INBS reports losses of €2.5bn

IRISH Nationwide Building Society has reported a loss of almost €2.5 billion for last year, having set aside almost €2.8bn for bad debts.

The figures compare with a loss of €243m in 2008, when the modestly sized society set aside just €464m for bad loans.

The former chief executive of INBS Michael Fingleton walked away with a €27m pension last year, after running the business virtually single handedly for 37 years.

In 2008, he was paid a bonus of €1m, which he subsequently promised to pay back.

Since then Mr Fingleton has been “non committal” in his correspondence with the society about returning the money.

As a result the state has to inject €2.7bn into the business to keep it afloat.

About €8.5bn of the groups commercial loans, or 85% of its commercial loans, will have to be transferred to NAMA to help INBS stay afloat.

Gerry McGinn, who took over as chief executive last June, said closing down the business was “one option” to be considered.

Talks to merge with the EBS have been put on hold and it could be at six months before the group has a clear vision for its future.

Mr McGinn said the group has a strong deposit base of more than €5.3bn, which could be attractive to third parties who might be interested in buying what’s left of the business.

Group chairman Danny Kitchen in his statement described the losses as “massive” relative to the size of the business.

The collapse in property markets was exacerbated by what he described as the society’s flawed business model.

Mr Kitchen said the future shape of the Irish banking system was not clear, and would be shaped by the Government and the EU.

As part of this, he said the society has had talks with EBS, but these were unlikely to conclude in the near-term.

The situation is so serious for the society that€8.7 billion plus isbeing transferred acrossto NAMA, which amounts to 85% of its total commercial lending portfolio.

The society has already transferred loans with a book value of €670m to NAMA for €280m, a discount of 58%, which was the biggest of the five institutions involved in the scheme.

Mr McGinn said the group’s overall discount based on the poor state of the loans will be at the high end of the discount regime and could be over 50% on average.

By comparison the society, which was primarily a mortgage lender before it cranked up its commercial book from 2004, faces little difficulties with its much more modest mortgage book.

The INBS yesterday also disclosed that last year up to 75% of the commercial loans written in Ireland were mainly for development land, the commercial value of which is now virtually zero in many cases.

Among the shocking practices to emerge yesterday at the society was that loan to value ratios (LTRs) of 100% applied in many instances and that nationwide lent the money on the basis of getting up to 50% of the profits made on some of the deals it had funded.