The request I made of you was to invite you to behave in a decent, proper and honourable way by recognising that the payment of the bonus should never have been paid to or accepted by you in the circumstances concerned. Without the state rescue, the Society would definitely have failed, with catastrophic consequences, and the payment of your bonus whether contractually due or not, could not have been met. Not only this, you must surely recognise the inappropriateness of your receiving a bonus of €1m at a time when it was already abundantly clear that dire consequences were flowing to this State and its citizens as a result of the extraordinary losses arising from the reckless decisions made during your stewardship of the Society.
It is also apparent to me that expenses were claimed by you during (and even after) your tenure at the Society that were inappropriate. I have seen John McGloughlin’s letter to you of 30 March 2011 in reply to your letter of 1 February 2011 and I understand that you have not replied to it. That letter deals with two expense items, €12,180 incurred for your dental work at the Blackrock Clinic and £2,373 incurred in relation to a 2 night stay at the Dorchester Hotel in London for you and Eileen Fingleton that occurred after you ceased to be employed by the society. These certainly appear to have been claimed inappropriately and you have provided unacceptable and unsupportable explanations. There are others totalling €73,524 that I consider equally suspect where you have not provided either adequate explanation and/or documentation to evidence the legitimacy of the item as a company expense. It is not at all acceptable for you to simply state that costs were incurred reasonably on behalf of the society without providing verifiable details, including the reason and nature of the expense, receipts and other supporting documentation. The other expense that I consider suspect are included in the attached document and I again ask you to behave in a decent, proper and honourable way by refunding these amounts without delay.
I think it is plain that you should deal with each of the above matters by returning the watch to the bank, by providing full repayment of the bonus and by reimbursing the above inappropriate expense claims and you ought to get on with doing so without further ado.
Yours sincerely,
A. M. R. (Mike) Aynsley
The letter was a clear warning shot. Aynsley was determined to finally achieve what the late Minister for Finance, Brian Lenihan, had wondered if he could ever achieve: he was going to try to get Fingleton. But first he had to determine if there was a case.
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On 28 March 2012 journalists filled one side of the boardroom table in the sparkling head office of the IBRC, which had once been home to the wealth management division of Anglo Irish Bank. After announcing that the IBRC had lost €873 million in 2011, as against €17 billion in 2010, Aynsley was asked by the media about Fingleton. He had prepared his response.
The IBRC, Aynsley said, had initiated two sets of proceedings against former senior figures in the society. The first was against Michael Fingleton, and the second was against five others: Michael Walsh, Stan Purcell, Con Power, Terry Cooney and David Brophy. Aynsley described the actions as ‘protective plenary summonses’ against the men, to ‘signal a potential series of actions to come.’ The actions were undertaken to avoid problems with the statute of limitations, which blocks certain legal actions after six years.
Aynsley was guarded in what he revealed of the nature of the bank’s case. He said that in general the bank was required to pursue individuals believed to have breached regulatory and contractual obligations or fiduciary duties. Any action that was being taken was taken with the full backing of the Minister for Finance. ‘We just don’t charge off and do this: the minister has now provided his approval to commence these proceedings,’ he said.
The IBRC’s approach to taking legal action was deliberately wide-ranging, as it was still sifting through the society’s loan files and other records, which had been poorly kept. It was hard to know whether particular items had gone missing, had ever existed or had even been destroyed. Equally it was not clear who would be prepared to co-operate with any investigation into the society.
The only former senior figure in the society prepared to comment on this or any other matter on the record in relation to pending investigations was Con Power. He was shocked to be included among those named by Aynsley. More than anybody on the society’s board, he had tried to take on Fingleton and improve the society’s treatment of its small borrowers. He was the only one prepared to meet distressed borrowers, and he had at all times pushed hard for reforms. Now his name was being sullied by being associated with Fingleton, a man he tried hard to contain. Brendan Burgess, critic-in-chief of Fingleton’s regime, believed it was totally wrong that Power had been dragged into the Irish Nationwide debacle. He believed Power had been the only board member prepared to work with him on trying to take on Fingleton’s dominant leadership.
Power obtained legal advice immediately. The prognosis was good. He had resigned from the board on 23 February 2006, so technically he was outside the statute of limitations, and his legal advisers felt he could not be sued. Power, however, was determined to clear his name.
He had behaved honourably as a director and had twice—on 1 October 2002 and 5 December 2005—tried to resign from the board in frustration at Fingleton’s leadership. The Financial Regulator, Dr Liam O’Reilly, had urged Power both times to stay on as a non-executive director. O’Reilly, Power said, told him in 2002 that the Central Bank was ‘relying’ on him and Michael Walsh to act as a ‘counterbalance to the dominance of the managing director within the limits of our capacity as non-executive directors.’
In December 2005 Power had again threatened to resign, because the society was dragging its heels about expanding its board. O’Reilly had told him to hang on a bit longer, and, he said, the Central Bank would back him on this matter. O’Reilly retired as Financial Regulator later that month, and the board of Irish Nationwide was not changed until after it was too late.
The fact that he had stayed on the board only so long because the Financial Regulator himself had urged him to, and that now his name was appearing in the papers as being linked to Fingleton’s, was a source of great hurt to Power. Nonetheless, rather than kicking up a stink he instructed his solicitor to write to the IBRC saying he would like to meet them. This was arranged in the second half of 2012, and a meeting was held that lasted several hours.
Power explained his role and his many efforts to challenge Fingleton and improve Irish Nationwide on many different fronts. At the end of the meeting Power agreed to help the bank in any way it asked. Finally the IBRC had a boardroom insider prepared to speak up. Power wanted to do the right thing rather than slip away on a technicality.
At lower and middle ranks, meanwhile, the IBRC gathered other potential witnesses who had either left the society or continued to work there under the IBRC umbrella and who were prepared to help. These people had carried out what paperwork there was; they had witnessed important decisions. The situation was not entirely hopeless.
The IBRC, like the Central Bank, began to seek out banking experts to review its files and determine whether, as it suspected, there had been unusual and repeated breaches by Fingleton, and possibly others, of their obligations to monitor Irish Nationwide and ensure that it was run correctly.
As each file was dusted off and reviewed it became clear that failures in loan procedures and approvals were not confined to a few loans. Errors, corner-cutting and bizarre decision-making were endemic. Unorthodox lending was as much the rule as the exception. These failures, which Fingleton as managing director ultimately was responsible for, compounded the scale of the losses inside Irish Nationwide. Too often the society found that it was on the back foot relative to its bigger borrowers, who were insulated from the problems associated with their loans. Non-recourse borrowing that was limited only to the special-purpose vehicle set up to do an individual deal ensured that when a deal went bad it was the taxpayer who ultimately took the hit. Wealthy borrowers
could simply walk away from the problems they helped create.
The IBRC, however, needed to prove more than just stupid deals, like those made by every other Irish bank: it wanted to prove that Irish Nationwide under Fingleton had made many loans that simply would not have been possible had the proper procedures existed. For example, it had lent large sums to some borrowers without investigating whether they had any ability to repay. Functioning credit committees should have stopped this type of lending.
Worryingly for Fingleton, for his close executives and for the society’s former board, it was quite clear from the KPMG reports in 2000 and 2005, as well as from other correspondence with the Central Bank, that it was no secret that the society was not working properly. Along with the pay and power of being involved with Irish Nationwide, the IBRC planned to argue that there should also have been responsibilities at the executive level and board level to ensure that the correct procedures were operating. Fingleton had a duty as managing director, being paid millions per year to ensure that the correct controls and procedures were adopted. His failure to remedy these matters opened up the possibility of the IBRC suing him for failing to address these failings and deficiencies.
As the IBRC kept digging deeper, it began to consider whether it could prove that Fingleton was negligent not only in general but in relation to particular loans. The Ernst and Young report, and subsequent findings, provided plenty of ammunition.
Broadly, the evidence Ernst and Young discovered in relation to a number of big clients showed, among other things, a general lack of processes and control, unsubstantiated draw-downs of loans, multi-million consultancy fees that had not been vouched for, loans being allowed to get bigger than sanctioned, money paid out for things that were not in the original facility letter, money being used to settle rows that had not been approved by anyone other than verbally by Fingleton, a loan granted to one company that was actually spent by another group company, making it hard for the society to get the money back, loans being declared non-recourse, conflicts of interest, and loans being given with security that had already had a charge from another bank.
There was ample evidence, even though the IBRC’s plenary summons went back only as far as April 2006. Unorthodox activities at the society stretched back many more years than that, but nothing could be done about it.
The IBRC also appointed forensic accountants to pick through Fingleton’s pension and other personal investments down the years. Fingleton had in effect managed his own pension fund and increased it to an incredible €27 million. What exactly had he invested in to create such incredible returns? Were there any undeclared conflicts of interest among his investments?
He also had large amounts of cash in his bank account. Where did it all come from, and what did he spend this money on? While there is no suggestion that Fingleton engaged in any wrongdoing in relation to his personal fortune, these were the type of questions that the IBRC was asking the staff to look into. Having formerly regarded Fingleton as an unchallengeable feudal chieftain, his old staff were being asked to question everything he ever did.
Besides investigating whether Fingleton had behaved correctly with his investments, an additional reason for examining his wealth was to try to determine what fortune he had left. The bank had to decide before beginning any legal action whether he had sufficient assets to pay any potential damages.
There was also the elusive issue of Fingleton’s bonus. In contractual terms, the IBRC knew it had little chance of recovering the €1 million. The legal advice the bank received from senior counsel was pretty clear on this. Instead it decided to try a new approach. It planned to argue that the bonus would never have been offered or granted if the extent of Fingleton’s wrongdoing had been disclosed to the board. Fingleton was in a fiduciary position as managing director of a financial institution. His special powers did not give him the right to do anything he liked: he had a duty to disclose any major action to his board.
If the bank could prove he had known about problem loans or had made significant bad decisions without informing his board, it could argue that his contract would not have been extended and he would therefore not have been eligible for his bonus.
Fingleton was an executive director and so had a duty to act with skill and diligence in the performance of his role. He had to act in the best interests of the society and in a proper way. He also had a duty to ensure that any conflicts of interest had been authorised by the society, and that he made no secret profits.
The society was in the business of giving loans, and it had been caught out by a property bubble, so inevitably many of these loans had gone bad. It wasn’t enough to show that the society had lost a lot of money because it got the property market wrong: the real challenge was to show that not enough prudence and care had been taken in giving out loans in the first place and in monitoring them over time by Fingleton, his executives and his board.
——
As 2013 began, it finally looked as if Michael Fingleton was going to be made explain just what had happened with Irish Nationwide and how it had ended up costing the taxpayer €5.4 billion.
The economist Colm McCarthy commented in the Sunday Independent in December 2012 that the cost of bailing out the society, if laid out in one-dollar bills laid end to end, would stretch to the moon and back one-and-a-half times. But still the public didn’t know what had happened. The bill for Irish Nationwide had been paid by Ireland, but nobody—more than four years after the bank guarantee—had been held responsible.
Early in the morning of 7 February 2013, emergency legislation was rushed through the Oireachtas to allow the immediate liquidation of Irish Bank Resolution Corporation. Michael Fingleton’s Irish Nationwide was finally being killed off by Ireland’s politicians, along with its zombie sister, Anglo Irish Bank. Many of the same politicians in Ireland’s two biggest parties, who voted in favour of this new legislation, had sat in the Dáil for decades. In 2006 they had voted through the legislation required for Irish Nationwide to be sold, in a move which Fingleton believed would bag him millions after he had spent the previous years fattening up the society, recklessly.
But that was in the past. No politician, regulator or civil servant wanted to remember, in 2013, that it was they who had allowed Michael Fingleton to run riot.
Images
Biafran soldiers with rifles aboard army tugs during the Nigerian civil war (1967–70). Michael Fingleton, while never based in Biafra during the war, managed to play a part in the relief effort as well as helping with existing good works in Nigeria through his involvement with first the Church and then the Irish charity Concern. (© Getty Images)
Fingleton wanted to make a bold statement for his growing building society by buying this prominent building beside O’Connell Bridge, Dublin, as the society’s head office. Fingleton’s office was renowned for hosting Christmas parties for journalists. (© Alamy)
Michael Fingleton and Michael Walsh, pictured in 2002 not long after Walsh had become chairman of Irish Nationwide. Walsh was a staunch defender of the society’s plunge into commercial property lending and denied any suggestions from the Central Bank that the society was ‘taking a punt’ with its loans. (© Irish Times)
The property developer Gerry Gannon, a close associate of Michael Fingleton for several years, went into business with the society through a joint venture. Fingleton later sued Gannon, claiming a share of profits from a separate development in Co. Dublin in which Fingleton claimed they were both investors. (© Photocall Ireland)
Seán Mulryan’s Ballymore group of companies became the biggest borrower from Irish Nationwide. The society bankrolled numerous developments by Ballymore in London. In 2010 it made a provision of €103 million against loans of €163 million owed by a Ballymore company, Clearstorm Ltd. (© Rex Features)
Irish Nationwide lent the money for building the most expensive house in Britain. By 2009 the society was owed €72 million on the lavish house, which included 103 rooms, 22 bedrooms,
27 bathrooms, five swimming pools, a heated marble driveway, a fifty-seat cinema, eleven acres of landscaped gardens, fifty acres of parkland, a double staircase modelled on Gianni Versace’s mansion in Miami, and enough marble to satisfy the Emperor Augustus, as one newspaper put it. The marble alone cost £6 million. NAMA bought the loans and put the property into receivership. It was sold in 2011 for €40 million, a loss to the Irish taxpayer of approximately €32 million. (© Rex Features)
The €50 million luxury yacht Christina O was bought and renovated in 2000 by a partnership of investors registered in the Cook Islands. It included the Irish trucking magnate Pino Harris. Irish Nationwide provided some of the funding, and Fingleton enjoyed the good life on board on a number of occasions, including the wedding of the developer Seán Dunne. (© Getty Images)
At the races: The developer Seán Dunne and his wife, Gayle Killilea, chat with the Taoiseach, Bertie Ahern, in April 2008 while attending the Punchestown National Hunt Festival. Dunne was a major borrower from Irish Nationwide, which had to write down a €38 million loan facility to Dunne on a site in Co. Kildare to €5 million. (© Photocall Ireland)
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