As we have a quorum, the Committee of Inquiry into the Banking Crisis is now resuming in public session and can I ask members and those in the public Gallery to ensure that their mobile devices are switched off.

Our focus today is on ... we begin today with session 1, public hearing with Mr. Michael Fingleton, former chief executive of the Irish Nationwide Building Society and, in doing so, I would like to welcome everyone to the public hearings of the Joint Committee of Inquiry into the Banking Crisis. Today, the focus of the inquiry is on Irish Nationwide Building Society and at our first session this morning, we will hear from Mr. Michael Fingleton, former INBS chief executive. A qualified chartered accountant and barrister, Michael Fingleton joined the building society in 1971 and was 38 years with the society until his retirement in 2009. Mr. Fingleton, you're very welcome before the committee this morning.

Thank you.

Before hearing from the witness, I wish to advise the witness that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect to their evidence to this committee. If you're directed by the Chairman to cease giving evidence in relation to a particular matter and you continue to do so, you are entitled thereafter only to a qualified privilege in respect of your evidence. You're directed that only evidence connected with the subject matter of these proceedings is to be given and I would remind members and those present that there are currently criminal proceedings ongoing and further criminal proceedings are scheduled during the lifetime of the inquiry which overlap with the subject matter of the inquiry. Therefore, the utmost caution should be taken not to prejudice those proceedings. Members of the public are reminded that photography is prohibited in the committee room. To assist the smooth running of the inquiry, we will display certain documents on the screens here in the committee room. For those sitting in the Gallery, these documents will be displayed on the screens to your left and right. Members of the public and journalists are reminded that these documents are confidential and they should not publish any of the documents so displayed.

The witness has been directed to attend this meeting of the Joint Committee of Inquiry into the Banking Crisis. You have been furnished with booklets of core documents. These are before the committee, will be relied upon in questioning and form part of the evidence of the inquiry. So with that said, if I can now ask the clerk to administer the oath to Mr. Fingleton, please.

Thank you, so if I can invite Mr. Fingleton to make his opening remarks to the committee please. Mr. Fingleton.

Good morning Chairman, members of the committee. I appear before this committee on a purely voluntary basis. I will, of course, co-operate fully with the inquiry in so far as it is legally possible for me to do so given the issues that have been the subject of correspondence between my solicitors and the committee. I've already submitted a detailed witness statement which addresses the lines of inquiry as requested by the committee. This opening statement deals with the issues set out in that written statement. I prepared that statement on the basis of my recollection and the limited documentation available to me. My statements were prepared without access to information and documentation from the society which has not been available to me since my retirement in April 2009. I will confine my opening statement to a summary of some of the evidence given in my statement, together with some relevant comments.

The society's motivation for entering the commercial property market was the shortage of housing in Ireland in the early '90s following the extended downturn in that market in the '80s. The explanatory memorandum issued with the Building Societies Act 1989 encouraged building societies to get involved in residential development and provided specifically that building societies should be a "major source of funding for housing by investing directly in residential development". Following the entry of Bank of Scotland and the other foreign-owned banks into the market in 1999 it became increasingly difficult for the society to compete in the residential loans market. Their entry resulted in a period of intense competition, with all major lenders taking steps to protect and increase their market share, sometimes irrespective of price considerations. In addition, the brokers who controlled up to 50% of the market were predominantly aligned to the larger financial institutions.

It was decided by the society for good commercial reasons that it would off ... not offer 100% home loans as a matter of policy. Such loans were only provided by the society in exceptional circumstances. For the same commercial reasons, the society also refused to introduce tracker mortgages. We did not engage in self-certification of income mortgages or expand into the sub-prime lending market, and for some time resisted the term extension of loans to 30 and 35 years. The society also refused to lend at margins of 1%, which at that time was a prevalent practice in the market. In this prevailing climate, it was difficult for the society to grow its residential loan book. I would note that our fellow building society, the EBS, had 90% of its loan book in residential lending and it was not saved from the effects of the economic collapse as house prices fell nationally by up to 60% following the crash.

In 1995 the society came to the conclusion that building societies as stand-alone institutions had no long-term future and that the best option for the society was to seek a change in section 102 of the Building Societies Act 1989 which would enable it to effect a trade sale, thus realising the full value of the society for the shareholders. The enabling legislation was finally passed in August 2006 after ten years of unnecessary and inexplicable delay. The desired sale did not materialise for reasons detailed in my opening ... in my statement. Once it became apparent that we would not effect a trade sale of the society in the short term, I reviewed the society's position in the market and decided to downsize its balance sheet, reducing its commercial loan book, and from September 2007 I began taking appropriate steps to do so. I'd every expectation that this would achieve a significant reduction in the society's exposure based on the premise that in excess of €5 billion of the loan book was due to mature in 2008. At this time the society accepted the market consensus that in the event of a downturn in the property market, a soft landing scenario would apply.

Under this scenario, it was anticipated that a fall in real property values of around 20% would occur over an extended period. The society would have, at this time, welcomed such a development on the basis that it was in the interests of a more stable market. We were influenced in our views by the forecasts and commentaries arising from successive reports by the Central Bank, the IMF, the OECD, the EU, the ECB, the Department of Finance, the EIB, the World Bank, the ESRI and the NESC. In addition, all the economists in the banks, stockbrokers and academia were of the same view. Indeed, this consensus view appears to have been prevalent in every one of the 69 countries affected by the crash. In addition, prior to the general election of May 2007, all major political parties were seeking to increase spending, and indeed some campaigned on the basis of a proposed reduction in taxation. It was clear that parties on all sides of the House expected that the revenues from the property market would continue to accrue to the Exchequer.

The financial crisis which preceded the property crash originated in the US on the back of the sub-prime debacle which caused the banking crisis in which the rating agencies played a major role. A range of powerful institutions which went bust or had to be rescued or nationalised, such as Washington Mutual, AIG, Merrill Lynch, Freddie Mac and Fannie Mae, and, in April 2008, Bear Stearns. On 26 September 2008, the bankruptcy of Lehman's caused the collapse of the liquidity market in Europe and in the United States. As David Doyle, former secretary of Finance, said in his evidence, and I quote: "Lehman was the killer". If Lehman's and, to a lesser extent, Bear Stearns had not been allowed to fail in 2008, then things may have been different and the ultimate extent of the crash may have been somewhat moderated.

I reiterate, for the reasons outlined in my statement to the committee, that the society was not insolvent on the night of the guarantee. No individual financial institution could have prevented the property bubble in Ireland. The only entities that could have acted to prevent the property bubble were the regulator, the Central Bank, the Department of Finance or the Government. The ECB, who had the powers to compel the Central Bank to take any necessary action - sorry, the ECB also had the powers to compel the Central Bank to take any necessary action. However, none of them chose to do so.

The losses from property lending incurred by the banking sector in Ireland were not just confined to Irish institutions. The foreign-owned banks, namely, Ulster Bank, Bank of Scotland Ireland Limited, ACC, Danske Bank and KBC, all incurred significant losses estimated to be collectively in the region of €40 billion. The Building Societies Act 1989 states that it shall be the duty of the auditors to carry out such investigations as will enable them to form an opinion on whether the society has kept proper accounting records and maintained satisfactory systems of control of its business and records and systems of inspection. Where the auditors are of the opinion that the society has failed to keep proper accounting records or systems of control, they shall state so in their report. The committee should note that since their appointment as auditors of the society, KPMG, in each and every year have expressed satisfaction that the financial statements of the society correctly showed the financial position of the society and that proper books of accounts and records have been kept and that the directors had established and maintained reliable systems of control and, accordingly, issued full audit reports - full unqualified audit reports.

I do not accept that the NAMA valuations provided an accurate assessment of the value of the society loans. The extent of the losses attributable to the society on the back of the NAMA valuations of the society's commercial book is an issue which is in dispute. It is, in my view, that NAMA exceptionally discounted the society's loans in the absence of any, or with little credible, challenge to their valuations.

On 23 May 2012, in its address to the chartered certified accountants in Galway, Mr. Frank Daly, chairman of NAMA, said that having completed the due diligence of the property portfolio and having assessed the property portfolio in more detail, NAMA's view was that the assets had more potential than they initially had reason to expect. He went on to say, "A high proportion of the property assets in Ireland ... are located in or close to counties with large urban centres of population (Dublin and neighbouring counties, Cork, Limerick and Galway) and the long-term prospects for much of this property will be better after the economic situation stabilises." It is a matter of record and fact that the society's Irish commercial properties, including development lands, were located in precisely those locations - in Dublin, Wicklow, Meath, Kildare, Cork and Limerick. A reference to that is KPMG due diligence report, June 2007.

In the United Kingdom, where the society had the majority of its commercial loan book, with 60% of its lending to the London market, I have identified profits that have accrued or will accrue to NAMA in the region of €1 billion from sales relating to a relatively small number of borrowers. I am awaiting the receipt of further information and documentation in relation to many other borrowers to enable me to conduct a similar evaluation. I outline now examples relating to three properties to illustrate my point: property A - NAMA valuation £18 million, realised £200 million, excess £182 million; property B - valuation ... NAMA valuation £12 million, realised £100 million, excess £88 million; and property C - NAMA valuation £165 million, realised £250 million, excess, £85 million. The total accumulated profit in relation to those three properties amounted to £355 million, equivalent to €443 million. It must also be noted that at the time when NAMA was calculating the discounts, UK property prices were already on the rise again, particularly in the London area. The London property market has clearly performed strongly since this time.

I believe the society was a victim of the financial crisis which originated in the sub-prime market in the US, precipitated by the bankruptcy of Lehman's. However, I accept that the society was a contributor to the resulting property crash that followed by being unable to sufficiently reduce its exposure to the commercially property market, despite having realistic expectations to do so, while the decision of the society to downsize its commercial loan book in September 2007 and despite having diversified geographically its market exposure.

The financial crisis which occurred was in the ... was an event, the occurrence, size and magnitude of which was unforeseen by even the most astute observers of financial markets. As a result, the collateral damage caused by the collapse was immense for everybody concerned. Almost all commentators, as already said, accept that the financial collapse was not foreseen and could not have been reasonably foreseen. In my 30 years ... 38 years with the society, I had, prior to the economic collapse, gone through three recessions and downturns in the property market. I did not expect the predicted slowdown to be any worse than any of those previous recessions and none of the other market participants did either. Having built up the society in a competitive, innovative and cost-efficient manner over the years from a business with €20,000 profit and five employees with one branch office to almost €400 million profit and 455 employees with 50 full branch offices, it was an absolute shock and bitter disappointment to me that the society succumbed to such a cataclysmic financial crisis, a one-in-100-year event which caused such huge damage to every element of the nation, both corporate and personal. I regret very much ... I have and I am continuing to pay the price, personally, as a result.

In particular, I regret it for the society's employees, shareholders and borrowers, who all became casualties of the crisis, and I regret it for the taxpayer and the State, who had to fund the deficit.

Thank you, Chairman. I am happy now to take your questions.

Thank you again, Mr. Fingleton, for your co-operation with the direction by the committee to come before us here this morning. And I'll open up questions by inviting our first questioner this morning, which is Deputy Pearse Doherty.

Go raibh maith agat agus fáilte chuig an choiste, tUasal Fingleton. Can I ask you, just following on from your last comment, what is it, exactly, you regret?

I just regret that the State and the taxpayer had to pick up the bill for the collapse of the whole financial market and, in particular, for the banking sector.

Okay. In your contribution you mentioned, for example, contributors or those who could stop the property bubble. You mentioned Lehman's, Bear Stearns - as instigators of the crisis - the regulator, the Central Bank, the Department of Finance, the Government, the ECB. In your view, where does Irish Nationwide and your role as the chief of Irish Nationwide, INBS, for the last 38 years ... where do you stand in relation to the fact that you regret that other people had to pick up the tab for the bank that you were in charge of that went bust?

Well, over 38 years, Deputy, I was CEO and later, in ... since 1975, I became managing director of the society. And in that year, I changed the name of the society, of course, to Irish Nationwide. We were called the Irish Industrial Benefit Building Society. I changed the name to Irish Nationwide and I was instrumental in the appointment of KPMG as auditors to the society. Over the years, up to 1992, the society ... I built up that society, as CEO, with the full co-operation of our board and I always insisted that the board would be fully involved in the lending process, which was unique - and is unique - among financial institutions. And during the '80s, we expanded, slowly and conservatively, the development of the society, particularly in the home loans market. But in addition, we also did small ticket commercial loans for shops and individual offices, for farms and even for small developments and building construction. I think we have ... we had about 10% of our book in that area of the market. And in 1992, following the change in legislation, we took advantage, if you like, of the encouragement, as I've explained earlier, of the legislation which enabled the societies to engage in development and construction of housing. And we were encouraged, as I said, to do it and I quote, "[that] building societies should be a major source of funding for housing ... by investing directly in residential development". That was the purpose of the Act and the genesis of the Act in relation to that area. So, we decided at that time to get involved and we acquired, I think, 70 acres of land in Lucan.

Mr. Fingleton, we won't have time ... and I'm sure other members will have time to go through the whole history of Nationwide, but in terms of the specific question of the regret that you've expressed, what role did you play yourself in relation to where Irish Nationwide found itself basically lumped on the Irish taxpayer-----

I ... I-----

-----and do you regret any decisions that you took or the way that you managed the bank in ... in ... to bring it to a point where it ultimately went bust?

I don't regret any decisions I took. What I do regret is that, at the time, the society had a commercial loan book that was, at the time, too large and, as a consequence of the crash, was deemed to have significant losses within that book.

Whose fault was it that the society had a commercial loan book that was too large?

It was ... I was part of the strategy. I was part of the operation and I was part of the decision to increase ... to engage in commercial development-----

But you don't regret that decision, as you've told us-----

Well, I regret it now, of course, but at the time-----

Okay, so you do regret-----

-----at the time, certainly, I didn't. It was a normal commercial decision and it was based on demographics and all the rest of it that availed in the environment and the market at the time.

Okay, we'll come back to the commercial property. Is there any other decisions, bar allowing your commercial property exposure to increase to significant levels, that you regret?

I regret that when we took the decision to downsize the balance sheet and, in particular, downsize the commercial book, that we didn't get the time to do it because we were turning over our commercial book every three years. I think that's borne out in the due diligence report by KPMG in 19 .... in 2007. And we had matched our wholesale funding, which was between three and five years, to the maturity of those loans. Funny enough ... and that was a comfort to us at the time and it was a big plus. So, therefore, if we had got another year of normal lending or normal markets compared to 2007, Senator, there was the maturity of €5 billion ... there was a book of €5 billion of our loans due to mature in that year, 2008. Therefore, we would have reduced I'd say by, realistically, maybe €3 billion. So, we'd have our book down from €8.5 billion down to €5 billion.

Okay. Mr. Fingleton, you were in charge of Irish Nationwide Building Society for 38 years. During that period, the bank made a series of business decisions that led to it eventually going bust and to be bailed out by billions of euro of taxpayer's money. In the annual accounts of Irish Nationwide Building Society, it was reported that a pension fund of €27.6 million had been set up and subsequent newspaper reports revealed that that separate pension fund that was set up at that time was for your exclusive benefit. Can you explain to the committee why a pension fund of €27.6 million was set up in the year 2007?

I'll try, Deputy. In the early '90s, I think it was '91 or '92, I looked at my pension fund and the value that accrued on that fund. It was managed by an outside insurance company - an outside fund - and I discovered that if I had invested all the contributions in the lowest deposit account or the lowest paying deposit account operated by the society at that time, that would have produced more than what was produced by the insurance company in the fund. So I agreed with the society at that time that I would manage my own fund and I would invest the contributions that were provided by the society in that fund. So I made the decisions from that time on what to invest in and the fund was, of course, administered by the trustees of that particular fund. So that's the genesis of where it started and originated. And over the years the fund built up to almost €30 million based on my decisions on what to invest in.

And when the fund matured and when the retirement came, as I said, there was €30 million in it, €30 million in it. Now the net cost of that, Deputy, to the society - booked it in a public document that doesn't appear to have got great circulation - was in my view almost nearer to €3 million than what the experts said was nearer to €4 million. So in that period, I increased that fund by almost ten times, tenfold. So you can appreciate, because pensions and the pension pots and funds are very much discussed within your environment, and you can appreciate what €3 million, what sort of a fund €3 million would buy you today, or even €4 million would buy you today. So the cost to the society was €3 million, or if you believe the ... some of the experts who have examined the account, and I will come to that in a minute, nearer €4 million.

Was there a bonus culture in Irish Nationwide?

No, Senator.

No.

There was no bonus culture in the Irish Nationwide.

So there was no bonuses paid in-----

Oh there was, sorry. There was no bonus ... there was bonuses paid on the basis of results on an annual basis. There was no bonuses culture from the point of view that if, to promote the business, in other words, to, you have to get so much lending done and you'll get so much if you achieve targets. There was no target-related bonuses paid in Irish Nationwide, except to the branch managers to incentivise them to get more home loans or attract more home loans for the society because that's where we were weakest for reasons I have outlined in my statement, that we didn't do tracker mortgages or we didn't do 100 per cents or we didn't do self-certification. We didn't take on loans at a 1% margin-----

Is your view today, with hindsight, in relation to the bonuses that were paid out, as you mentioned, to individuals and the large pension pots that were set aside in the annual accounts that we've referred to - your own one that had a value of €27.6 million - is your view ... what is your view? Is your view that people were entitled to those bonuses and pensions funds even though that there has been, as you mentioned, victims of the crisis which don't have any pensions out there and have suffered immensely as a result of the financial crisis?

Oh, I'm fairly conscious of that, Deputy. I certainly would say in hindsight they were excessive. That's all I'll say really.

Okay.

If it was today, they just wouldn't be paid, but at that time in the market - and we were, the society was extremely successful at the time - and I think that ... you see, I did not determine my bonuses. They were done by the remuneration committee, which comprised the three, or all the non-executive directors, and they decided what my bonus was.

If you go to the core booklets on Vol. 1, page 43 and 44, in a letter dated in February 2008, it regards the inspection of commercial property lending exposures-----

What are you, sorry-----

Page 43 and 44 of Vol. 1, and I will quote it anyway-----

It'll come up on the screen in front of you as well, Mr. Fingleton.

Sorry?

It will come on the screen for you there in a few moments. Oh sorry, it won't.

It won't.

It won't, no.

I will quote. It says the Financial Regulator "calls into question the adequacy [and] controls and risk management in place in INBS for large commercial property loans and suggest[s] that a significant degree of approval authority rests with a single individual, Mr. Fingleton, who also appears to be the only source of information on some of these large clients". What is your views of the Financial Regulator's statement that he made at that time?

I don't agree with it, Deputy.

Why do you not agree with it?

Because it's not true.

What part of it is not true?

It's all not true.

All of it is not true.

Except that I did have, it was my job to have knowledge of the different exposures of the society.

So I would have knowledge but I didn't have exclusive knowledge Chairman, or Deputy, of any those loans.

Okay, and the "significant degree of approval authority rests with a single individual", you'd ... do you disagree?

That's a nonsense.

Nonsense?

Yes.

Did you challenge the Financial Regulator in relation to his ... to this-----

Chairman, even at the ultimate end of the process the board approved all the loans over €1 million, not Michael Fingleton.

Okay. Why would the Financial Regulator say to the chairperson of INBS that a "significant degree of approval authority" lay with yourself?

I don't know, you'll have to ask ... I know who ... I know who said it, you'd have to ask her because I don't think ... I think there was always this perception, and I emphasise perception Deputy, that I, sort of, controlled the whole operation of the society. But I took steps to ensure that I didn't control it or couldn't control it. I maintained and kept and ensured that the board always had the final say and that was ... no other institution had the board involved in the lending process.

Did you ever provide a name-----

And that was ... and I can maintain that right from the time I became CEO of Irish Nationwide. Secondly ... it's gone out of my head now ... anyway, that's-----

Did you ever provide a name and an amount to-----

Sorry, I've, I've-----

If I can finish this question, did you ever provide a name and an amount to one of your staff members in INBS to provide a loan to an individual, for example, on a Post-it note?

No.

No, never?

No.

Okay. Did you ever provide it in any type of form?

No.

No, okay.

I ... loans, loans ... I might introduce loans, people might come to me and the process was people came to me, I would meet them, I would always have a lender with a notebook, taking notes, or an underwriter in the case of a home loan and then I would pass them over to them to deal with the detail.

Okay.

And that was my-----

Mr. Fingleton, in the core documents of Vol. 1, again on page 5, it states that over the period 2001 to 2003, Nationwide increased its level of commercial lending by over 60%. This was a source of concern for the regulator, that the society did not have the appropriate skill sets or controls in place to effectively manage this exposure. On page 47 of the core booklet that you have in Vol. 1, we see that by September 2008, 80% of INBS's loan book was in commercial property and 81% in land and development exposure was in speculative property activities. Do you think that this was an appropriate lending strategy for Nationwide, as a building society, in which to engage?

I don't Deputy. It was a normal expansion of the business. The reason we had more ... or more ... volume in commercial loans is that we couldn't increase our home loan book for reasons I've already stated. And we developed-----

To clarify, you say you don't, so you ... is it you don't believe it was appropriate but it was also a normal expansion, so which-----

It was normal expansion as I've said-----

Inappropriate normal expansion is that what you're saying?

No, no I'm not saying it was ... an ... an inappropriate-----

So it was appropriate?

So it was within ... it was in the parameters of our liquidity, our capital availability and the share-to-deposit ratio. All the parameters and requirements of the regulator was complied with. It was also within the capacity of the society because it was normal lending at the time within the strategy and within the objectives of the society to engage and expand our loan book in that area.

Were you aware of the risks?

And remember Deputy we were, we ... we got out of commercial ... or got out of a construction, more or less, and we did more development and, indeed, more income generating investments, particularly in the UK, because we were turning over our book every three years.

But were you aware of the risks that existed with the fact that you put 81, 80% of your loan book in commercial property and 81% of land and development were in speculative-----

The risks ... the risk was diminished in that you're talking about land development and a lot of our lending was in that area and the risk to that was that we wouldn't get the planning or that our customers wouldn't get the planning, because that was the criteria.

Our customers ... the loans were based on the premises ... on the premise that the borrower would get the planning. Once the planning was received, our risk would be transferred to another lender for the construction phase and we would get our money back. And we would get our money back in all our books between ... I think the timeframe was between six months and three years of when the planning accrued. That was the purpose of it. So the lower ... the shorter the period, Deputy, the lower the risk and that's how we dealt with our lending in that-----

Can I go to maybe - just in relation to the risk - again the core booklets, Vol. 2? It's on page 45 and this is Project Harmony, the report in June 2007, and it notes:

The overall approach to risk assessment would not be described as highly developed given that the Group continues to rely heavily on the Managing Director, does not have sophisticated IT systems and operates across a limited range of products. This modus operandi would be described by the management as fit for purpose, particularly given the degree of Board oversight of the lending approval process.

End of quote from the Project Harmony report.

Sure.

Can you explain why you considered such a modus operandi to be fit for purpose for a financial institution with a balance sheet of €16 billion at the end of 2007?

I didn't ... did I decide? It was fit for purpose within the parameters and the criteria in operation within the society.

Did you have a sophisticated ... do you dispute what the Project Harmony? For example, did you have a sophisticated IT system? It's reported that you never even had a computer yourself. I'm not sure if that's accurate or not. But was there a sophisticated IT system? Do you dispute what Project Harmony says in the report in June 2007?

We had a system. Remember, Deputy, we were operating in a very narrow and simple, straightforward market in property and being funded by deposits on the wholesale market. We were just in a narrow banking function. Therefore, it didn't take great sophisticated systems that would normally operate in the larger banks-----

You had €16 billion of a loan book, with respect, at the end of 2007.

We hadn't the €16 billion.

Sorry, €16 billion was-----

Our assets.

At the ... yes, here, the balance sheet was €16 billion.

At what date?

Did that not require a computer, for example, for the managing director?

Oh we had, of course. We had a very good system that catered for the needs of the society.

Okay. So ... okay, I'll leave it at that.

Can I ask you, in the letter from INBS, and again this is in core booklet, Vol. 3, page 41? This is a letter from INBS to the Financial Regulator's office in April 2008 and it's in response to the Regulator's query of February 2008 - its report on commercial property lending. The letter from INBS states:

Mr. Fingleton is closely involved with the U.K. and Ireland commercial lending managers in assessing large commercial loan applications and in ongoing reviews and discussions with large borrowers. The Chief Executive is ultimately responsible for all lending and it is essential that he is involved in all material loans being approved by the Society.

That's coming from your own institution to the Financial Regulator. So, is it reasonable, or not, to say that with regard to commercial loan applications, that you were ultimately responsible for the lending?

Well, as CEO or managing director ... listen, you are always ultimately responsible for whatever takes place within the organisation, and lending was our prime activity within that organisation. So, I would have to familiarise myself very thoroughly with all the loans that were being proposed, all the loans that were there for approval and all the loans that ultimately went on to the society's loan book.

We going to start moving to wrapping up, Deputy.

Yes. Mr. Fingleton, in the core booklet - again Vol. 1, page 71 to 73 - this is a review by Deloitte in the second quarter of 2008 into your bank, Irish Nationwide, commercial and residential lending. It had the following to say with regard to critical issues. On page 71 of these documents it quotes:

No Credit Committee approval was present on a number of reviewed files, mostly relating to loans originating in Belfast.

In many cases the Commercial Loan Application was approved by only one member of the Credit Committee, while at least two members are required under the terms of reference to approve these loans.

It goes on then to say in page 73:

Until December 2007, board approval was required for all loans in excess of €1 million. In a number of incidences, no board approval could be located in either the loan file or the board minutes for loans which, according to the lending policy in operation at the time, would have required board approval.

You have told this committee that at all times - and you're very proud of it - that the board was involved in all of these decisions; that you didn't, despite what the Financial Regulator says, have ultimate responsibility in terms of these decisions, or the authority lay with you. How come is it that Deloitte is pointing out, again and again, that the board didn't approve these ... that the credit committee didn't approve some of these loans?

Chairman, or Deputy, I just have to say on that one that this is an issue or an allegation or allegations that are in dispute and they're a matter for another jurisdiction. And I would dispute those and the chairman of the credit committee would dispute those allegations and that remains for another day. I cannot comment for legal reasons.

Okay, that's fine. Just for clarity, you are disputing the Deloitte report, the Financial Regulator's report, Project Harmony's report in relation to-----

Sorry, excuse me.

-----Deloitte's report, the Financial Regulator's letters in relation to your authority and the Project Harmony report? It's that just for accuracy purposes.

I've made my ... I've stated in my answers the responses to your questions-----

Can I finally ask you ... in relation to ... INBS's overarching driver was demutualisation and sale and this is talked about in the Nyberg report. In your opinion, did the desire on the part of management, and on your part also as part of that management, to maximise the value of INBS result in the adoption of poor lending practice and an increased level of risk in the loan portfolio?

We certainly would have wished to maximise the value of the society. That would be normal for any institution who wishes to sell its organisation to a third party. Sorry, the second part of your question-----

The question is: did the fact that you wanted to sell ... the demutualisation and sale, did that result in your view, as part of the management to maximise the value of INBS ... did that result in the adoption of poor lending practices and an increase in the level of risk in the loan portfolio?

I don't accept there were poor lending practices and it was not a motive at all in relation to the demutualisation of Irish Nationwide and the subsequent sale of the society, which was a normal ... we engaged in normal business ... ongoing development of the society.

I will invite you back in at the end, Deputy, when we are wrapping up. Deputy Kieran O'Donnell.

Thanks, Chairman. Welcome, Mr. Fingleton. In relation to the loans acquired to the society by NAMA - you made reference to them earlier - the discount overall was 61% and you spoke about where you feel the discounts were too high. Now, they were the highest discounts of any of the financial institutions and, Chairman, I am referring here to Vol. 1, page 125. Can you explain how you got into a situation where you became partners with developers in terms of profit-sharing, where you gave 100% loans to developers, you took up to 50% of the profit on the development, you charged them a rate of interest? And were they non-recourse loans? So can you give a background in that area?

Okay. Chairman, yes, I refer back to 1992. We were coming out of the recession of the '80s, where there was little or no increase in the real value of house prices, there was little or no construction going on. I think there was about 15,000 or 20,000 houses being built annually - and we had, of course, the 1989 Act just passed and, as I said to the Deputy ... that building societies ... it encourages us, it stated that, "Building societies should be a major source of funding for housing by investing directly in residential-----"

Mr. Fingleton - and I don't wish to interrupt you - I'm aware of that. What I really want to ask is-----

Sorry, I thought the Deputy was asking me a question.

Yes.

No, I was asking you a question.

Oh, was it you?

It was, Chairman, yes.

I beg your pardon. I'm sorry.

I haven't started yet, Mr. Fingleton.

The question is, at the time of, we'll say, the bank guarantee was brought in, of the development loans, which were of the order - commercial loans - they were €9 billion of the €12 billion of loans in Irish Nationwide at the time, what percentage of them-----

€8.5 billion.

€8.5 billion. Right, we'll round it up. But what percentage of those were ... involved joint ventures where there was profit-sharing with the developer for Irish Nationwide?

I think there was around - I am only guessing, Senator - maybe 30%.

Now, I've seen and we've seen figures where it's been reported ... the Central Bank have said it was around 65% by value.

Are you talking about land development now or are you talking about income-generating investments-----

I'm talking about-----

Just the loan book?

-----the loan book.

I'd be surprised if there was 60. I would certainly think it may be 50.

And of the lands that were yet to be developed, what percentage of those would have been profit-sharing?

I don't know. I haven't got that figure, Deputy, yes.

Of those loans, the 50% - let's assume that it was of the order of about ... over €4 billion - what percentage of those were non-recourse loans where the only security given was the asset?

There were certainly ... in the UK, they would be mostly non-recourse in relation to the joint ventures. In Ireland, there would be some non-recourse but the majority of them would be recourse.

Why were so many of the loans non-recourse? They appeared to be very high-risk.

Because non-recourse was not available in the UK from our customers in relation to the joint ventures. Because they were contributing 50% - up to 50% - of their profits to the society, they would not give personal guarantees.

But did you not ... in terms of the interest, was that not, Mr. Fingleton, reckless of a form for you, as CEO of the society, to put the members' interests at such risk, or not?

Don't make a judgment there now, Deputy.

Well, put it this way, that ... you're saying that the developer was dictating that they would not give any form of security bar ... other than the asset itself.

It wasn't available. But, Deputy-----

Ye could've demanded it.

We would ... when you ... we would be going on our experience with those particular developers or borrowers. From 1992, the vast majority of them were customers of ours, right up to 1997. That is 15 years. And we had little or no losses incurred in that period. And we had ... we had ring-fenced our area of activity and diminished the risk element by ensuring that all those loans would be redeemed within a three-year period. And effectively they were. So-----

But is it not-----

We had to ... we were basing all our decisions based on other considerations but principally on the basis of our experience in that market which we had built an expertise in in the intervening period of 15 years. So you have to take into consideration that element of risk in the lending.

But, in September 2008, is it not fair to say, Mr. Fingleton, that you had a development loan book too much of which was tied up in joint ventures with non-recourse loans?

Well, if there was too much of it tied up in joint ventures, I don't think the recourse would have made much difference, Deputy, in the final analysis, the way things turned out.

But you don't-----

It certainly didn't make any difference to the recourse loans we had here in Ireland or the few ... or the number ... we had a number, quite a number ... we had all our recourse loans in the UK in relation to that-----

And you don't see that-----

----big interest-bearing investment properties.

You don't see that as a contributory factor to the high discount with NAMA?

It was a contributory but it wasn't the major issue in relation to the discounts applied by NAMA to our loans, I can assure you of that.

On 7 September, Mr. Purcell, your secretary of the board and financial officer, and two other colleagues arranged a meeting with the Central Bank on behalf of Irish Nationwide, with representatives ... together with representatives from AIB and Bank of Ireland. Were you aware that this meeting had been arranged?

I was.

Okay, and who requested the meeting?

As ... my understanding ... well, you have Mr. Purcell here this afternoon, he'll fill in more detail, but my understanding was that it was the regulator.

And was a decision reached at the meeting?

No, there was no decision reached at the meeting, as I understand.

Why didn't you ... why did you not attend the meeting, Mr. Fingleton, as CEO?

I was ... I had other engagements that required my attention. You do recall, Deputy, the false Reuters report and it might be interesting to know the background to that in that the night the Reuters report was issued, on the lines, we contacted the regulator's office and we informed them that the report was totally erroneous. And the ... I think our head of supervision said that they would get on to the media and that they would make a statement saying ... confirming that that was erroneous.

That's ... Mr. Fingleton, that's in the public domain. I suppose, I want to get ... the meeting-----

Well, I don't think that's in the public domain.

Well, it's ... it's-----

Can I ask you, Deputy, just to get to ... to ask Mr. Fingleton to clarify the purpose of that meeting?

The purpose ... that's really ... the purpose of that meeting on 7 September?

The purpose of that meeting ... from the regulator's point of view, they felt and believed that, following the Reuters report, there might be a run on the society or that there would be a run on the society the following Monday or whenever it was ... the following day - maybe the following Monday, I think it was - and that they wished to establish whether a major bank would supply, if the society needed it, some liquidity. Now, Deputy, it is clear from evidence given to this committee that the society didn't need any liquidity to absorb any run or withdrawals caused by the false Reuters report.

Is it ... if I can just refer you to page 96 of Vol. 1, where it's a letter from the Financial Regulator to Mr. Walsh and on page 96, he says-----

Let me see now.

It's "Liquidity Risk".

Let me get it ... let me get it. Let me see, "Liquidity Risk" ... 96. Okay.

Paragraph 3, top of the page.

96, "Liquidity Risk", is it? Okay.

Yes.

Yes, it's the fourth page of an overall letter from the Financial Regulator.

I want to direct you-----

Okay.

-----to three sentences down:

Currently [Irish Nationwide Building Society] has no access to ECB monetary operations, [it] has not been accessing the wholesale markets for [lending] in recent months and is relying on retail and corporate deposit initiatives.

So, clearly, at the time, the Financial Regulator had concerns about your overall liquidity position. Ye were heavily reliant on deposits. And, following on from that, just to give it context, there was a meeting on 7 September where Mr. Richie Boucher stated that the Financial Regulator sought a meeting with him for the purpose of ... to discuss potential liquidities both for Irish Nationwide Building Society. So, you weren't able to access ECB funding, so-----

Deputy ... sorry, Deputy, in relation to the wholesale funding, we didn't need to access wholesale funds at that time.

We had €4 billion of cash or near cash on deposit with counterparty banks.

So you’d no liquidity-----

To over 25% of liquidity and a multiple of the requirements laid down by the regulator in the new requirements he introduced in 2007. We had no need ... and, in fact, I think ... I haven’t got it confirmed yet but I think we might have paid back €750 million to our funders in February or March in that year.

Which you were required to do.

Which we were required to do. So we had no need even to roll it over.

Can I just follow on from that question? You had a meeting subsequently with David Doyle on 18 September, the then General Secretary of the Department of Finance.

Yes.

What was discussed at that meeting?

What was discussed at that meeting was that we ... were suggested ... we looked for a meeting, first of all, with the Minister and the Minister wasn’t available. And that's ... the chairman and myself.

For what purpose?

The purpose was to ask or suggest to the Government that they would increase the guarantee on deposits from €20,000 to €100,000. That was the purpose of that meeting. And that was on the 18th of-----

September.

September and-----

Mr. Fingleton, did you-----

-----deposits were increased on 20 September from €20,000 to €100,000.

Fine. Did ye discuss solvency of Irish Nationwide on that . . . at that meeting?

I think ... I'm not too sure, Chairman. I can’t remember that. I don’t think we did but I’m not too sure. No, I can’t ... I can't remember. But certainly we did ... the purpose of going to meet the Minister and we met instead the-----

Do you accept, Mr. Fingleton, that, in terms of scale - size - that Irish Nationwide’s cost to the Irish taxpayer, €5.4 billion, has been the biggest single banking failure in size in the history of the Irish State? And, in that context, that it cost €5.4 billion, do you still believe Irish Nationwide Building Society was solvent on the night of the guarantee?

I certainly do believe we were solvent on the night of the guarantee, Deputy, and there's been no evidence produced, as far as I am aware, to this committee by all the participants to date to suggest otherwise.

And do you accept that the €5.4 billion of taxpayers’ money that’s ended up going into Irish Nationwide Building Society, which they will never see a red cent of-----

If you accept-----

Is it the biggest single failure?

Deputy, if you accept the discounts applied by NAMA, yes. But I don’t accept the discounts applied by NAMA and I have evidence - and will produce evidence at a future date - to really substantially disavow those discounts.

So you're disagreeing fundamentally with an independent organisation like NAMA?

Sorry, Deputy, can I just finish? Therefore, I'm not saying there wasn’t ... there would have been a ... certainly cost to the taxpayer. It may not have been €5.4 billion. Even if it was €4 billion, it still would be too much.

Well, do you want to-----

And it would have been too much for the taxpayer and the State to bear.

Mr. Fingleton, do you want to take this opportunity to apologise to the Irish taxpayer and the members of Irish Nationwide Building Society for your stewardship of the institution?

I have already extended my ... I regret the thing fully and ... very, very much and I've already stated that and if there was a-----

What would you have done differently?

Sorry?

What would you have done differently, Mr. Fingleton?

Well, if I'd done differently I don’t know what I . . . in hindsight, we all have ... would have done things differently in our lives and in our business lives as well. I would’ve not lent in 2006 or 2007. If we had stopped lending in 2006 instead of 2007 - when we ceased in September 2007 - we would have eliminated totally our commercial book.

Can I ask you, Mr. Fingleton, what was the set-up remuneration-wise within Irish Nationwide for executives like yourself? What was the ... how was your remuneration arrived at? Like, you were on €2.3 million of a salary in 2007, which was in excess of what the CEO of AIB at the time was on. How did you arrive at that level of a salary?

I didn’t arrive at it, Deputy.

How was it arrived at?

The remuneration committee arrived at it and it was made up of a basic salary and a bonus.

How was the bonus arrived at, Mr. Fingleton?

On the basis of the performance of the society in that given year.

And what was the bonus that you would've agreed, we’ll say, for ’07 and ’08 at the time?

I didn’t agree anything. I didn't agree anything. It was done in retrospect, it wasn’t done in prospect in relation to delivering any profits or any elements of lending or anything else.

Well, do you believe-----

This is your last question.

No, I’ll ask a very simple question. Do you believe, Mr. Fingleton, in light of the fact of the performance of Irish Nationwide, that the bonuses in ’07-’08 were warranted?

I need to be mindful there----

Oh, not at all.

They weren’t warranted?

They wouldn't be ... in hindsight-----

Sorry, I'm going to have to pull you back in that area because that relates to other matters that are part of a civil action-----

But the ... can-----

-----and it doesn’t matter if the witness wants to co-operate or not. I have to be mind ... and that’s-----

I'd only one final question on that, Chairman.

Sure, go on.

Can I ask Mr. Fingleton that ... it’s reported that, we’ll say, on your ceasing as CEO, that you were presented with a watch of-----

Ah, tut, tut.

Out of bounds.

Please, if we can return to the evidence books, please.

Can I ... Mr. Fingleton, the Financial Regulator in December ’04 noting the ongoing concerns with the level of resources at senior and executive management Irish Nationwide.

What page was that?

That was . . . that’s Vol. 1, page 3 and 2. That letter was dated 9 December 2004. And it was repeated in March 2008.

What page is it at, Deputy?

That’s page . . . it should come up on the screen. It’s Vol. 1, page 3 to 12, letter, Financial Regulator, and Vol. 2, page 35. I’d say you're probably reasonably familiar, Mr. Fingleton, with the overall tenant of what's being put forward.

Well, there's a lot of documentation, Deputy, and I can’t remember it all specifically. So, I'll see can I deal with ... what page-----

It’s page 3 to 12 on Vol. 1, which is the initial letter, Financial Regulator and-----

In November 2004, is it?

Correct. December 2004.

Or December 2004, yes, I have it now. I have it, Deputy, yes.

Chairman, can you give time for the witness to locate-----

It’s a Central Bank document so I don’t think it will come up on screen, Deputy.

Time-wise, Chairman, it’s very important.

Yes, yes, I can give you a small bit of flexibility.

Vol. 2, page 35 to 38, is a letter from the Financial Regulator to Mr. Walsh that's dated 7 March and really the tenant of it is that it would appear the regulator continually repeated that there was lack of strength at the board or senior management level over a six-year period. In view of these concerns over resources that was in senior management, why did the building society expand its loan book and, in particular, to commercial lending throughout this period? They're basically saying that the ... that you did not have the strength at either board or management level to deal with dealing with that level of loan expansion, particularly in the commercial area.

I ... we didn’t ... you will ... I refer to the full reply and detailed reply of the Chairman, Dr. Walsh, to that letter, in December 2004, where he pointed out clearly that we had increased the level of management substantially in the organisation, which, clearly, the regulator wasn’t aware of. And, secondly, we also pointed out that while we needed some further strengthening of the management for normal administrative reasons, we were finding it difficult to get the calibre of employee because we were being sold ... the perception was out there that we were being sold and nobody was prepared to join us on a contract and all we could offer in anticipation of the sale was a contract.

Well, if you-----

And that is the position. So, we weren't deficient in management ... in adequate management, but we could do with more. That’s all.

Mr. Fingleton, why didn't you demutualise earlier? You had the opportunity. Irish Life and Permanent demutualised much quicker and ... Permanent TSB, rather, demutualised much quicker.

You could have done it over a five-six year period. Why didn't you do that? Why did you push so hard so that you could actually, once you demutualised it, you could sell straight away? Why weren't you willing to wait the five-year period?

Because, at the time, when we made the decision in 1995 we looked at our position as a stand-alone building society. And our advice was, at the time, that we hadn't the critical mass to convert to a company and launch the society in ... to the public. So, therefore, we decided then that we had two options. One was to merge with another building society. Secondly was to effect a trade sale and the second one we chose to do. At that time, we sought to get the change in the legislation. There was absolutely no commercial reason for that change in legislation not to have been implemented at that time. Even the Central Bank, without ... without the Government or the Department of the Environment bringing in new legislation, the Central Bank could have made the decision in the interests of the shareholders or depositors, but they chose not to. So we lobbied for years for the change in that legislation and we were obstructed from time to time. If you want the whole history-----

I don't.

-----chapter and verse-----

Not today.

-----we'll give it to you.

Not today.