EBS @ 75 facing extinction as a mutual society

If Alec McCabe, the founder of the EBS Building Society what would he make of it as it celebrates the 75^th anniversary of its foundation with the threat of State control pending?

There had been over 20 building societies in the country when McCabe embarked on his venture which was intended to enable civil servants and teachers buy houses because there were no other sources of finance available to them in the early 1930’s. The EBS was to grow its membership to the current level of approximately 440,000.

Merriman and Moran Legacy

While close to 89% of its lending has been in the form of residential mortgages for owner-occupiers, EBS had a €2.4 billion commercial loan book that is a lending catastrophe. Its commercial lending activity began in 1991 but when it recruited a Alan Merriman, a 38-year old former partner and 17-year veteran at PricewaterhouseCoopers, in July 2005, its commercial lending activity intensified and included €500 million lent for land development.

Merriman had executive responsibility for commercial lending. Commercial lending and this was focused on 500 high net-worth individuals and was based on what they describe as ‘property relationship banking’ with many of the transactions in United Kingdom and continental Europe, especially Germany.

The EBS was also burnt badly by the shenanigans of some of Ireland’s many, many rogue solicitors.

By 2008 EBS lending to the commercial sector ceased. The €500 million development land loan book had incurred a loss of €38 million after impairment charges of €110 million. There was also a €95 million bad debt, of which €69 million related to development finance. Furthermore, there was a €15 million impairment charge in respect of a €16 million loan to the then recently nationalised Icelandic bank, Kaupthing.

By 2009, EBS lost a further €78.8 million. It set aside €913 million of its loans for sale to NAMA. The first €144 million tranche of these attracted a 37% discount implying that the discount on the total shipped to NAMA could be €340 million.  The cumulative profit earned by the Society during the tenure of Moran as Chairman and Merriman as Financial Director was €35.7 million.  The cumulative profit in the preceding four years, 2001-05, was €196.7 million.

The Financial Regulator also mandated that Tier 1 Capital was to be 8% and the impact of this is that EBS needs €875 million in additional capital before the end of 2010. Private sources have been unwilling to provide this which means the State is once again the purse of last resort and the State will control the building society.

Alan Merriman and Mark Moran, resigned in 2009. While Moran pocketed €45,400 for his five months service to 29 May 2009, Merriman scooped the jackpot.

Merriman resigned on 10 March 2009. The Department of Finance published the recommendations of the Covered Institutions Remuneration Oversight Committee on 27 February. The CIROC was set up after the Government guaranteed bank deposits and began providing massive public resources to shore up their inadequate capital bases.

The CIROC recommendation for EBS was the chairman would be paid €144,000; the chief executive would be paid €360,000; an ordinary board member would be paid €29,000 and a board member chairing a major sub-committee of the board would be paid €36,000. The salaries of individuals’ reporting to the chief executive were to have been adjusted downwards to reflect these changes.

Merriman, on his departure in March 2009, was paid €629,700 that included an additional a contractual 12-month notice period payment and he was also paid €851,400 as a contractual termination payment. His base annual salary in 2008 was €479.700. Merriman’s pension was also adjusted to include additional service for pension purposes. The foregoing would seem to completely and totally ignore the CIROC recommendations on executive salaries mandated by the Department of Finance.

Fergus Murphy

Fergus Murphy has been the chief executive of EBS since early 2008. Despite the calamitous debacle that he inherited, Murphy was paid €505,800 including a base salary of €465,000 in 2009 – not the €360,000 recommended by CIROC. The Annual Report states that he took a 22% voluntary reduction in base pay effective 1 October 2009. Like the speed limit on Burlington Road, where EBS headquarters is located, the CIROC recommendations are supposedly mandatory, not voluntary!

Cathal Magee

Cathal Magee, the person nominated to be the next chief executive of the HSE has been a director of EBS since 2002. He became a member of the Risk Committee in 2003 and has been chairman of that Committee since 2003 and Chairman since 2005. His cumulative fees amount to €314,500 and, significantly, were €10,500 in excess of Department of Finance guidelines in the case of his 2009 fee.

Alec McCabe would see little to celebrate on the 75^th anniversary of the founding of EBS. He would see its slogan ‘where family counts’ certainly find expression when it comes to the executives of EBS taking care of themselves, notwithstanding the carnage their decisions caused to hundreds of thousands of others.