The ability of corporate lawyers and big-name accountancy firms to make hay in good times and bad is borne out in the final cost of the regulatory investigation and inquiry into Irish Nationwide Building Society (INBS), which collapsed during the financial crisis after receiving a €5.4 billion taxpayer bailout.
The €24.3 million Central Bank bill, revealed on Wednesday as 15 years of investigations and inquiry came to an end, lends itself to fantasy alternative uses.
It could have paid for 540 teachers on a starting salary; 56 housing tsars, based on the salary current National Asset Management Agency (Nama) chief Brendan McDonagh would have earned had he ended up taking the job; or, if you were feeling particularly flaithúlach, about 200 X-ray scanners along the lines of the one bought by the National Gallery eight years ago but never used.
Three firms alone shared €10 million of the inquiry fees: accountancy group EY and law firms Arthur Cox and Mason Hayes & Curran.
[ INBS inquiry finds litany of regulatory breaches by collapsed lenderOpens in new window ]
But was the drawn-out affair worth it? Especially when, in the end, the only one of five former senior INBS figures put forward for inquiry a decade ago, after a five-year initial investigation into the failed lender, was still in focus.
That individual, INBS’s former finance director John Stanley Purcell (71), has been fined €130,000 for his role in a series of regulatory breaches at the lender before its collapse during the financial crisis, and disqualified from holding a senior position in a financial firm for four years.
Between 2018 and 2021, three of the men – former chairman Michael Walsh; one-time head of commercial lending Tom McMenamin; and former head of UK commercial lending Gary McCollum – reached settlements with the regulator, resulting in individual fines of €20,000-€200,000 and disqualifications of up to 18 years.
In 2019, the inquiry permanently “stayed” the case into Michael Fingleton, now 87, as he was in ill health after a suffering a stroke.
The High Court is, however, currently hearing a civil case against Fingleton brought by the Irish Bank Resolution Corporation (IBRC), which took over INBS in 2011, for alleged negligent mismanagement of the lender. It follows failed bids that Fingleton’s enduring powers of attorney – his wife, Eileen, and son, Michael jnr – brought all the way to the Supreme Court to stop the case going ahead.
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Proceedings such as this are possible because Irish legislation allows for individuals who lack capacity – or are even deceased – to sue or be sued in civil courts. The bar is higher for Central Bank inquiries, where the person concerned must have capacity to give evidence and speak to their own actions.
The drawn-out nature of the investigation and inquiry is regrettable and undermined the process. Of course, there was a period of lost time between 2015 and 2018 when Fingleton and Purcell challenged the constitutionality of legislation that gave the Central Bank the power to hold such an inquiry.
But the inquiry itself was unwieldy, spread over a number of modules, with substantive hearings occurring sporadically over 105 days between December 2017 and July 2021. It would take almost a further three years before the inquiry delivered its findings to Purcell in April 2024.
The inquiry panel decided that 27 of the 42 so-called suspected prescribed contraventions – or regulatory breaches – INBS was alleged to have committed between 2004 and 2008 were proven. Purcell participated in 13 of these, it found.
While INBS itself admitted a series of regulatory breaches in a settlement agreement with the Central Bank in 2015, this carried no weight in the inquiry. The case essentially had to be relitigated, with the inquiry finding first against INBS before concluding whether an individual participated in the contravention.
But the final report does provide plenty of colour on individual loans where INBS broke its own policies, mainly as it built up a large commercial property portfolio in the UK, but also lent to projects in France, where the focus was on French Riviera and ski resorts, and Italy.
One example was INBS’s participation in a £336 million (€399 million) loan with UK banking group HBOS to a buyer – whose identity is redacted – of 869 pubs in the UK. This is known to relate to pubs giant Admiral Taverns’ purchase of a portfolio from rival Punch Taverns, as the latter struggled with a mountain of debt.
INBS provided £59 million of the loan and had a 25 per cent profit-share arrangement on the side. It was approved by the board on April 24th, 2007. Problem was, the inquiry found that most of the funds had been drawn down eight days earlier – with no sign of INBS’s urgent credit decision approval procedures being used to get around this.
The inquiry found that INBS failed to seek personal guarantees, as required by its policies, from the owners of the company – members of the London-based Landesberg and Rosenberg property families. It also extended the term of the loan without appropriate approvals. At the end of 2009, INBS had written off the entire facility, plus follow-up funding and interest, totalling £64.3 million.
Central Bank officials insist lessons have been learned from its first public inquiry. These resulted in new guidelines in 2023 and helped inform a complete overhaul of the regulatory regime, including legislative changes that now make it much easier to hold finance executives to account for failings on their watch. Crucially, the regulator can now sanction individuals without having to find initially against their firm.
Individuals will always be more inclined to resist agreeing to settlements than firms. Some will be right. But the fact that the INBS inquiry persisted to the bitter end should act as a powerful deterrent to wrongdoing. Perhaps, then, it was worth it.
