Fingleton before the Banking Inquiry now...

Thanks Brendan, I hadn't realised you could be a trustee of your own pension and manage it to that extent, thanks for clearing that up.

Hi Derek

I am not an expert, but that is what he did.

I think I was a trustee of my own Self Administered Pension Scheme.

Brendan

Chairman Dr Walsh now giving evidence.

2001 became non exec chairman to oversee the sale.

I expected my role to be relatively short.

The CB and the FR required that I stay in situ

Every year, the CB, FR, DoF, DoE, and the Ministers promised legislation within 12 months.

The Society was much more prudent than other lenders. Average loan duration was 30 months.

We were a net supplier of funds to the interbank market.

We had €3 billion on the night of the guarantee.

We had more conservative lending growth rates than AIB, Anglo, BoSI and Ulster.

We had no exotics, no structured products, and treasury was not a profit centre.

If we had not the funding crisis, by the end of 2007, it would have been sold for around €1.5 billion to €2 billion.

We were the first lender to adapt to the changed environment, and in Dec 2007, the board decided to minimise lending and build liquidity.

I then went to the Financial Regulator with my concerns about the economic system. In early May 2008, I relayed the need, orally and in writing, for urgent leadership to save the Irish financial system. The sooner the intervention, the lower the cost.

One other director in particular and I engaged with the Regulator.

In 2006, the FR threatened to remove our license if we did not have an election for a non exec . This was irresponsible of the FR. It was not done for solvency or liquidity reasons but to facilitate a member who wanted to stand for election. [I thought that this initially was a reference to me, but I didn't stand in 2006. I wonder if he has got his dates wrong? Brendan]

In March 2009, the CB had full information. The New INBS board confirmed that INBS were solvent.

Susan O'Keeffe

You list lots of reasons for failures. But you don't accept any responsibility for them yourselves.

Walsh: Early 2004, Con Power and I met the top two people - O'Reilly and Neary - There were no issues other than normal regulatory issues.

O'Keeffe: The FR calls into question the risk management. And all information on loans come from one person.

Walsh: In early 2008, I met the Regulator and his number 2 and I told them we had stopped lending and to build liquidity.

The reality is that all loans over €1m came to the board for approval.

O'Keeffe : Fingers claims he was portrayed unfairly

Walsh: There is an aura about Fingers. He was almost the Michael O'Leary of the day. He was the face of the Society. All the coverage he got was all beneficial.

O'Keeffe: The Society was involved in a lot of development.

Walsh: In 1992 and 1994 the Central Bank gave us permission to get involved in that area. Before that, we did small stuff. The 1989 Building Societies Act encouraged us to engage in this development.

O'Keeffe: Goldman Sachs said that there could be a liquidity crisis within 11 days. McDonagh said to Beausang (in Sept 2008) - it has €3 billion in cash and it does not have a problem. It's withdrawals are €20m a day. We may need to do something in Dec 2008.

Joe Higgins

The new board of IBRC took a civil action against you and you settled? Why?

Walsh
Sometimes it's better to settle these things rather than defending them.

Higgins
You were quoted that this was the worst decision of your life.

Walsh:
I never said that.

Ciarán Lynch:
Did you try to increase the size of the board

Micheal Walsh: I tried to encourage to board to co-opt a particular individual who shall remain nameless, but the board resisted it. [ I had heard that Walsh wanted me on the board, and that Fingleton objected, so this might refer to me - Brendan]

Con Power resigned, and he was a huge loss.

Lynch: Did anyone challenge the business model of profit shares?

Walsh: There was unanimity within the board after a discussion.

Brendan

Mc Sharry: Were the NAMA valuations fair?

Walsh: I can't answer that. I can't reconcile the valuations . Between April 2010 and Sept 2010, the write-down more than doubled.

I spoke to my successor in relation to our largest loan, and they had an offer of twice what NAMA paid for the loan.

Brendan

Kieran O'Donnell:

Were you independent? Were you just rubber stamping loans?

Walsh: I was completely independent. Not dependent on fee income. Never borrowed money from them. I didn't socialise with Fingers or any of the other directors.

O'D : How did you come to be Chairman?

Walsh: As an academic, I was of the view that Building Societies were going through a bad patch. I had done work for the Building Societies in general. I had also done a a paper for a potential merger of Irish Nationwide. I knew the Secretary of the Dept of Finance through advising them on the sale of Irish Life.

O'D: What was your job when you were offered .
Walsh: I was working with NCB Corporate Finance and Dermot Desmond.

O'D: who invited you
Walsh: in 1995 I was invited to become a non exec by Fingers.

O'D : Why didn't you demutualise like other Building Societies? Why did you wait for the legislation to change?

Walsh: I thought that the legislation would be changed in 2001. In the absence of the legislation, the CB should have been able to use its discretion. But the CB said that we should wait for the legislation to change - they didn't want to use their discretion.

It would have been destabilising to go public as a small lender.

O'D Why did you take the pension off the balance sheet?

Walsh: We got a proposal from the MD. Taking the uncertainty off the balance sheet was good for the society.

Walsh: I can't rationalise the €5.4 billion. We had €8.4 loans. We had €1.2 billion of own funds. So we had €7.2 billion.

The deposits were sold.

Any loss is not acceptable. What did NAMA realise subsequently?

I don't know what accounting tricks were done?

Stan Purcell

Our strategy which was to lend outside Ireland as Ireland was getting too competitive.

Most of our lending was in London which was showing a recovery as NAMA took over the borrowers.

IBRC attempted to make the directors personally responsible for the losses as they claimed we had delegated too many powers to Fingleton. I joined the Central Bank in the proceedings as they had approved the delegation of such powers.

I paid the sum personally to the liquidators for the benefit of the state.

I see no benefit in pursuing the Directors of INBS alone, and not against the others.

In 2005, the new accounting standards reduced our provisions for losses.

Marc McSharry

Purcell:
Lending fell from 2006 to 2007

We were continuously improving our new systems. But the basic loan model was still there.

McSharry: Did you have a sense that things were loose

Purcell: No. But KPMG were setting out best practice e.g. more documentation of what we were doing already.

McSharry: What was the No. 3 account for?

Purcell: Non standard payments. Confidential. The main ones were settlements in legal disputes. Not political disputes. Everything was fully documented. Around 60 cheques written since the euro was introduced. many were routine payments.

Michael D'Arcy

Purcell: We broke the sectoral limits. It was hard not to as we were not a full service bank. We suggested that they should be done on a different basis. We engaged with the Regulator on the issue, but the discussions petered out.

D'Arcy: Who asked for the €1m cap on loans be scrapped in Dec 2007?

Purcell: It was discussed at the board. It probably came from myself. I discussed the matter with the Internal Auditor. It wasn't the way other banks were doing it. It was a good time to do it as there was very little lending. As far as I remember, it was a unanimous decision.

Kieran O'Donnell

Fingers was both CEO and Head of Lending.

Purcell: Correct. He would have been in contact with the commercial lenders.

A good lot of the London lending was to Irish people. Not a majority.

We were solvent on the night of the guarantee. The review of impaired loans in early 2009 was extensive.

I believe that the haircut was excessive. It was 61%. It's hard to give a figure. Many of the London loans paid back the full amount.

Fingers: How were you going to do with the €2.6 billion bonds to be repaid in 2009?

Purcell: We had cut down lending. We had increased our levels of deposits. We didn't expect the credit crunch to last. We thought we would get back to the markets.

Michael McGrath

Internal Audit did two reports on the Credit Committee relating to 2008, saying it was not meeting enough to discharge its duties. Was it functioning properly?

Purcell: But we were doing very little new lending.

The Reuters report said that we were making an accommodation with our creditors, which was not true. Totally untrue.

McGrath: How would a trade-sale have benefited directors and employees?

Purcell: The members and the borrowing members would have got a windfall. There was nothing agreed for the executives. It probably would have been discussed. It would have benefited staff as it did in other demutualisations.

I was on the Assets and Liabilities Committee - which dealt with funding. hedging. interest rate risk.

McGrath: Did Fingers have excessive power and control?

Purcell: He was very knowledgeable . He understood the economy. He was a strong focussed MD. His control was subject to the board.

Pearse Doherty
Did Fingleton have a computer on his desk?

Stan: I don't remember. I am not sure. I don't think so. But his secretary had a computer.