Michael Fingleton allegedly authorised loans without board seeing application, court hears

The 87-year-old man, who is in ill health after a stroke, ran the Irish Nationwide Building Society from 1971 to 2009, as both its managing director and chief executive

Liquidators for Irish Banking Resolution Corporation (IBRC) have taken the case against Michael Fingleton, who denies the allegation of negligent mismanagement. Picture: Stephen Collins/Collins Photos

Former Irish Nationwide Building Society boss Michael Fingleton engaged in "solo run" lending and approved millions in loans for a failed casino in the south of France, along with the development of a hospital site in Wales, that saw “massive” losses before ever bringing them before the board for sanction, the High Court has been told.

The civil case against former Irish Nationwide Building Society (INBS) chief Michael Fingleton is in its third day before the High Court, where it has been alleged that he negligently mismanaged the building society and engaged in property “gambles” with high net-worth individuals in an informal and speculative manner.

The 87-year-old man, who is in ill health after a stroke, ran the lender from 1971 to 2009, as managing director and chief executive. At its height in 2007, the Irish Nationwide Building Society had reported assets of €16bn, but was a high-profile casualty of the financial crisis of 2008.

Liquidators for Irish Banking Resolution Corporation (IBRC) have taken the case against Mr Fingleton, who denies the allegation of negligent mismanagement.

The losses, relating to property loans, had been estimated by the corporation at €6bn. However, only €250m in damages is being pursued, relating to five loans made by INBS — allegedly approved by Mr Fingleton — who the court was told was also “nodding through” top-ups and extensions to certain clients.

'Cart before the horse' lending

During his opening of the case at the High Court yesterday, Lyndon MacCann SC, for the corporation, said that in 2007 a Luxembourg-registered company called Laurent Properties applied for a loan with the Irish Nationwide Building Society to develop two adjacent sites in the south of France to build a hotel and casino.

Mr MacCann said the borrower valued the property at €7m for the first site, but then applied for a second loan to develop the second site.

Mr MacCann said loans were issued to Laurent Properties without the board having any sight of an application before the money was issued in September 2007, by authorisation of Mr Fingleton.

The court heard that a second loan of €2.1m for the second site was approved by Mr Fingleton again ahead of the board or the bank’s credit committee ever seeing it.

The development never took place and, by the time the bad loans were purchased by Nama for €4.5m in 2010, it represented a loss, interest included, of €5.9m — a discount of 57%.

Mr MacCann said it was “cart before the horse lending” made without security, guarantees, independent valuations, or board approval, which “beggars belief”.

In a separate loan to a British company called Coast and Capital to buy up to 32 petrol stations, a loan of £1.75m had been approved for deposits on site to be bought from oil giant BP in April 2006.

On this occasion, the borrower had been told by Mr Fingleton that the Irish Nationwide Building Society would back the entirety of the project and the society indicated it was prepared to loan Coast and Capital £34.5m — again without board approval or credit analysis — said counsel.

The borrower’s estimation was that the value of all 32 filling stations across England and Wales would increase to £38m with planning permissions secured, said counsel. The following December, £27.4m was advanced by the society for the project without any authorisation from the board and was provided in addition to the £4m for the deposit, said counsel.

'Solo run'

When the second large loan was issued, the number of sites to be purchased to be flipped had already reduced from 32 down to 23, “as they fell by the wayside”, said counsel.

The debt built up on the deal was £30.5m by the time Nama bought them in May 2011 for £11.4m — a loss of 63%. This, counsel said, represented “a complete solo run” by Mr Fingleton.

The court heard of a third deal that incurred “massive losses”, according to counsel, when money was borrowed to purchase and develop a hospital outside Cardiff.

In May 2004, £20m was loaned to a company referred to as Galliard (Sully) Ltd. It was then topped up with a further £5m in May 2006, counsel said.

“There was no profit generated. Instead there was a massive loss. Huge,” said Mr MacCann. Counsel said fatal planning issues included the safe destruction of the hospital’s incinerator — which would cost £2.2m, “more than 10% of the first loan”.

The loans were eventually bought by Nama at a loss of £23.8m, representing a 78% loss, which counsel described as a “huge punt” made on “hope”.

The case continues at the High Court.