billions,’ to support its economy. ‘It’s not my call. It’s the government at the end. It’s my expectation that that is what is likely to happen.’ While he expected the talks in Dublin to lead to a loan, he was not concerned that Ireland would lose its sovereignty if a full bail-out took place. ‘I think this is the way forward. I don’t see it as something that is really worrisome or should lead to a huge change in direction.’

  In France the Minister of Finance, Christine Lagarde, seemed to be pushing also for Ireland to accept its fate. She told AFP: ‘If it is decided that a mechanism has to be put in place I have no doubt that the Irish government will be responsible and make the appropriate decision independently.’ Behind the scenes, Jean-Claude Trichet, President of the European Central Bank, sent a letter marked ‘secret’ to Lenihan. Accept a bailout or face dire consequences, was the message from the ECB.

  The game was now up. Cowen’s government had been dragging their feet to avoid a bail-out in order to try to get a better deal on the bank debt and copperfasten its low corporate tax rate. Now Cowen tried to put a brave face on the country’s pending humiliation. ‘What we’re involved in here is working with colleagues in respect of currency problems and euro issue problems that are affecting Ireland,’ he insisted.

  Enda Kenny dismissed the claim, accusing Cowen of raising the ‘white flag’ and subjecting the country to the dictates of foreign masters.

  A new term entered the popular lexicon: ‘Troika’. Officials of the European Commission, European Central Bank and International Monetary Fund would be in Dublin the following week for what was euphemistically called a ‘consultation’.

  ——

  On 28 November, after tense negotiations and under fierce pressure from the European Union, the government agreed that Ireland would be provided with an €85 billion bail-out. The National Pension Reserve Fund and other cash resources would be drained in their entirety of €17½ billion as the state’s contribution.

  Ireland had lost its economic sovereignty. The rottenness epitomised by Irish Nationwide had felled the state.

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bsp; Chapter 15

  FROM THE MAFIA COAST TO CO. CAVAN

  The coastline of Montenegro on the Adriatic Sea has been nicknamed the Mafia Coast. Stunningly beautiful, it was tipped to become a rising tourism star. The Montenegrin government was determined to attract international investors to develop coastal resorts that could compete with the best of Italy and Croatia.

  Investment, however, was certainly not for the faint-hearted. The tiny south-east European state bordered such trouble spots as Albania and Kosovo. Crime syndicates used Montenegro as a route into continental Europe for cigarettes, narcotics, arms and human trafficking. It was still a risky place to put your money.

  As Michael Fingleton counted his ever-growing pension pot and dreamt of a big pay-day from the sale of Irish Nationwide, he felt he was able to meet the challenge. He had mastered the ‘stroke’ school of Irish business and politics and was confident that he could take on all-comers even in a country like Montenegro.

  It was a time when his peers, the Irish developer barons, were striding the world stage as debt-laden buccaneers. Johnny Ronan was building houses on the grounds of the Catherine Palace in St Petersburg, while his school friend and business partner Richard Barrett planned to transform China’s exploding cities. Derek Quinlan had opened a Four Seasons Hotel in Prague, while down the Danube, Seán Mulryan was building a new city quarter in Bratislava.

  The second tier of small developers tried to match them by pushing into even more far-flung places. Cape Verde, Panama, Antigua and the Stans of Central Asia became the new ‘new frontier’. You name it, it was all go. Everywhere in the world, Irish developers were chasing the next wave of money.

  Fingleton was determined not to miss out. He wanted to chase the higher returns offered in exotic locations. As in banking, he did not think enough of the associated risk.

  His problem, however, was time. He had, after all, a building society to run. When his then friend Louis Maguire, a businessman steeped in the culture of land speculation, told him about an opportunity in Montenegro, he was interested. Maguire’s father, Louis senior, was friendly with the estate agent and valuer Louis Scully, an associate of Fingleton.

  Maguire junior had joined the ranks of the frontier speculators in Montenegro. He had set up a company there in the early 2000s with a view to buying up land and developing property for the expected influx of tourists from around the world. He had established the investment structures, had got to meet people there and had big plans.

  The place they chose was Kotor. It is a small city of about 13,000 inhabitants surrounded by an ancient town wall that dates from when it was a trading outpost of Venice. Epic limestone cliffs overhang the city, creating panoramic views of its natural harbour. What Kotor lacked was enough hotels to tap into its tourist potential.

  The city was an up-and-coming port for cruise ships and had the potential to attract the super-yachts of the world’s wealthy. Fingleton was familiar with both forms of transport, having holidayed on the famous Christina O several times. During his holidays he was also known to be partial to luxury cruise-ships. ‘I love an old cruise,’ he would sometimes remark to friends. Now was a chance to combine his fondness for the sea with his great passion: making money from property. Maguire’s record helped convince him to open his pockets.

  Maguire was a modestly wealthy man from wheeler-dealing in Irish property over the years. He had a nose for an investment and an ability to take risks. But what he was best known for was his grandiose plan to build a €7 billion 2,500-acre Disney-type theme park in Co. Dublin, which never happened.

  Maguire and Fingleton began to plot out their plans for Kotor. In 2005 they began by purchasing the old Hotel Fjord. It was to be the bedrock of what Maguire promised would be a €200 million resort. The hotel itself was a 200-bed drab ruin that had been built in 1979. It was in a good site, however, with fabulous views. The plan was to rip it all down and replace it with a five-star hotel. As the next two to three years passed, Fingleton personally sank €5½ million into getting the hotel going, even before real construction began. He eventually had a three-quarters share in the company behind it. He was also a director of Paradise Bay Resort, another company set up to redevelop the general area.

  In total, Maguire’s UEP spent €12.4 million buying three different buildings. Alongside its stake in the Fjord Hotel it snapped up the URC Slavija hotel and leisure centre and the administrative building of Jugo-Oceanija. The redevelopment of the New Fjord was to be a flagship project, Maguire told local reporters, requiring an investment of €70 million. ‘It will operate according to highest world standards,’ he said. He even announced a plan to set up his own airline, flying directly from Dublin to Montenegro.

  The project stalled, however, with planning and fund-raising issues. Fingleton was happy to keep writing the cheques, up to a point; after that he decided to reduce his risk by convincing some of his old pals to invest. It’s not clear if any did, but he certainly tried his best.

  One of those he hit on was his old friend Jim Mansfield. Mansfield was a colourful Dublin developer who, from beginnings on a small farm in Brittas, Co. Dublin, had gradually become lord of all he surveyed. He delighted in getting his son P. J., then married to the model Andrea Roche, to take him up in his helicopter just so that they could marvel at the thousands of acres he owned.

  Mansfield owned a sprawling conference centre with two thousand rooms known as Citywest on the Naas Road, which had been built with little regard for local planners. It had hosted everyone from the Fianna Fáil ard-fheis to American presidents.

  Irish Nationwide was one of Mansfield’s biggest bankers. It had helped him to buy Weston Aerodrome at Leixlip for €13 million, which Mansfield dreamt of turning into an airport for executive jets. This never happened, and in 2006 it became notorious when criminals were nabbed entering the aerodrome with heroin worth €10 million. They were flying in Mansfield’s private jet (unknown to the owner), which he had rented out.

  Mansfield listened in his office in Citywest to Fingleton going on about his Montenegrin dream, but he just wasn’t interested. Even the fearless Citywest boss, who had made his fortune selling scrap from the Falklands war, baulked. He felt, he later told friends, ‘it was too risky.’ Unfortunately, Fingleton hadn’t the same foresight. Montenegro would later cost him considerable sums, and he would fall out bitterly with Maguire.

  ——

  On paper Michael Fingleton was a multimillionaire when he left Irish Nationwide in April 2009. In reality, his personal finances would quickly prove to be in grim shape. As time went on he would gradually realise he had squandered the millions he was paid by the society. Like his clients, he had been lured in too deep by get-rich-quick property schemes, just as credit dried up and property prices tumbled. Instead of a happy retirement he was now stuck trying to unravel the mess he had created.

  It was all happening too fast. Fingleton had believed he was insulated against ever returning to his modest roots. Now he wasn’t so sure. His investments were crumbling as he lost his Midas touch. Worse, he became aware that Irish Nationwide’s new management were delving into how he had accumulated his fortune over the years. He seemed convinced he had done nothing inappropriate, but reports in the media revealed that his old society was investigating all the same.

  At this point it was more stop-start than a scientific examination. The society had more to think about than hunting down Fingleton’s personal investments, which were poorly enough documented. Whether this was just the usual bad housekeeping or something else was hard to tell.

  In any event, in early 2010 it became known that the society had completed a review of the ownership of its fifty branches. It had long been rumoured that Fingleton secretly owned some of them. One member of the society, Michael Maughan, executive chairman of the Gowan Group, a business stretching from cars to kitchen brands, had raised the issue at a public meeting in December 2009. As a result a review had been ordered of the society’s property portfolio t
o see whether Fingleton had any personal interests there.

  It found that there was simply no evidence that Fingleton had ever owned any of the society’s branches. He did own a property next door to the society’s branch in Phibsborough, Dublin, which housed a bakery and an Oxfam charity shop, but this was hardly untoward. The society owned other odd assets, like eight houses behind its head office, which it leased to tenants. It also owned an unsold block of sixty-two apartments in Booterstown Wood on the Stillorgan Road, Dublin, which had been built for the society by Brian M. Durkan and Company. But again nothing wrong was uncovered about the society’s ownership of these properties.

  As the results of this review trickled back to Fingleton, it cannot have pleased him that the society he created now trusted him so little. This fed his grievance against its new owner, the state.

  Many of Irish Nationwide’s old clients were either falling like dominoes or being reined in by NAMA, which insisted on them curbing their extravagant life-styles. Old clients like Bernard McNamara, Tom McFeely and Larry O’Mahony were heading to England to try to be declared bankrupt. They realised that the game was up. Other favourites, including Seán Dunne and Niall Mellon, were spending more time abroad. They realised that they needed to create new wealth from the rubble of their old fortune.

  Fingleton was as caught out as his old golden circle, as personally exposed as his Mickey-Mouse society. The first project to publicly implode for him was a land deal in Co. Cavan, which revealed much of his greed and his stupidity. In 2005, as property in Co. Dublin skyrocketed, the price of land near commuter towns had also surged. Irish Nationwide was making fat profits riding this wave, and Fingleton decided to get in on the act, just as he did the same year in Montenegro. For decades he had dabbled in property speculation and investment on a small scale, and the new deals were a step upwards in risk.