AIG submits questions to INBS over Central Bank interactions

Insurer AIG has written to the directors of Irish Nationwide Building Society (INBS) asking detailed questions about their interactions with the Central Bank and their auditors KPMG.

The insurance giant has also questioned board oversight of particular loans as it weighs up whether to cover some, all, or none of the society’s former directors, who are facing a damages claim of up to €1 billion.

The directors of INBS are being sued by KPMG, the special liquidator of INBS, based on alleged breach of contract, breach of duty and negligence from the alleged unlawful delegation of powers from its board to the society's former managing director Michael Fingleton.

INBS took out directors and officers (D&O) liability insurance in January 2004 from AIG and the insurer is concerned about what information the society's former finance director Stan Purcell gave it in advance of approving this policy.

Lending concerns

It wants to know why Mr Purcell did not disclose concerns about the society’s lending practices, which had been raised from 2000 onwards by the financial regulator and/or KPMG. These concerns were not identified to AIG in January 2004 or at two later meetings in 2009.

AIG has identified a series of interactions it wants to know more about, beginning in 2000, when the Central Bank first raised concerns about its management structure and corporate governance.

A letter from the Central Bank to INBS’ internal auditor on July 11th, 2001 identifying numerous audit shortcomings and a letter from the financial regulator to Mr Purcell on January 19th, 2004 setting out concerns about the society’s prudential reporting function and internal audit function are also queried by AIG.

It also wants to know more about later letters sent between the Central Bank and the society discussing concerns about corporate governance, management resources, internal audit, and over-reliance on Mr Fingleton on December 2004, January 2005, November 2006 and March 2007.

It has also asked about KPMG’s management letters raising concerns about controls, paperwork and management of commercial lending dating back to 2003. It also wants to know about a letter from KPMG to INBS’ board on August 8th, 2006 recommending the society improve its credit risk function.

Loan approval

AIG also asks about other letters from KPMG identifying failings in the society dated June 1st, 2007 and May 23rd, 2008. These letters identify particular loans for which there was no evidence of board or credit committee approval at the time loans were granted.

AIG has questioned six individual loans granted by the society. There is no suggestion of wrongdoing by any of the borrowers named.

Loans being queried included a €29.4 million loan to Irish builder Devondale, a company controlled by Anthony Durkan. This loan was given out to buy a site in Clonskeagh, Co Dublin in March 2007, with board and credit committee approval only sought and received afterwards.

Documentation queried

A €5.9 million loan to auctioneer Louis Scully is also queried. This loan was granted on October 19th, 2007 but only approved by the society's board on November 27th, 2007. Questions around documentation for this loan have also been questioned by AIG.

Lending to Cyril Dennis and his company Colpy is also queried by AIG. Monaco-based Dennis was one of Irish Nationwide's biggest clients and it backed him his purchase of Le Provençal Hotel, a derelict former luxury hotel on the French Riviera.