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The former chief executive of Ulster Bank has told the Irish Banking Inquiry that promoting 100% mortgages was a “detrimental initiative”.
However, Cormac McCarthy denied that the bank was the first in the Republic of Ireland to offer the product.
Ulster Bank’s First Active subsidiary began marketing 100% mortgages in the summer of 2005.
He said by then, rivals banks were already offering the mortgages and he was only “recognising market reality”.
‘Lent too much’
Mr McCarthy added that the financial regulator did not object to the product.
The bank went on to lend about 1bn euros (£745m) of 100% mortgages over the next three years across 4,000 customers.
The parliamentary inquiry, which began in Dublin late last year, is examining the reasons why the Republic of Ireland “experienced a systemic banking crisis” in 2008.
Mr McCarthy, who is now the chief financial officer at bookmaker Paddy Power, told the inquiry that Ulster Bank lent too much money to too few people in the years before the financial crash.
He said the assumptions that underpinned the bank’s lending polices were “seriously flawed” leading to “ill-judged and mistaken” decisions.
Mr McCarthy would not be drawn on his or the bank’s role in one of the most notorious transactions of the the Irish property bubble.
In 2005, Ulster Bank lent the developer Sean Dunne more than 300m euros (£224m) to buy a site at Ballsbridge in south Dublin.
Mr Dunne had planned to create a Dubai-style high rise development in the area but the project did not get the necessary planning permission and the site was eventually repossessed.
Mr McCarthy said he could not talk about it for legal reasons.
He revealed that the executive at RBS, which owns the bank, had encouraged him to get Ulster Bank included in the Irish government’s bank guarantee.
When the Irish banks were guaranteed it led to a huge outflow of deposits from Ulster Bank and into the Irish banks.
Mr McCarthy spoke to the Irish government about getting Ulster Bank included but it soon became clear that it would not be possible.
Earlier, the current Bank of Ireland chief executive Richie Boucher told the inquiry that his bank’s biggest mistake was the way it expanded into the UK mortgage market.
Rather than using customer deposits to fund UK mortgages, the bank borrowed on the wholesale markets.
When the wholesale markets froze during the financial crash it put the bank under huge pressure.
Mr Boucher said it was a “flawed model” to lend money without gathering customer deposits and the bank has now moved away from wholesale funding.
Source: BBC News