Fingleton before the Banking Inquiry now...

Unfortunately, the Houses of the Oireachtas webcasting is experiencing technical problems, so they are temporarily offline.

(I have asked them to delay their meeting with Fingers until the TV is working!)

Brendan

It's back now and Fingers is presenting.

Decided not to offer 100% loans.

Decided not to offer tracker mortgages.

Did not offer self-certification mortgages or sub-prime mortgages.

In 1995 , we came to the conclusion that Building Societies had no long term stand alone future.

The legislation did not come through until 2006

When a trade sale was not possible, we downsized our loan book.

In excess of €5 billion was due to mature in 2008.

We accepted the consensus of a soft landing of a 20% fall. We would have welcomed that.

These forecasts came from CB, ESRI, Academia, journalists, World Bank.

Prior to May 2007 GE, all parties were planning on increased spending.

The sub-prime crisis in the US caused the crash or exacerbated it.

No financial institution could have solved the property bubble.

Only the Financial Regulator and the ECB could have done this.

All the foreign banks incurred significant losses - collectively €40 billion.

The Auditors gave us a clear audit report. Unqualified.

I do not accept the NAMA valuations. The extent of the losses is in dispute.

NAMA excessively discounted

23 May 2012, Frank Daly - having competed the due diligence of the portfolio. The assets had more potential than they had initially though. Long term prospects will be better when economic situaion improves.

We were in those locations - Dublin, Cork, Limerick,

In the UK , 60% of our lending were in London. NAMA has made €1 billion profit on these sales so far.

Examples to illustrate

Nama valuation €80 - realised €200: €120
Nama valuation:€12m; Realised: €100: Gain €88m
Nama valuation:€165 sold for: €255 Excess €85m


When NAMA calculated UK discounts, London prices were on the rise already.

The Society was a victim of the US sub prime crash.

In Sept 2007, we began to downsize, but we could not do it quick enough.

In my 38 years with the Society, I had gone through 3 recessions. I did not expect the predicted slowdown to be any worse than these. Neither did anyone else.

€20k profit to almost €400m profit in my 38 years.

This was a one in one hundred year event.

I regret very much. I am continuing to pay the price personally.
I regret it for the employees and the members and the state for the cost.

Pearse Doherty
What exactly do you regret?

F: That the taxpayer had to bail it out

In 1975, as MD, I always insisted that the board be involved in the lending process. which was unique for a financial institution.

We expanded slowly and surely especially in the home loans market.

We had 10% in the non homes market.

In 1992, following changes in legislation, we took advantage of the encouragement of the changes which allowed us get involved in property development. The Act said: "The Building Societies should be major suppliers of finance to home building"

Doherty: What role did you play in where IN found itself. Do you regret any decision

F: I don't regret any decisions I took. I do regret that we had a loan book which was too large. and which was deemed to have too large a loan book

D: Whose fault was it that the loan book was too large;

F: I was part of the decision. Of course I regret it.

D: Any other decisions you regret

F: When we took the decisioin to downsize, we did not get the time to do it. We turned over our commercial book every three years. WE matched our wholesale funding which was 3 to 5 years, to the maturity of the commercial book. Had we got another year of normal markets, there was a maturity of €5 billion which would have matured in 2008. We would have reduced from €8 billion to 5..

D: Pension fund . Why was a pension fund of €27 m set up

F: in 1991 or 1992, I looked at my pension fund and the value. It was managed by an outside insurance company. I discovered that had I invested all the contributions in the lowest deposit account. That would have produced more than the insurance company. So I took over the management of my own fund and would invest the contributions invested by the society. That is the genesis. Over the years the fund built up to almost €30m. Based on my decision on what to invest in. The net cost to the Society, in my opinion. was €3m - although the experts said it was closer to €4m.

D: was there a bonus culture.

F: No. Sorry, bonuses were paid on an annual basis. No target related bonuses, except to the branch managers to attract more home loans. Because we had such a small share because we did not lend at 1% marging, 100% mortgages, or tracker mortgages.

F: The board approved all loans over €1m. I took steps to make sure I was not a dominant person. That was a fiction.
[ I lost a big bit of this through a typing error]

We had high volumes of commercial loans because we had so few home loans.

We got out of construction and did more development, because we were turning over our book every three years.

The risk was diminished because it was land development. The risk was that our customers might not get planning. The loans were based on the premise that the borrower would get planning and then they would borrow the money for building from another lender. That removed our risk.

D: Project Harmony: The approach to risk is not well developed as it depends on one man. Can you explain why you thought it was fit for purpose. there is no sophisticated IT system. Did you have a computer yourself?

F: It was fit for purpose. We were in a very narrow area. We did not need the sophisticated systems of other banks. We had good systems which catered for the needs of the society.

Doherty: In April 2008, you wrote to the Regulator " TheMD is closely involved with the heads oflending in Ireland and the UK in assessing all large borrowers. He is involved in all lending. "

F: I familarised myself with all loans - I was MD.

Doherty: Deloittes review: No Credit Commitee approval was present on a number of files especially in Belfast. In Dec 2007 Board approval was required for all loans over €1m. But it was often missing. How come deloittes have pointed this out again and again.

Fingers: I dispute this allegation and it's a matter for another jurisdiction. and the chairman of the Credit Commitee will dispute it.

Doherty: So you are disputing the CB, Deloittes and project Harmony.

Did the desire on the part of management to max the value of INBS lead to poor lending practices

Fingers: We wished to max the value. We didn't have poor lending practices.

Kieran O'Donnell

Can you explain your joint ventures with property developers

Fingers: In 1992, there was little or no increase in the real value of house prices. Little or no construction. We had the recent act which wanted BS to be a major source of funding for building homes.

O'd: €8.5 billion of comercial loans. What percentage was joint ventures?

Fingers: I am guessing 35%.

O'd: the CB said it was around 65%

Fingers: I would be surprised. It might be 50%

O'D: What percentgage was non-recourse loans.

Fingers: In the UK mostly. In Ireland, majority were recourse. In the UK, they would not give personal guarantees.

O'D: Was that not reckless to put the members' funds at risk.

Fingers: We had experience with these borrowers since 1992 - 15 years of little or no losses - we had ring fenced our area of activity by ensuring that all those loans would be redeemed within 3 years.

O'D: In Sept 2008. Too much was tied up in joint ventures with non-recourse loans

Fingers: too much was tied up in joint ventures, but the non-recourse didn't matter. It was a contributory factor, but not a major issue

O'D: on 7th Sept, Purcell arranged a meeting with the CB with AIB and BoI. Who requested the meeting.

Fingers: The regulator. I did nto attend because I had other engagement. There were false Reuters reports. The night that the Reuters report was issued, we contacted the FR's office and told them that the report was erroneous. The Head of Supervision said they would get onto the media.

O'd: what was the purpose of the meeting

Fingers: The Regulator felt that there wmight be a run ont he Society. And they wanted to establish if the major banks would provide liquidity if we needed it. The Society didn't need it.

O'D: Letter from Walsh to FR(or vice versa?) - referencing liquidity risk ; Currently we have no access to ECB rates. Richie Boucher stated that the FR sought a meeting with him to supply liquidity.

Fingers: We did not need wholesale funds at that time. We had €4 billion of cash on deposit. 25% liquidity. A multiple of the FR's requirements. We had repaid

O'd: you had a meeting subsequently on 18th Sept with DAvid Doyle fo the Dept of Finance. Why

Fingers: We wanted an increase in the guaranteee to €100k from €20k. I don't think we discussed solvency. I am not sure.

O'D: Do you accept that in terms of scale, IN has been the biggest in terms of the cost Were you solvent on the night of the guarantee>?

Fingers: WE certainly were solvent on the night of the guarantee. And no evidence has been produced to suggest otherwise. I don't accept the discounts imposed by NAMA.

There would have been a cost to the taxpayer, but it should not have been €5.4 billion

O'd: Do you want to take this opportunity to apologise

Fingers: I regret that it lost. I would not have lent in 2006 or 2007. If we had stopped lending in 2006 instead of Sept 2007 we would hav e eliminated our book.

O'd: How was your remuneration decided: You were on€2.3m of a salary

Fingers: The remuneration committee decided it. The bonus was based on the performance of

O'd: Do you believe that the bonuses were warranted

Fingers: Not in hindsight.

O'd: The FR sent a letter in Dec 2004 , and March 2008 saying they were concerned with resources. There was lack of strength in senior resources and strength at board level. Why did you increase your loan book.

Fingers: I refer to the detailed full reply. Where he pointed out. That we had increased the level of management which the FR wasn ot aware of. We did need some further strengethning o fmanagement, but were finding it difficult to attract people as we were being sold. We were not deficient, but we could have done with more.

O'd ; Why did you not demutualise earlier

Fingers: In 1995 we decided aht a stand alone buidling society did not have the critical mass to convert to a company. So we had two options - to merge with another society or a trade sale. We chose the latter. So we sought the change in legislation. There was no reason for the legislation to be changed. We were obstructed . The delay was caused elsehwer.

O'#d why did you not increase the size of your board - you had only 3 non execs

Fingers; That was the decision of the board.


OD: Did you ever approve a loan before the board

Fingers: No.

OD: WEre there ever occasions when you approved a loan over €1m without the prior approval of the board.

Fingers: In certain circumstances, in conjunction with tow members of the credit committee, I could do so if it was urgent.

OD - so loans over €1m did not have to go to the board.

Fingers: The board had to be notified of it. There had to be some exceptions to the rule.

O'D: Why did you change the rules? loans could be changed by the board

Ciaran Lynch -Chairman

Did you authorise loans before they were approved

Fingers: No - other than the exception I mentioned.

Lynch: Did you seek retrospective approval

Fingers: Ernst and Young did an investigation post 2010 which states that it found no evidence that I approved loans

Lynch: Were loans given out without proper legal paperwork being in place?

Fingers: I can't say that in every instance all the paperwork was on file. No security was ever compromised either legally or physically. We employed outside solictiors to examine the legal title of all loans. We employed the best solicitors.

Lynch: Lending strategy . Did anyone on the board every challenge the lending strategy? in particular the profit share

Fingers: Did any members of the board ever propose an increase or propose names.

: WE did seek to increase the size of the board. I approached people but they weren't interested because of the imminent sale. The chairman also asked a former DG of the Central Bank.

Lynch: Did those proposals ever come to a vote.

Fingers: no

Susan O'Keefe

The board packs provided very little market commentary on loans

Fingers: KPMG said that there should be more focussed documents.

O'Keeffe: Dec 2006 letter from the Financial Regulator following an inspection by the CB. The Inspectors said that the MD did not attempt any of the 27 credit committee meetings. Dara Dalyattended only 2 of the 27 meetings. There was a quorum of 2 on only 4 occasions.

you have said that things were done well.

Fingers: The MD never attended. I was authorised ex officio to attend all CC meetings. But I excused myself permanently to make sure that there was no conflict of interest and that I did not want to influence them.

All the complaints made by the FR were low priority or medium priorty. there was no high priority observation.

O'Keeffe: Actually inadequate board management of the society is described as high priority.

Fingers: That was the grading, not the content.

O'Keeffe: Mr Boucher at a meeting in early 2008, said he realised that there were problems in the system. We were asked for €4billion but we would be uncomfortable taking on an exposure to that entity.

Fingers: We did not know the significance of the meeting so they had no information [to make that assessment]. We brought some documentation. But they were competitors of ours. WE were solvent. but there was a threat of a run following the Reuters report. WE did not need to be rescued. We had adequate liquidity. €4 billion.

John Paul Phelan

Was the loan book not over concentrated
F: No.



Were most of the loans introduced by you personally?
F: No, the Uk manager introduced nearly all the loans, other than one or two Irish customers doing business in Ireland.

of the top 30, 5 may have come through me.

JPP: I worked in financial services and it was widely believed by everyone. Even the FR

F: The Regulator misunderstood the powers I had. The powers I had were allocated to me by the power, and were approved by the FR. I was seen as the face of the society. But it was a myth as I did promote myself via sponsorship,as we could not afford advertising.

JPP: your board was smaller than any other institution.

F: We had a maximum of 7 and a minimum of 5. Even after the new board took over, it was 7 with two government directors.

JPP: The Regulator has high level concern over the high reliance on you.

F: The Chairman dealt with that fully

Mark McSharry

Between 2003 and 2006, the society tripled the size of its book. Given lack of resources, was that prudent?

Fingers: It was within our capacity and our parameters. We had a simple business. money in and money out. Secured on a property. It was concentrated.

McSharry: In the early 90s, the Irish Permanent demutualised and floated. did this put pressure on you?

Fingers: No society had any future as an independent stand alone institution.

McSharry: You abandoned home loans ?

Fingers: We tried to expand our home loans, but when BoSI came in to the market in 1999, they undercut everyone. Our book was attacked. We could not compete. WE refused tracker mortgages, 100% mortgages, self certified mortgages. We refused to lend at unsustainable margins of 1%. We could not compete.

McSharry: Did BoSI lead to a looser lending strategy?

Fingers: no

McSharry: Did any employees have a personal share have

Fingers: No

McSharry: Did you have a commercial relationship with any of your clients?

Fingers: Yes one, but I don't want to discuss it.

McSharry: Did you borrow yourself?
Fingers: Yes, but I always had matching deposits

McSharry: What was your access to government like? For example, to the mINISTER FOR Finance? What shape did it take?

Fingers: In the 90s. I contacted the Shadow Minister for Finance to get the legislation changed. There was a Central BAnk Act going through. The Minister put in a proposal to change the legislation, but the Government defeated it.

Michael D'Arcy

The Deloitte report May 2008 on reviewing commercial and lending

Dec 07 the Society reviewed its lending policies. The board was no longer involved in approving loans.

Fingers: It was a board decision. I would not have supported it . I always insisted that the board was involved in lending decisions. I would say that the reason behind it was that we had effectively stopped lending. Just to the commitments we had. But the board had to be notified, but they did not have to consent.

The lending criteria were not relaxed.

D'arcy: The Nyberg report was critical of INBS

Fingers: it focusses almost exclusively on Anglo and Irish Nationwide which was unfair They should have dealt with all

D'Arcy: You seem to be swimming against the tide - all the critical reports. Are you saying that they are wrong, and you are right.

Fingers: I am giving you my views. The reports may not be right.

D'Arcy: Were you interviewed by Nyberg?

Fingers: Yes. It was an hour long interview. I am giving you more information. It was based on an accountant's report which was faulty.

D'Arcy: You said that the UK Discounts for NAMA were wrong by multiples.

Michael McGrath

Your relationship with the Credit Committee?

Fingers: from 2002 to 1/9/2007 when the powers changed, I did attend.

McGrath: Was the initial approval of any loan approved by any one person?

Fingers: The new Chairman was very impressed by the Credit Committee. All the members of the Committee were in the same building and could meet easily so I don't understand the Deloitte or Nyberg criticism.

McGrath: The credit committee often had only one person in attendance

Fingers: I don't think that is true. The Chairman of the Credit Commitee would not agree.

McGrath: The Central Bank in July 2015 - INBS has admitted to multiple breaches of the procedures since 2004.

Fingers: I don't agree with that at all. What board could have agreed with that?

McGrath: The CB found over 1,000 alleged breaches supported by documentation.

Fingers: because of the impending inquiry, I can't discuss the detail any further.

McGrath: Applications were made after the loan was drawn down.

Fingers: I will deal with it at the time.

McGrath: What is the annual income you are now deriving from that pot?

Fingers: I am not going to answer that. I had retired at 70 and was re-employed for a further one year. I had the option of taking that into my own ownership, which I did.

McGrath: Do you feel that you ahve been wronged

Fingers: I have been misrepresented. 80% of public commentary is incorrect. 10% could be disputed. 10% would be correct.

McGrath: You operated this as a personal fiefdom. You called all the shots.

Fingers: Totally wrong. I got the board involved in approving all loans. Individuals in other banks had much more authority.

McGrath: Would the board have often rejected the recommendation of the credit committee

Fingers: Not often, but it did happen.

Joe Higgins

2007 KPMG Project Harmony . Concentration of loans in 41% of commercial loans in speculative loans. 30% of commercial loans had ltv of over 100%. 30 customers had over 53% of the loan book.

Was your board ever concerned about that?

Fingers: It was never discussed at the board. since 1992 all loans had been profitable. We were turning over our loans every three years.

Higgins: You had no concern yourself?

Fingers: All the commentators were saying positive things.

Higgins: Nama's McDonagh said: The banks considered property lending to be a one way bet. Nama's Daly said: the banks were taking the risks of hedge funds without analysis. Nyberg: The profit sharing model was closer to a venture capital company.
Furthermore only 30 people were responsible for 41% of loan book

Not just a venture capital project but a crony capital project as well.

Fingers: I disagree . Nyberg was wrong as well. Planning was not a risk at all. Planning was well defined. We knew what planning we would get. The big risk was the construction. We had disengaged from that in the early 2000s.

Higgins: Hadn't you seen property busts and bank busts?

Fingers: I went through three of them, but didn't expect anything other than a soft landing.

Higgins: Con Power said in a journal.ie article in 2013: There were only 6 people on the board. The chairman started the meetings with Well Michael what have you for today. With no agenda or no papers.

Fingers: That is totally untrue. I would defer to Con power in that he was a corporate governance expert. The board was the final determinator of all loans.


Higgins: How would the board and Chief Executive have benefited from the demutualisation?

Fingers: Don't know.

Eoghan Murphy

Tell me about your relationship with the Financial Regulator

Fingers: We would make errors. It was our policy to inform the regulator. The mistakes in the returns were of a minor nature.
I respected the regulator and had a good personal relationship with him.

Murphy: Large Exposure Returns:
The FR expressed concern about the high level of errors in the returns.

Fingers: Errors will always continue. people make errors. They were not systemic weakness.

Murphy: Sectoral returns: You exceeded the limits.

Fingers: The criteria were lumpy. But all retain were lumped in together. We wanted them stratified. The FR was to come back to us, but never did. I disagreed with Honohan's comments on sectoral limits

Sean Barrett

2005 KPMG: Internal Audit not up to scratch. Repeated it in 2008. They had concerns in 1999 and 2004.

Fingers: The Audit Committee was very strong. All the non-executive directors. There were criticisms but there were many compliments as well.

Barrett: The resignation of Con Power . He was not told about the case against the Ombudsman. You phoned him from London

Fingers: I had the authority to deal with all elements . It was an ongoing admin issue. Dr Power was at a meeting when this was discussed. I do not accept that this is why he resigned. It was because of a conflict on interest.

Barrett: The Society lost €293m...

Fingers: No it didn't. It made provisions.

Barrett: (Stupid point about Goldman Sachs saying that the company was not saleable)

Michael Walsh was in secret talks with ILP.

Fingers: I know nothing about that.

Ciarán Lynch
KPMG reportmaybe an Internal Audit report?)
Credit Committee - in 2008, they stopped meeting.
Approvals were not sought before drawdown

Fingers: No loans were being issued

Lynch: As Chief Executive - you had ultimate responsibility - you have excused yourself from a lot of the credit decisions , and you have disagreed with all the reports. please explain how the society has cost €5.4 billion and what responsibility you bear?

Fingers: You implied that I had not answered the questions. I have not excused myself from anything. We did not reduce our commercial loan book quickly enough in the expectation that €5 billion in loans were due to mature. That's why we lost that much money.

Pearse Doherty wrapping up

You were given excessive powers in 2004 and 1994. Including setting interest rates. and making arrangements.

The board devolved those powers to you.

Fingers: They were standard.

Doherty: Gerry McGinn - your successor - said what went on was an outrage. Did you have a celebrity loan book.

Fingers: No one got loans without proper processes. No one got a special rate.

The KPMG audit after the guarantee said we were solvent. The 2010 accounts showed that we were solvent.

Kieran O'Donnell

The Tom Lyons book: "Fingers" claimed the No 3 Account could make payments without limit. Signed by yourself and Mr Purcell.

Fingers: Totally untrue - defamatory

Over 95% of our deposits were less than €100k,. so a €100k guarantee would have been enough for us.

O'Donnell: What discounts should have been applied by NAMA?

Fingers: I don't know. It was too much.

It became insolvent only when NAMA crystallised the losses.

Because of the liquidity dry up, we would probably have eventually become insolvent anyway.

This could well be a stupid question as I've only been following summaries online. But Fingers seems to have given the impression that he himself grew his pension pot from €3m to €30m, I thought the beneficiary couldn't direct the pension fund?

Fingers took over the management of the pension fund many years ago. Irish Nationwide contributed €3m or €4m to it.

He put most of it in shares in AIB, BoI and Anglo which is why it did so well.

It was run by the trustees. There were only two members - Fingers and Stan Purcell.

Since his retirement, he left it in those shares and it has virtually disappeared.

Brendan