BUSINESS OPINION:There is no doubt that Michael Fingleton's pension arrangements were extraordinary

CHRISTMAS IS a good time for morality tales – and the story of Michael Fingleton’s millions seems to fit the bill.

Our story begins in 1995, when the Irish Nationwide Building Society set up a separate pension scheme for its chief executive. The new scheme was similar to the existing scheme in that it would pay Fingleton a maximum of two-thirds of his final salary on retirement.

However, it did not remain so for long. In much the same way that Fingleton ended up running the building society as if it was his own private bank, he took control of the pension scheme and ran it as if it was his own personal investment fund. In both cases the key to his power grab was a supine board which he came to dominate after becoming secretary of the society in 1971 at the age of 33.

In much the same way that his greed and stupidity have destroyed the building society, these traits of his also led to the destruction of the millions he built up in his private pension scheme. At least, that is the picture painted in documents released by the Department of Finance to the Dáil Public Accounts Committee last week. It is a picture that would support the view there is little to be gained by going after Fingleton, something the Government has shown a marked reluctance to do. For that reason alone the parable is worth some scrutiny.

There is no doubt Fingleton’s pension arrangements were extraordinary. For a start he personally managed it, making all the investment decisions. This might not be unusual for the owner-manager of a business, but extremely unusual for a bank or a mutual society.

The reason such an arrangement is unusual is the risk that even if Fingleton made a complete mess of things, the society would still have to pay him his pension. As it happens, Fingleton did very well as his own pension fund manager.

The same approach to risk-taking that saw Irish Nationwide rapidly turn into a commercial property lender with a small retail banking group attached saw his pension pot grow to €29.4 million by 2007. A pretty stellar out-turn when you consider that the cost to the society – in terms of cash contributions to his pension fund – was only €4 million. He achieved these returns primarily by investing in bank shares and indeed his problem seemed to be that he was doing too well, as the assets in the scheme – of which he was the only beneficiary – began to far outstrip what could be paid to him on the basis of a pension of two-thirds of final salary.

One solution to the problem was to increase his salary by an eye-watering 8 and 10 per cent a year. When that was not enough, he had the rules of the pension scheme altered to have the massive bonuses he had taken to paying himself included in his pension. His final stroke was to “gold plate” the pension that his spouse would receive should he die. These two unorthodox measures alone increased his entitlements by €14.6 million.

The upshot of all this was that by 2007 he had engineered a situation whereby his accrued pension benefits almost matched the massive pot he had built up in “his” pension scheme through an investment strategy utterly unsuitable for any pension scheme, let alone mutual society.

At this point Fingleton got the society to agree to wind up the scheme and transfer assets to the value of these liabilities – some €27.6 million – into a company owned by him. Why he chose to do it at this point is not clear.

The documents released by the Department of Finance paint one picture, which was that the society’s board finally woke up to the massive risk it was exposed to in terms of Fingleton’s pension. Not only was there the sheer size of it, there was also the fact it was funded almost entirely by big holdings in a handful of the banks, mainly Irish.

If this is the case, the society dodged a bullet, as the assets held in the scheme at that point would have been worth about €4 million, while the liability would have risen to €32.5 million. Fingleton on the other had got his just desserts, with the millions he accumulated through what could at best be described as an unorthodox arrangement disappearing in a puff of smoke.

It certainly looks like poetic justice, but is it enough to call off the dogs on Fingleton, with all his connections to Fianna Fáil? The Government obviously hopes so, but there are a few loose ends, not least the fact that we have absolutely no idea what Fingleton – who was very well positioned to see the wheels coming off the Irish banking system – did with his pension assets once he got his hands on them. That in turn raises the question of whether he was actually some sort of mastermind – or just an avaricious fool?