Saturday April 24 2010
I exposed Fingleton’s financial freak show — but the authorities did nothing
Brian Cowen this week denied that he knew about the chaos at the Irish Nationwide, which announced record losses of €2.5bn. He should have read his ‘Indo’ properly, says Bill Tyson
For years, every finance journalist in Dublin knew there was something fishy about the Irish Nationwide. So why, the public wants to know, didn’t they do something about it?
If they had blown the whistle sooner, would we be lumbered with a €2.7bn (and counting) clean-up bill?
Well, in fact, some did.
In September 2008, the Reuters news agency reported that the Irish Nationwide was in talks about its future solvency.
In light of the €2.5bn losses unveiled this week, this seems fairly innocuous.
And the Irish Nationwide at that stage must have been a financial basket case.
But that didn’t stop it doing what it always did when faced with bad publicity — it unleashed the legal dogs of war.
Reuters, the world’s largest news agency noted for journalistic responsibility, was accused of being “malicious” towards a tiny building society.
This is classic libel threat language and strikes fear into the hearts of even veteran journalists who face years of courtroom hell as their careers go down the pan.
To disprove libel, it’s not enough to be right; you have to prove beyond a shadow of a doubt that you are right. And your sources must be prepared to go public and back you to the hilt in a court of law.
Within hours, Reuters withdrew the story. Fingleton and his seat-of-the-pants little banking operation had faced down the world’s largest news agency.
The Irish media got the same treatment. One routine story reported by the Irish Times in 2002 included an unusual quote from a Nationwide spokesman: “Be very careful what you write.” It seemed a throwaway line, but it wasn’t.
It spoke volumes for the Nationwide’s relationship with the media; we had to be very careful.
Despite this, far from ignoring the Nationwide, the media was — and still is — fascinated by Fingleton and extensively covered “safe” stories, such as court cases or annual general meetings.
For anyone who cared to look, it wasn’t hard to get an insight into how Nationwide was run.
Widow Eileen Malone’s nine-year legal battle against the society was well covered in 1998. Nationwide was ruled to be “manifestly negligent” in processing an insurance application taken out by her late husband.
The society admitted to being at fault for a four-week delay in putting through life cover and accepting an uninsured mortgage application.
Yet it fought tooth and nail for nine years all the way to the Supreme Court to repossess the widow’s home!
The case highlighted the strange combination of administrative laxity and legal aggression that was the Irish Nationwide.
Around this time, I was personal finance editor of the Irish Independent and the Nationwide came to my attention.
Readers complained of weirdly high mortgage rates. And almost all were customers of the Irish Nationwide.
An analysis of these rates revealed an interesting pattern — the longer you were with them, the more you paid.
The maverick lender had discovered a neat trick.
When interest rates went down, it didn’t always pass on the cut in full. And as it didn’t tell borrowers what rate they were on either, nobody noticed.
Over the years, this added up. Some ended up paying 10pc at a time when interest rates were generally little over half of that.
The Indo told their stories.
The authorities did nothing. Lenders are allowed to charge whatever interest rate they like. (Alarmed at this, the Indo heavily promoted tracker mortgages, which do protect borrowers.)
The Nationwide went on the warpath.
It fired off legal threats demanding that we hand over details of our sources — something no journalist would ever do.
(I replied once that they had all been “washed away in a flood” — a reference to the Nationwide’s excuse for not handing over documents to the Flood Tribunal.)
The heartland of the Nationwide’s customer base, middle-class rural Ireland, read the Indo avidly and we were soon deluged with more information.
These were self-reliant people who tried to pay their own way in the world. They were farmers, shop-keepers and pub owners, whose sometimes irregular employment status led them into the clutches of the one lender they should have steered clear of.
The Nationwide would give them a loan — at a heavy price. The interest was higher to begin with, became higher still, and if you got into trouble, draconian penalty interest of 20pc a year was imposed. One family struggled to pay interest as high as 36pc.
The Nationwide was the original sub-prime lender.
The first major article triggered information from almost 80 sources. It also triggered a wave of legal threats from the Nationwide, none of which was followed through. If they had, disgruntled customers would have lined up in court to vent their anger.
In 2002, we fired off two more double-page broadsides, among other stories, highlighting the penalty interest issue.
A former Director of Consumer Affairs called the practice “throwing water on a drowning man” and warned of the “social consequences” of charging troubled borrowers 36pc for their mortgages.
There were other consequences as people battled to save their business and family home while being sucked down in a nightmarish spiral of debt.
Marriage breakdown was an issue, as were health problems — cancer, diabetes, heart conditions and mental illness. (Scarily, in today’s crisis, many people have credit card bills nearly as high as mortgages were then — and home loans 10 times higher.)
We also asked why a building society was behaving like a venture capitalist with stakes in risky commercial schemes.
In 2002, the Nationwide bowed to pressure and said it would abolish penalty interest and inform mortgage holders what rate they were on.
The Indo’s coverage also helped instigate a decade-long campaign by members such as Brendan Burgess. Time and time again the society’s flaws were exposed culminating in an unsuccessful no-confidence motion on Michael Fingleton in 2003.
In the Nationwide saga, there was no lack of media coverage or want of effort by concerned individuals.
The only ones who didn’t do their bit were the authorities.
The Central Bank was concerned with “prudential supervision” — ie banking solvency — and didn’t seem bothered that a rogue institution was running amok as long as it continued to make profits.
Now, the banking catastrophe is out in the open, it seems they even got that one spectacularly wrong as well.