Chairman says view of Irish Nationwide role in crash not correct

The former chairman of Irish Nationwide Building Society has expressed his regret about the events that led to the banking crisis in Ireland but said much of the commentary about its difficulties is not correct.

Speaking at the Oireachtas Banking Inquiry on Wednesday, Michael Walsh, who served as non-executive chairman for eight years up to February 20098, also heavily criticised regulators in Ireland for failing to act more swiftly to prevent Ireland's banking crash in late 2008.

Mr Walsh expressed his regret at how “many families” had suffered from the “era of austerity”. He accepted many mistakes were made by Irish Nationwide, and other Irish financial institutions.

By 2006, it was too late to “completely avoid” the financial crash, he said.

"It is clear, both from the evidence that has been provided to the inquiry so far, and indeed the systemic nature of the crisis, that none of the financial institutions; none of the Central Bank, the Financial Regulator or the Department of Finance and none of the economic bodies, fully appreciated the significance of the global credit bubble and the consequential bubbles, particularly in the property and structured credit markets," he said.

Mr Walsh accepted Irish Nationwide “played its part” in the financial crisis but he said it had sufficient cash in late 2008 to get it through to 2010.

He said the outflow of funds from Irish Nationwide following the State guarantee was €30 million compared with €2 billion at Anglo Irish Bank.

“The version of events portrayed by some is not supported by the facts nor my own experience as non-executive chairman,” he said.

“I am concerned that the popular depiction of the society as being in the poorest financial health of all institutions at the time may hinder the inquiry and the public understanding of the real issues at play.

“For example, at no stage did the society advocate a guarantee for bondholders; because of its liquidity position, the society was not reliant on new bond issues, so this would not have been important to it.”

Mr Walsh told the inquiry that on his initiative, the Irish Nationwide board decided to minimise lending and build liquidity in the immediate period before the crash.

“The reversal of lending growth and the cautious deleveraging were agreed in December 2007, over nine months before the State guarantee,” he said.

Mr Walsh said he met the regulator to explain the decisions and rationale to curtail lending, build liquidity and defer the sale of the building society.

“Clearly the society avoided publicising this because of the potential impact on the market place,” he said. “The regulator was, however, left in no doubt of the society’s deep concern at the threats which were emerging to the banking system in Ireland.”

Mr Walsh said he waited “month-after-month” for the regulator to respond and “to this day I cannot understand why the authorities did not intervene in the markets before the financial crisis broke months later”.

“The inquiry has heard that the authorities were working on contingency plans but did not activate those plans until the crisis broke and it was then too late,” he said.

Mr Walsh rejected the suggestion that Michael Fingleton, the managing director of Irish Nationwide for 38 years to 2009, enjoyed "complete autonomy and was free from oversight" from the board.

“This is contradicted by the documentary record and the facts of the matter. Notwithstanding this level of oversight, it is clear that a non-executive board cannot micro manage the operations of a significant financial institution run on a day-to-day basis by a full-time executive management team.

"In that context, the extent of delegation to the managing director, and the reservations to the board, were in the view of the board entirely reasonable and were well-known to the Central Bank and to KPMG, as the society's auditors," he said.

Mr Walsh described Mr Fingleton as the “Michael O’Leary of his day” and said he was “absolutely” the face of Irish Nationwide.

Mr Walsh said at the time of his resignation it was believed by all involved, including the Central Bank, the Financial Regulator and the directors, including the Department of Finance-appointed directors, that the society would be able to trade through its position without a capital injection, although it would require the ongoing benefit of the Government’s guarantee.

Mr Walsh told how he joined the board of Irish Nationwide in 2001 to help with a trade sale of the society, which was to be facilitated by planned legislation in 2002.

However, it took years for this legislation to emerge and he ended up remaining on the board for eight years, by which time the market had collapsed.