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.