The merger of Anglo Irish and Irish Nationwide would take ‘a couple of months,’ Aynsley said on 31 March 2011, announcing Anglo Irish Bank’s last set of results before its merger. Anglo Irish made a loss of €17.7 billion in 2010, the biggest loss in a single year in Irish corporate history. But as Anglo Irish was ten times the size of Irish Nationwide, pound for pound the society was still the worst bank in Ireland.
Aynsley said he believed the merged entity could be used to manage or warehouse any toxic loans that had not gone into NAMA but still needed to be dumped off the balance sheets of the four surviving banks. ‘We could end up being like the Borg, and we will assimilate what we are given and do the best job we can managing it,’ he said.
On 20 April 2011 the Anglo Irish Bank sign was ceremonially taken down from its head office in St Stephen’s Green in front of a crowd of photographers. It was placed for safekeeping in the bank’s now-empty vaults, with Aynsley hinting that some day it might go into a museum. And it did.
Irish Nationwide’s signs were treated less reverentially. They were torn down and thrown into skips in the months preceding the merger. The only sign of Irish Nationwide that remained was a slight shadow along the front of its building where the outline of its old name could vaguely be made out.
In mid-June a deadline was set for the merger of the two failed institutions. ‘The two organisations are working towards the July 1st date for the merger on a very open and co-operative basis, which is pleasing,’ Aynsley said. It was now more or less official that Aynsley would become chief executive of the combined bank, with the chairman of Anglo Irish, Alan Dukes, taking up the same role in the still-unnamed new institution.
On Thursday 30 June 2011 what was effectually the final board meeting of Irish Nationwide was held on the seventh floor of its head office. The board had been firefighting for two years and were exhausted from the strain.
Danny Kitchen, the chairman, thanked his board. He did not intend to seek a position on the combined entities’ new board but instead planned to return to the private sector. Gerry McGinn, the chief executive, was also planning to return to his home in the North. In September he would take on a new job as head of First Trust, the Northern Ireland arm of AIB. This left John McGloughlin as the most senior executive left in Irish Nationwide. Roger McGreal, an expert in banking, credit and risk who had proved a rock of common sense around the boardroom table, was later invited by Alan Dukes to join the board of the combined entity.
This final meeting was primarily concerned with ensuring that the merger went smoothly, but in some ways it was also a reflective one. Among the items on the agenda was a report prepared for the Department of Finance on the outstanding issues relating to the society. Along with the Ernst and Young report on unusual lending and a broader McCann Fitzgerald report on failings of corporate governance, this was now the third report delivered to the Department of Finance. It covered much of the ground of the two earlier reports and updated the department on more recent developments.
The department, however, was still not prepared to release any of these reports publicly, because, it said, it feared their release would ‘prejudice or impair’ potential court proceedings. This now seemed to be on the cards.
A division had been set up inside the Central Bank, headed by Peter Oakes, its new director of enforcement since October 2010, that was concentrating very hard on Irish Nationwide. Oakes, a native of Australia, had previously founded Compliance Ireland, a consultancy that specialised in advising financial institutions on corporate governance, compliance and risk. He faced a mountainous task trying to clean up the financial services industry, which had been so neglected by his predecessors. Besides Irish Nationwide there were many other issues to deal with, not least the failed Anglo Irish Bank and Quinn Insurance, one of the country’s biggest insurance companies, which had been put into administration because it was insolvent.
Oakes and his team, however, were being updated regularly on each fresh revelation unearthed inside Irish Nationwide. The final version of Ernst and Young’s report had been sent to the Central Bank, along with the report by McCann Fitzgerald into the society’s failings of corporate governance. Other files and issues were also sent up the line as they were uncovered.
The contents of some of these reports were so serious that they were referred to the Gardaí, the Minister for Finance admitted in response to a Dáil question. This explained in part, he said, why he was unable to publish the reports. It was still hard to know, however, when and whether any action would be taken, as the issues were complex and the rules unclear. In any event, Michael Fingleton and everybody else involved in the society denied all wrongdoing.
After reviewing these files and reports the governor of the Central Bank and the new Financial Regulator, Matthew Elderfield, determined that the Central Bank would begin preparing its own case against Irish Nationwide and its former senior figures. Given the scale of the losses incurred by the society and the extent of the wrongdoing, however, a relatively small number of personnel had been allocated to the investigations. The entire financial system had been hugely neglected, so the Central Bank’s investigation teams were constantly moving from crisis to crisis. There was much to clean up. The Financial Regulator actively fined wrongdoers and even shut down some investment firms in an unyielding manner like never before.
The Central Bank was keen to improve the dismal quality of Irish banking, and it had introduced new regulations and standards of fitness and probity to ensure that bankers still in place who had made serious mistakes in the past were held to account. This had little effect on Irish Nationwide at first, as most senior figures had by then departed. However, on 6 November 2011 Tom Lyons reported in the Sunday Times that the Central Bank planned to assess Michael Walsh to decide if he was a fit and proper person to act as a director of International Investment and Underwriting, Dermot Desmond’s financial investment company. This was an extension of its earlier investigations that applied only to individuals who had held senior posts in either Anglo Irish or Irish Nationwide at the time of the government guarantee in September 2008 and who were now in posts in other firms it regulated.
Finally, it seemed, Walsh would be questioned about his actions, or lack of them, while chairman of the society if he wanted to stay on the board of International Investment and Underwriting, which was regulated by the Central Bank. His responses would be heard behind closed doors, but it was better than nothing.
The day after the newspaper report Walsh resigned from International Investment and Underwriting; this meant he no longer faced being questioned. He remains today a close adviser to Desmond and an important figure behind the scenes in Irish financial circles. He sits on the board of two of Desmond’s companies. One of these is QED Equity, a low-profile investment firm that has thrived during the global banking bust. It states on its web site that it has restructured $45 billion worth of ‘risk assets’ since 2007. It is an unlimited company, owned by two other companies based in the Isle of Man, making it impossible to tell how exactly it made its money during the global financial crisis.
Walsh also sits on the board of Daon, a biometric identity company founded by Desmond that includes on its board Tom Ridge, former first secretary of the US Department of Homeland Security. In December 2012 Desmond thanked Walsh by name for his help in establishing the International Financial Services Centre in Dublin when the financier was given an award by Business and Finance at a gala dinner attended by Ireland’s business leaders.
The Central Bank is not finished, however, with Walsh and others in the society. In July 2012 Tom Lyons reported in the Sunday Independent that it was preparing a case against the society’s former senior executives and board members. Its investigation has identified about forty instances in which the building society may have broken the banking rules. The Central Bank’s focus was on unorthodox lending to developers. Among the cases it is examining are large loans granted to developers without approval by the credit co
mmittee, millions given to developers for unclear purposes, and major loans given without proper board supervision. It is expected to draw on expert witnesses who will criticise the processes operating in the society and seek to assign responsibility for its failings to its executives and board.
While Fingleton was granted extraordinary powers by his board over the decades, the Central Bank hopes to prove that this did not mean he had the power to act without any supervision from his board or to do absolutely anything.
By July 2012 the Central Bank was in written communication with the individuals it was investigating. Before responding, Fingleton asked for an assurance that his legal costs would be picked up by the state. Stan Purcell, the society’s secretary and long-standing finance director, is being questioned about the society’s practices and processes, especially as he is a link between the board and executives.
Wrongdoing, if proved, could lead to fines of up to €500,000 for Fingleton, Walsh and others. Other sanctions that might be imposed on individuals involved in the society include disqualification for a number of years from the management of a regulated financial service provider.
The extent of any sanction will depend on various factors being examined by the Central Bank, including whether the society or individuals acted in what its procedures term a ‘deliberate, dishonest, or reckless way.’ It will also examine the ‘general compliance history’ of the society and whether it had ‘previously been requested to take remedial action.’ A full formal inquiry will begin in 2013 when the Central Bank has finished gathering its evidence. All individuals questioned in this process have denied any wrongdoing.
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Meanwhile the slow death of Irish Nationwide continued. Having exhausted all other options, a decision had been made to wind down the society, and the government and the European Commission decided that the cheapest way to do this was to merge it with the other zombie bank, Anglo Irish Bank.
On 1 July 2011 all the assets and liabilities remaining in Irish Nationwide were officially moved to Anglo Irish. The merged banks would later be renamed the Irish Bank Resolution Corporation. John McGloughlin was in day-to-day charge of the society, reporting to Mike Aynsley. The IBRC was now a pure asset-recovery bank, given a deadline, in agreement with the European Commission, of 2020 for winding itself down. Irish Nationwide is no more.
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Having cleared out his files just before his departure, Michael Fingleton was also anxious to turn his back on his past. He emptied most of his accounts in the society in October 2010 and moved more than €790,000 offshore in a number of different transactions. The society delayed the transfer while it sought confirmation from the Gardaí that there was no reason to block him from doing so. None was given, and there was nothing to be done but let the money go.
In February 2011 Fingleton moved the remaining balance in his account to Permanent TSB, ending, he hoped, all involvement with his old society.
On 2 August 2011 Aynsley wrote to Fingleton, telling him the bank was ‘reviewing and considering various legacy matters’ relating to Irish Nationwide. As part of this process, he said the bank wanted him to finally repay his €1 million bonus, as promised in March 2009. He said he had reviewed Fingleton’s reasons for not returning it and his contractual entitlements to the bonus.
It is certain that in the absence of state support to INBS from 2008, there would have been no prospect of INBS surviving nor would funds have been available for any such payment to you. In that context, such a payment was inappropriate.
In light of the above, as group chief executive and on behalf of the Irish taxpayer, who continues to bear a significant burden as a result of the failure of certain Irish financial institutions including INBS, I am calling on you to make good your commitment [to return the bonus] at a time when it is crucial that the costs to the taxpayer be minimised.
Aynsley also told Fingleton to return his going-away gift of a watch valued at €11,500.
You received this in April 2009 at a time when it was clear that INBS along with the rest of the Irish banking system was highly distressed. It is surprising that you accepted a gift of this magnitude, and particularly at a time when INBS was the beneficiary of a government guarantee … I would ask you to return it so that we may realise sales proceeds and recoup some value for the taxpayer.
On 10 September 2011 Fingleton wrote back to Aynsley.
Dear Mr Aynsley,
I believe it is now opportune, timely and necessary to respond to your letter of the 2nd ultimo [2 August] and to the media campaign conducted by you and your chairman in particular to your allegations that I received a retirement gift of a watch from the Irish Nationwide Building Society in a manner that was inappropriate and improper.
I am somewhat surprised that INBS having spent very substantial sums of money on consultants reports, enquiries and investigations that you do not have the facts in relation to this matter. With the few people involved who were all in situ until relatively recently it should not have taken more than five minutes to do so.
I wish to categorically state that I was not presented with any retirement gift by the society. The facts are as follows. On Friday 30th April at 5pm I ceased to be CEO of INBS. I agreed afterwards to attend a small drinks reception in the board room comprising a cross section of management and long serving staff. In the course of the reception I was presented with a gift ‘on behalf of the management and staff.’ I accepted it on that basis with some considerable reluctance. It was only good manners to accept the gift as presented. I had no idea what it was or its value. I also wish to make it clear that I had no prior knowledge of the intended presentation and I had no hand, act or part in its acquisition or selection.
In relation to the so-called ‘bonus’ of €1m (less tax of €410K paid to the Revenue Commissioners) I wish once again to refer you to my letters of the 25th September and 21st October 2009 to the society which clearly and comprehensively sets out my position. This position has been deliberately ignored by the former chairman and the CEO of INBS in their public statements in the interim period. For the purpose of clarity I am once again compelled to set it out once more.
I entered an agreement with the Government at the highest levels to which the Minister for Finance was a party. I agreed to repay the net sum of €590K to the Society subject to certain undertakings and commitments agreed by the government. The terms of the agreement (which was confidential at their request) was as set out in my letter of the 25th September 2009. Because of the confidentiality element in the agreement I did not advert to it in my public statement of intent. This agreement shortly afterwards was reneged on by the subsequent actions of the Minister for Finance and because of this I was released from any obligations I had to pay the society the sum concerned.
There was, as has now been acknowledged, no legal obligation on me to repay anything. I simply agreed to voluntarily do so in good faith and for the benefit of the government. The Attorney General informed the Minister of the legality of my contract and subsequent legal opinion confirmed this. CIROC [the Covered Institutions Remuneration Oversight Committee] was indeed forced to change its stated position on this and acknowledge that it was a legal and binding contract and nothing to do with the Government Guarantee scheme.
The simple fact of the matter is that I was prepared to honour my agreement but the government failed to honour theirs. For a government and particularly a minister for finance to renege on an agreement which was effectively a contract and which was for their political benefit is reprehensible. Fortunately I have two independent witnesses who were involved in negotiations with the government side, who are prepared to fully confirm the facts as stated by me. I have also contemporaneous notes of the discussions.
In conclusion I never had any legal obligation to repay any of the funds received and because of the government’s breach of my agreement with them I have no obligation either now or in the future to do so. They had their opportunity but blew it for wha
tever reasons.
This clearly sets out the factual position in relation to the matters raised as they concern me. I expect an appropriate response from the bank to set the record straight.
Yours sincerely,
Michael P. Fingleton
Seventeen days later Aynsley replied. He said he had considered Fingleton’s letter ‘carefully’ and concluded that ‘your responses are not satisfactory.’
You indicated with regard to the expensive watch that was presented to you on your retirement, that it was given to you on behalf of the management and staff of the society, and you seem to imply that on that basis you are entitled to keep it. I can confirm that the watch was not provided on behalf of the management and staff. It was paid for by the Society, and a copy of the receipt against which the Society’s disbursement was made can be provided to you if you wish to see it. I repeat therefore the request to return this item to the bank so that it can be disposed of for the benefit of the taxpayer.
With regard to what you say about the bonus of €1m paid to you after the government guarantee had to be introduced and at a time when there was no doubt at all as to the devastating condition in which the Society found itself as a result of your years of leadership, the response you provide is simply not an answer to the request I made of you. You are yourself choosing to ignore the agreement you reached with the Minister for Finance to repay the bonus and you seem to think that your doing so is justified by asserting a failure of the Minister for Finance to honour the agreement he reached with you that there would be, as you put it, ‘closure’ in relation to your bonus and pension (a concession to you that I am advised was not provided.) Even if the Minister had agreed such a concession and even if the Minister, by giving public instructions to the government appointed directors of the society to carry out investigations into these two matters, would have breached it, this would have nothing to do with the request I made of you which expressly was not concerned with contractual niceties.
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