Friday, October 17, 2008
THERE’S an old Chinese proverb about not breaking another man’s rice bowl. It should be applied in many cases to public demands for people to be removed from their jobs.
Often the full facts are not available to those making claims that could destroy somebody’s career and livelihood and have major consequences for his or her family. There are few things more ugly than a mob baying for blood, even if metaphorically.
But there are times when the weight of evidence and the issues involved make it clear that change is required, no matter how upsetting that is to those who are in the public firing line.
The position of the financial regulator is a case in point. Patrick Neary was an anonymous figure until recently. Now his profile is extremely high because of his role in explaining the Government’s decision, taken in conjunction with the regulator and the governor of the Central Bank, John Hurley, to provide guarantees over the deposits and liabilities of Irish banks.
That seems to have been the correct decision, notwithstanding the low price the banks apparently will pay for this super insurance policy.
But there are other reasons why Neary’s position is tenuous. His public performances up until this week had been dreadful. This is important because he is supposed to inspire confidence in the regulation of the system. In recent interviews he blamed the crisis facing the Irish banks on a lack of finance from international banks because of the global credit crunch.
This is only part of the story. He steadfastly refused to accept there was an extra, essential factor at play, that the Irish banks couldn’t get money because they had engaged in reckless lending under his watch.
In retrospect it is clear what he was trying to do. He did not want to admit to a problem — the under-capitalisation of banks that an admission of large unaccounted for bad debts would imply — because the authorities feared it would have increased the pressure on the Government to provide enormous sums to the banks in fresh capital.
Unfortunately, this attempt undermined his credibility because he was denying what everybody else could see. Not surprisingly, Neary was called to attend the Oireachtas committee on finance where he could answer questions on this and other things from politicians.
Incredibly, somebody set that date for last Tuesday, budget day. I’m not suggesting anyone deliberately brought Neary in that day, but the extensive media coverage his appearance deserved was obliterated by the need to cover the budget. Neary almost got off the hook. Fortunately, members of the Oireachtas committee did put him under enormous pressure over his office’s many failures.
It had shown a laissez faire approach, not moving to put curbs in place until it was far too late. His overseeing of the lending policies of the banks relied on their heroic assumptions as to the valuations applied to land and properties, which many people have been pointing out for years were crazy.
He moved far too late to prevent the mis-selling of mortgages — which is what offering amounts seven or eight times someone’s income or more than 92% of the size of the loan amounts to.
That was all bad enough, made worse by his ostrich-like defence of the bank’s balance sheets (although he did start to concede some ground on this under pressure last Tuesday).
There is plenty of talk now about more regulation and supervision, but what confidence can we have that it will applied properly? The tools were there previously but simply weren’t used.
To take just one example. Two years ago the Irish Nationwide Building Society brought a man called David Brophy onto its board as a part-time director. He is the chief executive of Ballymore Properties, a big borrower from the society. There may have been no direct conflicts of interest, but in endorsing this appointment did the regulator not think there might be a risk of bias towards continued property development by the society?
It is also very noticeable that none of the leading bankers in this country has stepped down, as has been happening in other countries.
Michael Fingleton, the 71-year-old boss of Irish Nationwide, is a prime example of someone who should be among the first to go, especially as he is too old legally to serve as a director of the society. He has treated the society as a personal fiefdom. This is emphasised by the fact that it was his son of the same name who just happened to get a senior job in the business and who was caught stupidly soliciting funds in England on the back of the State guarantee, to the consternation of the authorities here.
Fingleton senior engaged in a questionable lending strategy to developers during the building boom and also seduced individuals with interest-only mortgages for investments. It was fine as long as the property bubble kept inflating and was all designed to make the society more profitable and therefore saleable to another bank. That is not what the society was set up to do. The society’s credit rating is now ‘Baa1’, seven below the benchmark ‘AAA’ — a mark of how badly it has been run.
Why does Fingleton continue to keep a job that paid him more than €2m last year? There are many other examples in the banks of people who should pay for their recklessness with their jobs, but again the old proverb about rice bowls come to mind.
Amid all of the hullabaloo about curbing their wages and bonuses, I’ve heard quietly that many bankers at various levels near the top are financially ruined personally by what has happened anyway. I’m aware of two major banks where senior executives borrowed more than €1m from their employers to buy shares in the banks that employed them. Those shares are worth a tiny fraction of what they paid for them but the loans still have to be repaid.
BUT there is still too much tolerance of failure at senior levels in this country — unless you are a sports boss as Steve Staunton and Eddie O’Sullivan will tell you.
Company bosses rarely step down for performance reasons. C&C’s Maurice Pratt was a rare, admirable exception recently when he resigned, admitting to the failure of his plans for growing sales of Bulmers cider. But the likes of Jim Flavin of the DCC tried to cling on even after he had been found guilty of effectively taking advantage of insider knowledge to profit in the trading of shares in a major Irish company.
Perhaps the culture of the lack of accountability was best exemplified recently by the junior minister for the Office of Public Works, Martin Mansergh. During an interview on The Last Word, I asked him about the extraordinary €1.4m cost of a glass sweetshop in the grounds of Leinster House that is only open to Oireachtas staff and in which the chocolate melts on a hot day. The cost is insane given that no land had to be purchased.
I asked him who was responsible and if heads would roll once it was discovered. Mansergh replied indignantly that he was not "Queen of Hearts" from Alice in Wonderland and he did not go round looking for heads. What a wonderland country this is at times, though.
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