It is not an issue for the society, it is now an issue for the Minister for Finance and his department and if they wish to deal with me on the matter I would be happy to respond.
However there are still a number of issues outstanding as far as I am concerned which have not been addressed. In my letter to you on 25 September last, I requested a copy of the report from the government directors of the investigation sought by the minister into the payment of my so called bonus and pension entitlements. I also sought confirmation from the same directors that they found nothing irregular nor improper in their investigations and that in both instances I was fully entitled both legally and contractually to the payments in question. Furthermore I also need confirmation that there was no inconsistency with the stated position of the board of the society and their findings.
As this was [an] independent investigation carried out by the government directors on the behalf of the Minister, the obligation is on them not the society to furnish me with this information.
I look forward to receiving this information to bring a conclusion to the issues outstanding as per my statement to the Irish Times as per their report of 1 September 2009.
Yours sincerely,
Michael Fingleton
Fingleton had reinvented himself as a man of principle rather than the widely held view of him as a greedy banker.
It was a busy letter-writing period for Fingleton. On 24 October he wrote to the Ceann Comhairle of the Dáil, Séamus Kirk, demanding that Kehoe apologise for his comments, which he described as ‘outrageous, reckless, misinformed and extremely defamatory allegations.’ Under the Constitution he was ‘entitled to defend my good name,’ and he called on Kirk to uphold his rights.
I now demand that Mr Kehoe be requested by the Chair to publicly withdraw these false allegations and to apologise to the House for his actions. I also invite Deputy Kehoe to make these allegations outside the House and if he does so my action will be swift and decisive under the law.
I look forward to an immediate response to this letter as both my wife and my family are devastated by these false, malicious and unfounded allegations, and they cannot be allowed to stand on the record.
Kirk referred the complaint to the Committee on Procedure and Privileges, which twice discussed the complaint over the following months. In 2010 he wrote to Kehoe to tell him:
I am to inform you that while the committee found that the remark made by you was inappropriate, it was agreed, taking into account the circumstances in which it was made, that prima facie a breach of privilege did not occur.
The committee now regards the matter as being closed.
While Fingleton raged at his name being trampled on in the Dáil, the government was working flat out to try to solve the mess he had bequeathed it. On the night of 29 October the Dáil Finance Committee met to discuss NAMA’s controversial ‘valuation methodology,’ which saw it pay approximately the market value of impaired loans, in the hope that they would recover in the future. Lenihan defended the approach by saying it had the backing of the European Commission.
So the Commission accepts that this is not just appropriate but inevitable in the case of virtually every member-state that adopts an asset relief scheme. However, one hears in the public debate that there is something unusual, that the Government is uniquely thickheaded about this. These sections have been drafted on the basis of the Commission advice and this is their foundation.
Joan Burton was not convinced.
By having a separate notion of long-term economic value the minister is seeking to inflate the value of the assets artificially, thereby putting the economy of this country at a significant disadvantage by the decision to overpay on such a grandiose scale for the distressed loans of the banks. The loans were given by the banks to the construction sector, but particularly to property developers, to pay for massive speculation in land which created a bubble and then collapsed.
At this point the government believed it would have to put €4 billion into Anglo Irish and €1 billion into Irish Nationwide. ‘Most of this money will be gone with the wind,’ Burton said presciently. ‘The Minister has decided to throw economic logic to the wind and for the sake of floating the boat of the bankers to come up with an artificial structure which seeks to overpay for the assets at the cost of the taxpayer.’
Gerry McGinn was now snowed under trying to deal with problem developers. He appointed Declan Ballance, a former property investment manager with D2 Private, as senior commercial banking manager. The society, however, had still not found anyone prepared to take on the job of head of commercial lending.
At about the same time Irish Nationwide leaned on the state guarantee to raise €500 million to bolster its funding. It would otherwise have been shut out of the market entirely, but it was still very tight and it was a battle to keep the society afloat. A spokesperson for the society said it was ‘totally untrue’ that it was running out of cash. The reality, however, was that it was sinking slowly, and a takeover by the state was now only a matter of timing. Its deposits at this point may have sunk as low as €4 billion.
The state and its banks were now competing to raise money. As the months went on, gradually the banks would pull the state down to their own level in the mire, making it impossible for Ireland to raise finance.
On 18 November the Irish Independent reported that Fingleton had not paid back his bonus. The story was by now a regular one.
On 20 November, Irish Nationwide finally appointed Declan Buckley as head of commercial banking. Buckley was former head of business banking at Ulster Bank (Ireland), which was facing its own problems because of its exposure to the property market. He took the job from Tom McMenamin, who had retired after a disastrous spell in charge.
The Department of Finance was again pushing hard for Irish Nationwide to be absorbed into the EBS. The losses facing both institutions were still not fully understood, and the government was prepared to take only a 60 per cent stake in the combined building societies. Even though Lenihan by now realised that both institutions might have to be nationalised, he was anxious to ensure that at least part of the merged societies remained in private hands. At the annual conference of the Association of Compliance Officers in Ireland on 23 November, both Lenihan and the chief executive of EBS, Fergus Murphy, pushed the so-called positives of such a merger. ‘You would like to think that we could move this on quite quickly,’ Murphy said, adding that he believed a merger could be implemented by that Christmas or early in 2010. At the same conference Lenihan stated: ‘It is clear from the quantity of assets which both Nationwide and EBS have to transfer to the National Asset Management Agency that the state may well end up being a substantial shareholder in any resulting building society.’ He declined to comment on whether Permanent TSB might also be merged later into a ‘third force’.
Murphy, however, said Permanent TSB ‘could become part of it,’ in a comment that was unlikely to have been made without Lenihan’s approval. He said he believed between €50 and €100 million would be needed from the state to cover any losses associated with Irish Nationwide’s residential loan book.
The news that the society was going to lose up to €100 million more on its home loans lending barely registered with the public, who were already shell-shocked by the billions in new losses now being announced every few months. Brian Carey correctly described talks about the so-called third force in his column in the Sunday Times about this time as ‘a wonkily assembled flat-packed, three-legged stool. Every time it looks as if it stacks up, logic collapses it.’ Banging three rubbish banks together, he argued, would not solve anything; but the state would have to spend millions more on consultants before it realised this.
While these talks were going on, Gerry McGinn was trying to get to grips with the society’s British business, which for so many years had been run only by Gary McCollum in Belfast and Michael Fingleton junior in London. The £4.4 billion loan book was a mess, with excessive loan-to-value lendi
ng and profit-share deals that were now worth nothing, leaving the society in a difficult position in trying to recover value. McGinn appointed four new people to the society’s Belfast office to try to unpick the problem. But this also was too little, too late.
——
Lenihan, worn out and facing fresh challenges every day, was by now furious whenever he thought of Fingleton’s bonus. On 25 November 2009, responding to the Irish Independent article seven days earlier, he wrote another letter to Kitchen, marked ‘personal and confidential,’ urging action by the society.
Dear Mr Kitchen,
I have been informed (a) that the former chief executive of INBS, Mr Michael Fingleton has stated that he does not now propose to return the bonus of €1m as promised and (b) that you do not intend to make any more approaches to him on the matter. Neither of these are acceptable outcomes.
In the absence of the state guarantee and a commitment by the state to provide capital, INBS would not have survived. As you know, there are significant decisions to be made in respect of INBS and, in such a context, this matter cannot be allowed to stand as you propose. It is essential, therefore, that you and your board pursue Mr Fingleton’s promise to return the bonus to the society with the utmost vigour and that all available options towards this end be actively considered.
I expect that you will keep me fully informed on all developments in this matter as a matter of urgency.
Yours sincerely,
Brian Lenihan TD,
Minister for Finance
On 30 November Kitchen replied. It was a letter designed to put Lenihan back in his box and encourage him to finally drop the matter.
Dear Minister,
Thank you for your letter of 25 November. Perhaps you do not recall at our meeting in September I explained to you that Mr Fingleton had no intention of repaying his bonus. Also from our discussion and the report commissioned by your department from the two public interest directors on our board you should know that the society had no legal basis whatsoever to bring pressure on Mr Fingleton.
You may recall I informed you that senior counsel (Mr M McDowell) had opined in this regard. I would therefore be grateful if you could let me know exactly what you expect from us other than ritual requests which I have already determined will be refused.
Not being party to any discussions on the subject I cannot vouch for the accuracy of Mr Fingleton’s position. He however has informed me that he had reached an agreement with Government to repay the bonus but that this agreement had been reneged upon by Government after he had announced he was prepared to repay. Further your Department’s veto of our Board’s decision to send him a copy of the above mentioned report has further hardened his attitude to the matter.
In conclusion I have already informed you that this matter is now between Mr Fingleton and the Government and whilst I and the board will do anything required to facilitate an agreement we are not the parties in dispute and thus have no leverage over Mr Fingleton.
Please let me know if I can be of further assistance.
Yours sincerely,
Daniel J Kitchen
Chairman
Kitchen was beginning to show his irritation with Lenihan, who just wouldn’t let the €1 million bonus drop. Irish Nationwide’s wealthy chairman appeared not to understand how the bonus had become a stick with which Lenihan’s opponents in politics and the media would beat him. Kitchen knew that the prospects for the society were bleak but somehow couldn’t see how unfair it was that Fingleton had walked away with another €1 million on top of the many more he had taken over the years—or, if he could see it, he was clear that nothing could be done about it.
On 8 December, Irish Nationwide stated that it would need between €1.2 and €2 billion in taxpayers’ funds to pay for Fingleton’s and his cronies’ follies. The discounts being applied by NAMA on its sloppy and reckless commercial loan book were proving worse than expected. The society told its 200,000 members that it planned to hold a special general meeting on 18 December. In return for any capital injection, the Minister for Finance was to be given his ‘special shares,’ passing control of the society wholly to the state. Members were told there were ‘no further options’ other than a government investment of between €1.2 and €2 billion to ‘raise material levels of capital to meet the society’s requirements.’
Lenihan, who was being briefed daily on NAMA’s progress, knew that Irish Nationwide would need at least €2 billion. He knew the truth that the taxpayer was being asked to write a blank cheque to pay for Fingleton’s foolishness, and he knew that politically he needed to be seen to get the €1 million back in order to hold on to public support.
On 15 December he again wrote to Kitchen, pressing him on the issue of the bonus.
Dear Mr Kitchen,
I refer to your letter dated 30 November 2009 concerning the bonus of €1m paid by INBS in November 2008 to the society’s then chief executive officer, Mr Michael Fingleton.
I note your reference to our meeting in September 2009 during the course of which the bonus paid to Mr Fingleton was one of a number of topics discussed.
As you know, at that meeting I was given a specific assurance by you, as chairman that the board of INBS would continue to pursue the former CEO for the return by him to the society of the €1m in question, as promised in Mr Fingleton’s press release of April 2009.
With regard to Mr Fingleton’s comment to you to the effect that he had reached an agreement with the government to repay the bonus, and that this agreement had been reneged upon by the government after he had announced he was prepared to repay, I have to state that no such agreement ever existed.
I am of the view that every available mechanism should be considered to secure the return of the bonus to the society. While I note that legal opinions have been provided to INBS on this matter, these relate solely to the compatibility of the payment with the requirements of the guarantee scheme. They do not, for example, consider the standing of the commitment made by the former CEO to the society.
However, apart from the strict legal considerations involved, in view of the fact that the former CEO, as an expression of his concern for the society and ‘his respect for its members,’ made a voluntary and public commitment to return the bonus payment, I believe it is incumbent on the board of the society to continue to pursue the matter on behalf of the society with all necessary determination to ensure that such a commitment is fully honoured.
I would request that you keep me fully informed of your board’s progress and of all relevant documents in this matter.
Yours sincerely,
Brian Lenihan TD,
Minister for Finance
——
On Thursday 17 December, shareholders in Irish Life and Permanent approved the creation of a holding company to help the group spin off its loss-making banking arm, Permanent TSB. This would free the company’s profitable Irish Life business to go on without it. The move was seen as another step towards the ‘third force’ idea.
The following day Irish Nationwide and EBS held simultaneous special general meetings to approve the injection of state capital into their balance sheets. The two societies needed €2.4 billion, taking the total put into the banks by the taxpayer up to that point to €13.4 billion. Close to 97 per cent of Irish Nationwide’s members voted in favour of a motion to issue special investment shares to the Minister for Finance. Members of the EBS also voted overwhelming for state support.
‘The society will need a substantial capital injection. Realistically, the only source for that is the government,’ Kitchen said. ‘It gives the minister the power to do whatever he wants with the board,’ he admitted, in recognition that the society was now under state control in all but name. In a telling comment he admitted that the estimated loss of up to €2 billion was only a ‘guess’. Cash would be provided by the state ‘on a drip-feed basis,’ as it needed it. ‘There’s little by way of legal redress that can be brought to bear,’ he sa
id in response to questioning by a member about Fingleton’s bonus.
Brendan Burgess criticised the decision by the society to enter discussions for merging with the EBS. He said the society had failed and should be wound up, with the surplus returned to the members. The fact that Burgess believed there would be a surplus showed how even the more critical members of the society had little idea of the catastrophe the society had become.
One member, Reggie Irwin, compared the society to Laurel and Hardy. It was a case of ‘here’s another nice mess you’ve got us into,’ he said; but even Stan Laurel would not have been ‘so inept as to get us into this position.’ He said the society should stay independent as a tiny building society. ‘We could ask Michael Fingleton to come back and rescue us.’
Mark Fitzpatrick, an accountant, had greater insight. He asked the board, ‘How could one man completely bring down this great institution,’ which was ‘supposedly a working man’s society? As a taxpayer I cannot see how we are ever going to get €1 billion or €2 billion out of the society.’
On 21 December, ‘Prime Time Investigates’ broadcast a programme called ‘Meet the Bankers.’ It drew heavily on the evidence of Olivia Greene, who had turned whistle-blower on the society she had previously worked for.
An irate Fingleton rang the station just before the broadcast. He launched a blistering attack against the makers of the programme and threatened to sue them if they went ahead. His protests were ignored, and the broadcast went out.
The programme revealed that a loan of €1.6 million had been fast-tracked by the society to Charlie McCreevy, Irish member of the EU Commission and a former Minister for Finance, to buy a home at the K Club. The records showed that McCreevy and his wife had bought a property on the Ladycastle Estate for €1.6 million on 13 September 2006. The property was valued in June 2006, and its mortgage amounted to a loan-to-value ratio of 107 per cent. Irish Nationwide’s guidelines said it was not supposed to grant 100 per cent mortgages, but this had been breached in this case. McCreevy declined to comment.
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