EBS BUILDING society’s chairman and finance director have resigned after the lender made a pre-tax loss of €38.2 million in 2008 and admitted making “mistakes” by moving into development lending in recent years.

Mark Moran will step down as chairman at the building society’s annual meeting in May, while Alan Merriman is resigning as finance director with immediate effect.

EBS said the building society’s board and senior management felt it was “important that they demonstrate appropriate accountability and responsibility to members, Government, staff and the public for the very disappointing results”.

“EBS fully accepts that mistakes were made in becoming involved in development finance a number of years ago,” said Mr Moran.

“The society took corrective action a year ago by ceasing new lending in this area. Nevertheless, although development finance accounts for only 3 per cent of the overall EBS loan book, the losses involved are significant.”

Mr Moran, who is a non-executive chairman, apologised to the building society’s 450,000 members, saying he was sorry EBS was presenting “such poor results”.

The building society has taken a bad debt charge of €110 million for 2008, up from €19.1 million the previous year. This includes a write-off of €69 million on development loans totalling €512 million.

This write-off equals 13.5 per cent of these loans. EBS expects to write off more than 20 per cent of this loan book over two years. Mr Merriman oversaw the building society’s move into property development lending in 2004 and led the growth in these loans primarily through 2006 and 2007.

He said EBS started lending to developers in response to the large profits made by the other banks from this sector and in order to grow profits to invest in new products for the society’s members.

He told The Irish Timesthat there had to be "executive responsibility" for financial performance and that "a non-executive stepping down would not be good enough".

Fergus Murphy, who became EBS chief executive in January 2008, is remaining in his position.

Mr Murphy has taken a 10 per cent pay cut and was not paid a bonus for 2008.

His pay package for 2009 will be €449,000, down from almost €490,000 last year.

EBS board members are also taking a 10 per cent reduction in fees and no bonuses are being paid to directors or managers this year.

Before the bad debt charges, the building society made operating profits of €71.8 million, a decrease of 16 per cent on 2007, and total income of €172.3 million, down 11 per cent on the previous year.

EBS is seeking €300 million in new capital from the Government.

The society’s core tier one ratio – the closely watched measure of a bank’s ability to absorb losses – was 5.5 per cent at the end of 2008. Mr Murphy said EBS has had “positive discussions” with three or four private equity firms about a possible investment to strengthen the lender, but the society’s preferred option was for “a Government-sponsored mutual”.

Mr Moran said lines of communication with Irish Life Permanent on merger talks were open, but that EBS was not actively progressing this following the recent difficulties at that company.

EBS has seen some stress in its mortgages. It had 2,000 mortgages totalling €366 million, or 2.5 per cent of loans, in arrears of more than three months at the end of 2008. This was up from 1,400 mortgages worth €210 million or 1.5 per cent a year earlier.

The society borrowed €3.7 billion from the European Central Bank in December 2008, up from €2.1 billion six months earlier.

EBS aims to reduce this by raising between €500 million and €1 billion through the sale of a Government-guaranteed bond within the coming weeks. The society will be the last of the six covered Irish-owned lenders to raise funding using the Government guarantee.