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Dáil Éireann debate -
Wednesday, 21 Apr 2010

Vol. 707 No. 1

Leaders’ Questions.

Every day we come here there is another unveiling of a litany of scandal in the financial world. Last year the Government-appointed commission on remuneration recommended that the chief executive of the Irish Nationwide Building Society would receive pay capped at €360,000 per annum. The chief executive was paid €1 million as a bonus in November 2008, after the Government guarantee was introduced. It is well known that the person in question had a personal pension fund of €27 million.

In recent days we have come to understand the level of corporate mismanagement and the lack of control in the Irish Nationwide Building Society. It had a loss of €2.5 billion for 2009 and the management structure and behaviour was described by the new chief executive as an outrage. We know that €1 million was paid to the chief executive as a bonus after the guarantee was introduced and we also know from reports this morning that in the four months before the chief executive resigned in April 2009, he was paid €221,000, or an annual equivalent of €663,000, which is well in excess of the level of remuneration recommended by the Government's own watchdog remuneration committee.

It certainly was not related to performance.

AIB has faced down the Government and appointed an insider, Bank of Ireland has done the same and Anglo Irish Bank has paid certain members of its staff an increased salary. The Irish Nationwide Building Society has ignored the guidelines set by the Government, paying after the Government guarantee a €1 million bonus to the chief executive, along with an annualised salary of €663,000. As Deputy Quinn has reminded me, it was not performance-related.

The banks have snubbed their noses at the high office occupied by the Taoiseach, treating him and his office with utter disrespect. The reason for this is the Taoiseach's complicity in overseeing light regulation or none in the four years he was in the Department as Minister for Finance.

Has the Taoiseach made an instruction on behalf of the Government and the Irish people that the public interest directors within the Irish Nationwide Building Society take whatever course is necessary, including legal action, to recover the €1 million bonus and the excess salary paid over and above the recommended guidelines set down by the Government's own watchdog?

We have made it clear that we fully support the board's ongoing efforts to recoup the bonus from Mr. Fingleton in accordance with the commitment made by the former chief executive.

How is it getting on?

That is our position.

I wish to make it clear to the Deputy that in every respect in which that can be achieved, we will ask the board to act. That is what the present management and board is committed to doing.

The Deputy made a comment last week, 15 April, warning against over-regulation, as it was his latest worry. The headline stated, "Kenny cautions against property ‘over-regulation'." There have been systemic failures in the independent regulatory system we have had and we are conducting a banking inquiry related to that. Those reports will be available to the House and there will be a debate on them. There will be a commission of investigation deriving from that and the terms of reference will come from that process. That is how we can properly assess all these issues and see what lessons must be learned for the future.

In the meantime there have been significant changes to the banking system, including at the top of all the Irish financial institutions. Five of the six CEOs in the Irish financial institutions have left, as have five of the six chairpersons. A process of board rotation is under way in the institutions and there is an entirely new senior management team in Anglo Irish Bank and in the Irish Nationwide Building Society. There have been outside appointments to key senior positions in other financial institutions, such as group finance director and chief group risk officer in AIB. There are public interest directors on the boards of all the banks. There also has been a change in remuneration, with bonuses abolished and salaries capped. These changes have meant the chief executive of Bank of Ireland and the managing director of AIB are on their current salaries, which are smaller than what they were on before. That is proper.

Everything that can be done with the matters raised by the Deputy will be pursued by the management and board of that institution, which is under new management.

What will the Taoiseach do?

I support effective regulation. I asked the Taoiseach if he had written, on behalf of the Government and Irish people, to the two public interest directors, Mr. Kearns and Mr. O'Farrell, on the board of Irish Nationwide Building Society, instructing them to take whatever course is necessary, and as the Taoiseach mentioned, in every respect. This includes a legal action, if necessary, to ensure the €1 million bonus is returned, along with the excess salary over and above the recommendation made by the Government's watchdog.

One cannot have a situation in which the Government wishes to portray an image of dealing with the banks separately from the situation that affects the public finances or the circumstances that face every worker today. I listened carefully to the words of the chairman of the Labour Relations Commission, Mr. Kieran Mulvey, who spoke this morning on Newstalk's "Breakfast Show", on which he expressed his grave concerns about what is happening in this regard. Mr. Mulvey is the person who effected the bridge between the Government and the trade unions in respect of the deal now to be decided on by thousands of workers. Does the Taoiseach not accept that if the Government appears to be powerless to deal with a small number of senior bankers for whom no pain is being taken and who have business as usual, that is, thumbing one's nose at the office of the Taoiseach and the Government——

Does the Deputy have a question?

Is it not difficult for ordinary workers to understand that they are being asked to take pain in the national interest, in a deal brokered between the Government and the trade unions by the chairman of the Labour Relations Commission, when they see a bonus of €1 million being paid after the introduction of the Government guarantee, excess payments being made to the former chief executive and a litany of other matters in that institution and others? Is this not hard to understand when the Government appears powerless to stand in the face of the juggernaut of bankers at senior level and the manner in which they have got their way? Does the Taoiseach accept that the concerns expressed this morning by the chairman of the Labour Relations Commission are valid? Does he not accept that unless he acts swiftly and is seen to be acting——

——that average ordinary people, who must decide on this bridging mechanism, will find it very difficult to accept pain in the national interest when they see a small number of people deriving massive benefits to which they could never aspire?

The Government is acting positively and proactively to try to ensure it fixes the system in which it is clear there have been systematic institutional failures with regard to the banking crisis. This is precisely what the Government is doing. As for the Deputy's position, I sometimes wonder whether it is about maintaining an atmosphere of total negativity here regarding the economy and its prospects and whether that is his priority, rather than trying to see whether the issue can be dealt with.

Taoiseach, that is rubbish. The Government should have been doing that for the last ten years.

Both can be done.

The Taoiseach, without interruption please.

We can do both and we are doing both.

What response has the Taoiseach received from the banks?

The Taoiseach should answer the question.

Deputy Durkan should restrain himself.

As for the matters that were raised today and yesterday, the Government took legal advice from the Office of the Attorney General and section 50 does not deal with this issue at all. It does not empower the Minister to intervene to prevent the bank from making a payment to its own pension fund, which it is required to do to ensure the pension fund can meet its liabilities to all staff.

The Government is powerless.

That is not the case. I hold no brief for any bank executive or bank in respect of these matters. This is what happened. I do not hold any brief for them and nor am I here to justify it.

I believe the public service——

We all recognise the sensitivity——

A Deputy

Why does the Government not withhold some of the money?

Taxpayers will be paying the money.

The Taoiseach, without interruption.

——-about how ordinary people or people in the street will regard this in the context of their own particular challenges and difficulties. However, I am setting out the facts against some of the distortions being put out by Deputy Kenny regarding amounts, whether personal amounts were being paid to Mr. Boucher and all the rest of it.

It is not a distortion to ask if the Taoiseach has written to the public interest directors.

I am explaining the factual objective case.

Does the Taoiseach accept Mr. Mulvey's concerns? That is not a distortion.

The Taoiseach is doing a bad job.

I acknowledge and commend Mr. Mulvey for his work in facilitating the talks on the draft Croke Park agreement, which now must be reflected on by everyone. My point and that of Mr. Mulvey is that this agreement provides us with the means of going forward to build domestic confidence in our economy that is similar to the international confidence that has been engendered by the decisions that are being taken by the Government, many of which are opposed by the Opposition for its own reasons.

Not with deals like this for some bankers.

However, we should be prepared to look at that bigger picture——

Who did it? Who caused the problem?

——and not allow individual issues to colour or detract from what we are trying to achieve for the country as a whole. This is the purpose of what the Government is trying to do and is the reason it has stated clearly that these issues are being dealt with in the context of the banking inquiry.

Is it fair for people to vote on it?

They will be dealt with in a comprehensive way through a commission of investigation, which is how it should be done. There are important questions to be answered in respect of the systemic and other failures that took place in the independent regulatory system.

Is the Taoiseach winning?

In the meantime, however, the Government has a country to run.

The Taoiseach's own backbenchers speak more clearly than he does.

It must get the country moving and we must give confidence to the people that we are going to go forward.

And look after the Taoiseach's buddies.

We will move on to a question from Deputy Gilmore.

The captain of a banana republic.

Deputy Gilmore, without interruption, please.

Look after the Taoiseach's buddies.

Many people have an income of €55,000 a year or less. Many of those people already have lost their jobs or businesses and those who have not have had their pay reduced. All those people this morning picked up their newspapers and read that Mr. Fingleton paid himself €55,000 a month for the first four months of 2009, after he had got the bank guarantee. On top of this, he paid himself €1 million of a bonus that has not yet been paid back. The interesting point about this is that as Members now know, Mr. Fingleton was heading an organisation that will cost taxpayers €2,700 million to bail out. That is almost the total amount of money the Government will be seeking in the next budget. The reason this money is being sought is because of the scandalous way in which that building society conducted its business down the years. The building society was set up to give mortgages to house buyers but instead, it was giving out great buckets of money to approximately 30 people in a process of rolling enrichment or at least that was the expectation.

As I stated in the House yesterday, for some time there had been a degree of discussion in business circles that all was not well in the Irish Nationwide Building Society. Yesterday, I asked the Taoiseach about his period in office as Minister for Finance between 2004 and 2008. I asked him whether he had received reports from the Financial Regulator, the Registrar of Friendly Societies or any State agencies that things were not as they should be with Irish Nationwide. The Taoiseach replied that he had received no such report and he presented Members with a picture that while the banks were running the country, he and his colleagues were sitting around the Cabinet table hearing no evil and see no evil as far as matters being amiss was concerned. Of course he now states there was systemic failure in the regulatory system.

While Members will deal with the regulatory system in due course, I wish to focus on what the Government was doing and specifically what the then Minister for Finance was doing at that time. A letter appeared in this morning's edition of a newspaper from a member of Irish Nationwide, pointing out that he had raised concerns about the building society at its annual general meetings. Yesterday, I drew attention to some comments that I had made in the Chamber in the course of the Dáil debate regarding things I had heard about Irish Nationwide on the grapevine and around the town. When the Taoiseach was Minister for Finance, did he ever hear anything to the effect that things might not be as they should in Irish Nationwide? Yesterday, he told Members he did not get a report from the regulatory bodies or from his officials drawing his attention to any problems in the building society. However, did he ever ask for such a report or did he ever ask any questions? For example, when the Bill to demutualise Irish Nationwide came to his Department in the normal course of events and he was asked for his observations thereon, did he then ask anyone to provide him with a report on what was happening within the society and on how it was conducting its business? Was he lobbied by Irish Nationwide in the run-up to the publication of the legislation to demutualise the society and if so, can he tell Members what was the nature of such lobbying?

First, on the question pertaining to Irish Nationwide and my term as Minister for Finance, I make clear to the Deputy that as I stated yesterday, the issue of legislation came up in respect of the Building Societies (Amendment) Act 2006. That Act pertained to providing an opportunity for building societies to remain mutual or to demutualise. There were meetings between the Irish Nationwide Building Society and the Department of Finance, one of which I can recall from memory attending myself as Minister in the normal way. It pertained to the progress that was being made in respect of the legislation and the input of the aforementioned building society would have been the same as that of others. I also met members of the Educational Building Society in the same way.

As I said yesterday, the question of whether a building society demutualised or not was ultimately a matter for its shareholders and members. The Deputy will recall that there were many small shareholders in Irish Nationwide Building Society at that time who were indicating that they were supportive of a possible demutualisation of the society, but that would be a policy decision for the society, not for me. Therefore, that would be the context in which those issues arose.

Regarding the question of supervision of financial institutions, the decision of this House back in 2003 was to set up an independent regulatory system, as the Deputy knows. That system has not served us sufficiently well, as we now know from all that has happened, but I was not responsible for supervising financial institutions. That was an issue for the independent Financial Regulator. To my knowledge, at no time did the regulator intimate to me that there were issues for legislative change or whatever that should have been considered by me in respect of that society or other financial institutions.

I am finding this a little difficult to understand. The Taoiseach stated that he had certain exchanges with the building society in the run up to the legislation, but reports of the Ombudsman, for example, drew attention to some of the practices going on in Irish Nationwide. At the time, they were described by the Ombudsman as being illegal. I believe that was the term used. They were certainly not good practice.

That building society had moved from being a normal building society lending mortgages to its members to buy houses into large-scale property speculation and lending for it.

Could we have a question, please?

The Taoiseach paints a picture in which he was closeted in his office, he had no idea whatever about what was occurring, he was entirely at the mercy of what the regulator might or might not have told him and he was not told anything. I find it difficult to understand how, as Minister for Finance over a four-year period, the Taoiseach did not encounter the kind of talk that was going on about Irish Nationwide.

We have ended up in a situation with all of the banking and financial institutions. One could say that it came as a big surprise that one or another institution got caught up in this. However, Irish Nationwide was no big surprise, although the scale was. The black hole has turned out to be much larger than anyone had expected. Everyone is shocked at the scale, but no one who knew what was occurring in financial business around this town in recent years was greatly surprised by Irish Nationwide's involvement. The Taoiseach is trying to tell the House that he never heard anything about it even though the Government was preparing legislation for the demutualisation of Irish Nationwide. Incidentally, the Taoiseach stated that the legislation was for building societies as if every building society was involved in it, but the legislation was tailor-made for and designed to facilitate Irish Nationwide. The Taoiseach mentioned the society's members.

Could we have a question, please? We are running over time on Leaders' Questions.

The legislation was tailor-made so as that those at the top of the building society would be the greatest beneficiaries of the demutualisation. The legislation was highly favourable to Mr. Fingleton and some of his close friends in the society.

It was only when due diligence was carried out that it ran aground.

It is all very well to say that we will have some kind of an investigation or inquiry and that we will examine the regulatory system and so on, but the Taoiseach needs to be much franker with the Dáil and the public about the state of his knowledge of Irish Nationwide's conduct over the period during which he was Minister for Finance. It is not credible to suggest that he heard and saw nothing.

I have been fully frank with this House at all times in respect of any questions that have been asked at any time. I have nothing to hide in terms of this matter despite another conspiracy theory that Deputy Gilmore might want to engender today.

The Taoiseach might get caught out saying that.

The Building Societies (Amendment) Act 2006 was not simply about the possibility of a demutualisation of one building society. It was also about ensuring the continued mutualisation of another building society, the EBS.

That is the second point. That is also correct. In fact, the Department of the Environment, Heritage and Local Government would be the line Department in the preparation of legislation in that respect. I was, as Minister for Finance, obviously ensuring——

That was when it was about housing.

I am making the point about where the legislation was brought forward and my role in it. Regarding the other point, the Deputy talks about——

The Taoiseach signed off on it.

——his views, rumours, etc. I deal with the facts as they are presented to me. The issue regarding the financial supervision of financial institutions was a matter exclusively for the independent regulator and IFSRA.

The legislation was not.

Nothing had been brought to my attention that suggested the problem that has now emerged. As Deputy Gilmore has just said in his response, the scale of this is far greater than even he had anticipated, and he had a pretty dim view of it anyway regardless of who was or was not in charge of it. He had a certain view at any——

No one was in charge of it.

No one had a dimmer view than the one that eventually emerged.

To ascribe that foreknowledge to me in the way Deputy Gilmore has done would not be acceptable, true or factual. I have explained fully and frankly everything that I have been doing in respect of that matter and I have nothing to hide in that regard. I will also say that, when the banking inquiry is allowed to proceed and deal with all of these matters, that will seen to be the case.

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