IRISH NATIONWIDE plans to hire law firm McCann Fitzgerald and accountants Ernst Young to investigate lending policies and practices followed by the building society under the management of former chief Michael Fingleton.
The building society has been asked to develop a legacy plan by the Government. It has effectively been nationalised following the Government’s commitment to inject €2.7 billion into it.
Irish Nationwide must investigate past lending practices and policies to establish how it collapsed into insolvency, warranting such a large commitment of State capital.
The Department of Finance has yet to sign off on the appointment of McCann Fitzgerald and Ernst Young to carry out the investigation at the State-controlled lender.
McCann Fitzgerald is in the final stages of completing a similar investigation into controversial lending practices at State-owned Anglo Irish Bank for the board of the nationalised bank.
The Dublin firm is also representing Anglo in several legal actions, including the investigation by the Office of the Director of Corporate Enforcement and the bank’s action against former chief executive David Drumm over his unpaid loans of €8.3 million.
Ernst Young were auditors to Anglo, but were replaced by Deloitte in August 2009.
The investigation into Irish Nationwide will assess the reckless lending policies and practices pursued by Mr Fingleton – particularly at the height of the property boom, between 2005 and 2007.
Irish Nationwide reported a loss of €2.5 billion for 2009 after writing off almost €2.8 billion in loans – almost a quarter of its loan book – due to high-risk and sloppy lending to developers and land speculators under Mr Fingleton.
The building society said at the time that poor lending practices and corporate governance at Irish Nationwide were reported to the society’s board and the regulator by external accountants over a long period, but this did not change behaviour at the lender.
The society’s chief executive Gerry McGinn described the losses built up at the institution as “an outrage” after he outlined how Irish Nationwide had loaned developers up to 120 per cent of the value of land they bought.
Irish Nationwide also invested its own cash in property deals and had provided loans without securing personal guarantees.
The lender had a large volume of loans concentrated among a very small number of borrowers.Loans worth €3.65 billion – almost a third of its loans – were provided to just 30 property developers.
It emerged last year that the regulator had raised concerns about corporate governance and risk management at the institution as far back as December 2004.
RTÉ’s Prime Time reported that at the time the regulator wrote to then chairman of Irish Nationwide Michael Walsh raising issues about management and lending practices at the society.
Later reports on the lender by accountants Deloitte and KPMG, Irish Nationwide’s auditors, were submitted to the regulator under its request as late as 2008, but little was done to alter the society’s practices and structures.
The regulator demanded that the building society raise its capital levels to 11 per cent of assets and requested that Irish Nationwide strengthen the society’s management structure in early 2009.
The building society’s new management is working to address 528 outstanding areas of concern raised in reports into the society.
Irish Nationwide will also come under scrutiny by the six-month commission of investigation to be led by former Finnish senior civil servant Peter Nyberg. Minister for Finance Brian Lenihan said last week the investigation will examine bank failures in governance and risk management, and in particular “egregious failures” at Anglo and Irish Nationwide.
