In the letter dated November 28, 2008 — three months after the State bank guarantee was introduced — Mr Walsh claimed that Nationwide had a strong capital position and the best option for its staff and members was that it should be allowed continue to operate as an independent financial entity.
“The board believes that the combination of the global credit and liquidity crisis and the undue dependence for such a protracted period at all levels in Ireland on property, make it difficult to develop the non-property elements of the real economy.
“In this difficult environment, the board was surprised that there was such a focus on a consolidation of institutions. The board wondered whether sufficient consideration had been given to the implications of merging institutions at this stage.”
Mr Walsh cited pitfalls of merging institutions including management being diverted by integration issues, which will inevitably lead to higher loan losses. By merging institutions, there will be a smaller pool of deposit taking institutions, which leads to concentration risk and could lead to a flight of deposits.
A change in legal control of institutions could provide an exit route for investors locked into long-term funding. Moreover, merging financial institutions will lead to significant job losses and in the longer term loss of competition, which will affect SMEs and consumer choice, he added.
In a five-year business plan presented to the minister, the board planned to de-risk the balance sheet through a reduction in commercial exposures and “the consequent increase in our already strong capital base.” The pace at which this could be achieved depended on the recovery of the UK and US credit markets.
Mr Walsh said INBS had never paid dividends and had managed its capital base prudently for its members’ benefit, “positioning the society as one of the better capitalised among Irish institutions, not having the same extent of capital issues that are widely speculated about regarding Allied Irish Bank, Bank of Ireland and Anglo Irish Bank.”
The Nationwide chairman said the board would be open to becoming part of a larger group provided that the members’ and staff’s interest were fully recognised. Mr Walsh outlined a series of meetings that had taken place between INBS, Irish Life & Permanent and EBS about forming a ‘third banking force.’
Mr Walsh resigned from Irish Nationwide on February 17, 2009. The building society eventually racked up €5.4bn in losses. It was merged with Anglo Irish Bank in 2009. The combined entity became IBRC, which was liquidated in February 2013 as part of the restructuring of the promissory note deal.
The liquidators of IBRC have taken legal action against Mr Walsh and former chief executive, Michael Fingleton, as well as other executives over their role in the demise of the building society.