The civil case against former banker Michael Fingleton, who is alleged to have negligently mismanaged the Irish Nationwide Building Society (INBS) for decades and which collapsed after failed financial and property “gambles”, has opened at the High Court.
Mr Fingleton (87), who is in ill health after a stroke, ran the lender from 1971 to 2009, as managing director and chief executive. At its height in 2007 it had reported assets of €16 billion but was a high-profile casualty of the financial crisis of 2008.
The losses had been estimated by the Irish Banking Resolution Corporation (IBRC) at €6 billion, relating to property loans but only €250 million in damages is now being pursued by IBRC relating to five loans made by INBS, allegedly approved by Mr Fingleton.
Liquidators for IBRC have taken the case against Mr Fingleton who denies the allegation of negligent mismanagement.
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Mr Fingleton, acting through his wife, Eileen Fingleton and son Michael Fingleton jnr, under their powers of attorney, have made several attempts through court challenges and appeals to halt the case, originally taken in 2012, but ultimately failed and the case finally opened this morning at the High Court.
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On Tuesday, Lyndon MacCann SC, for IBRC’s liquidators, in opening the case, said INBS operated on a speculation that property could only “go up, and up, and up, and up” and that a “blase” attitude had been taken to warning letters from auditors and the financial regulator.
Mr MacCann said there had been several delays in the case and 1.6 million documents had to be reviewed during the discovery process.
Counsel said the claim against Mr Fingleton was for damages for alleged “profound mismanagement” of INBS for whom he was the equivalent of the chief executive and director for 38 years until his exit in 2009, “or, the boss”.
Counsel said the claim against Mr Fingleton was “enormous” and that compensation was sought for “huge losses” for the alleged “negligent mismanagement in the stewardship of the society over decades”.
The five loans “approved” by Mr Fingleton relate to property development projects between 2006 and 2008, counsel said.
“The culpability of [Mr Fingleton’s] stewardship regarding these five loans are emblematic of these shortcomings,” claimed Mr MacCann.
The loans relate to three from INBS’s Belfast office and two from its Dublin office that had “myriad” problems regarding safeguards and corporate structures, counsel said.
Mr MacCann said Mr Fingelton “gambled” with the society’s money when he himself allegedly approved “speculative, risky” commercial loans, which sometimes had already been greenlit by him before they were taken before the board of directors, on which he also sat.
Counsel said that the company would, for a small circle of “high-value” individuals, provide 100 per cent of the purchase prices for land that sometimes may or may not have planning permission, or even zoning.
The return on the loans and interest from INBS was that if the properties could get planning permission they then were to be “flipped” for a profit, making it a “joint-venture” for INBS in profit agreements. INBS dealt in short-term loans no longer than an initial three years and as short as six months, sometimes without personal guarantee or security in place regarding these types of commercial loans.
Mr MacCann alleged Mr Fingleton “singularly” failed to live up his duties of stewardship towards INBS and the five loans “reasonably” should not have been made.
Counsel said that some loan issue instructions would be done orally by Mr Fingleton, while others would be dealt with by a handwritten note at the top corner of an application or letter.
Mr MacCann claimed that in Mr Fingelton’s time at INBS the defendant never operated a computer, did not send or receive emails and “rarely” wrote letters which led to an “imprudence” in loan issues that had little or no day-to-day notes, progress assessments, independent valuations or income verification records.
Mr MacCann said the level of power delegated to Mr Fingleton was “extraordinary” and that an expert witness on behalf of the plaintiff will say it was “hideously flawed”.
Mr MacCann said INBS had been warned by the financial regulator about its “dramatic” move into commercial property away from residential loans as it carries a higher risk.
By 2006, the commercial lending at INBS was 75 per cent, when it had been less than 50 per cent in 2001.
Mr MacCann said that Mr Fingleton had approved the loans before the court and that a handwriting expert will be called in support of the plaintiff‘s allegations.
The case before Mr Justice Michael Quinn continues tomorrow and is expected to last up to eight weeks.
The State-run National Asset Management Agency (Nama) took over INBS’ commercial property loans in 2010. The following year, the government merged it with Anglo Irish Bank and established IBRC to take on the finances of both lenders.
Mr Fingleton was a prominent presence in Irish business during the Celtic Tiger and was reported to have been worth around €75 million in 2006, however his son has told the courts that his father is reduced to €25,000 in two personal bank accounts and has outstanding judgment debts of more than €10.7 million.
