The written decision of the regulatory inquiry into Irish Nationwide Building Society (INBS), published on Wednesday, concludes a litany of regulatory breaches occurred in the run-up to the 2008 property crash – as the lender repeatedly issued large sums to developers without proper paperwork, security and internal approvals.
The inquiry panel decided that 27 of the 42 so-called suspected prescribed contraventions (SPC) – or regulatory breaches – INBS was alleged to have committed between 2004 and 2008 were proven.
Its former finance director John Stanley Purcell, alone among five former INBS figures originally subject to inquiry not to have settled or had proceedings dropped by the time case had concluded, participated in 13 of these, it found.
One example case in the report related to a £155 million (€184 million) loan to a borrower (whose name is redacted) to purchase a 7.8-acre site in London in 2007 with planning for 948 flats and commercial and retail outlets and follow-up £26.3 million facility early construction loan.
These breached the lender’s own policies because three-year audited accounts were not sought from the borrower, which was incorporated in 1997, and loans were advanced prior to a quorate credit committee meeting. There was also no evidence personal guarantees, required by INBS when the borrower was a private company, were sought.
The loans would ultimately be transferred to the National Asset Management Agency (Nama).
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INBS also failed to set a formal policy on profit-sharing lending, in spite of warnings from regulators from 2004 that its commercial lending should be “conducted in a prudent and responsible way”, according to the report.
Profit-share lending, where INBS would take a cut of gains from a development project, eventually represented 65 per cent of INBS’s €8.18 billion commercial loan book by the time of the 2008 crash.
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The inquiry concluded that rapid growth of profit-share lending between 2004 and 2008 meant the board could not have properly considered individual loans.
For example, in July 2006 board minutes showed that 40 loans were approved at a single board meeting involving in excess of €450 million. In October of the same year 38 loans totalling more than €500 million were given the nod.
“It is clear that the sheer volume of loans that were presented to the board for approval made it virtually impossible for the board to apply appropriate oversight and rigour in approving these loans,” the report said, adding that the profit-share deals were particularly complicated as they often included repayment moratoriums, up to 100 per cent funding, the use of special-purpose vehicles, and very large sums of money. This made them very vulnerable in a property market downturn.
While the inquiry accepted Mr Purcell was not directly involved with day-to-day commercial lending, it said he was a board member and was aware of regulators’ concerns “that commercial lenders were, in some cases, not obtaining the required information from borrowers in order to properly assess their capacity to repay the loan being provided.”
Between 2008 and 2010, INBS suffered financial losses in excess of €6 billion, leading to a €5.4 billion taxpayer bailout. It ultimately collapsed.
