INBS board ‘frustrated’ with executives before crash

Irish Nationwide Building Society's former chairman, Michael Walsh, has said the lender's board had become clearly frustrated with its top two executives in the lead-up to the financial crash regarding failures to address regulatory and auditors' concerns about compliance and controls.

Dr Walsh was speaking on Monday during an ongoing inquiry into a series of alleged breaches of financial services law at the now-defunct society between August 2004 and September 2008.

The inquiry heard that regulators discovered during an inspection of Irish lenders in late 2007 that INBS’s credit committee was not meeting its obligation to consider credit review reports on top borrowers, even though the society had previously told auditors and supervisors that this was taking place.

Dr Walsh, the 21st witness to appear before the inquiry, said non-executive directors were becoming increasingly frustrated with INBS's long-time managing director, Michael Fingleton, and finance director, John Stanley Purcell, between late 2007 and early 2008.

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“The non-executives were trying to get improvements in standards and, for all intents and purposes, the [financial regulator] was coming back and saying: ‘You thought things were being done but they weren’t being done’,” Dr Walsh said.

Still, Dr Walsh said he felt that the financial regulator’s increasing focus on compliance and corporate governance issues at INBS at the time signalled to him that the authority was “harking back and rewriting history”, rather than focusing on the wider systemic problem facing the financial system at the time.

The former society chairman said he "time and time [again] tried to get the regulator to wake up" to the larger liquidity issues facing lenders and that he informed top regulators Patrick Neary and Con Horan, in a meeting in December 2007, of how he had instigated a move by INBS to stop lending at that stage, except for cases where the society had already committed credit.

Settlement agreement

Dr Walsh was originally one of five former INBS directors and executives who were subject to the inquiry, which was launched in 2015 and began substantive public hearings last December. However, Dr Walsh reached a settlement agreement with the Central Bank in February in which he was fined €20,000 and disqualified from managing any regulated financial services provider for three years.

The first phase of the inquiry centres on the workings of INBS’s credit committee which, according to a number of witnesses to date, failed to live up to its terms of reference and consider cases of loans in large arrears, issues raised by internal and external auditors as well as regulators.

The inquiry has previously heard that INBS had committed to its outside auditors at KPMG and the then regulator, Ifsra, that the committee would review top loan cases on a quarterly basis from September 2005, following concerns raised by both about credit controls at the lender. Several witnesses told the investigation that this had not taken place.

In his settlement agreement, Dr Walsh made admissions in relation to his ultimate responsibility as non-executive chairman of INBS for certain breaches of financial services law by the lender relating to its management of commercial loans and credit risk.

However, Dr Walsh was not, during the period in question, directly engaged in the day-to-day management of INBS.

The four men still subject to the inquiry are Mr Fingleton, Mr Stanley, the society's one-time head of commercial lending, Tom McMenamin, and its former head of UK lending from a Belfast base, Gary McCollum.