High rollers' losses a fresh hell for banks
THE timing may have been coincidental, but this week's High Court ruling in the Bernard McNamara case and the revelation that Barry O'Callaghan's EMPG is involved in talks with its bankers, which will result in the existing shareholders being virtually wiped out, could well mark the opening of a fresh front in the Irish banking crisis.
During the boom, Ireland's money managers aggressively targeted the newly rich. In 2006 and 2007, Davy raised about €170m from its private clients to invest in EMPG, while in 2006 Davy clients lent McNamara over €98m to help purchase the Irish Glass Bottle site in Ringsend. As we now know, both of these deals turned very, very sour.
Of course, Davy wasn't the only money manager seeking to part the HNWIs (high net worth individuals) from their money with what seemed, at the time anyway, to be very attractive investment opportunities.
In October 2007, Anglo Irish Private Banking wrote to its clients seeking to raise €255m in equity for a property fund. This was to be leveraged up with borrowings to about €600m with most of that earmarked for Arnotts' proposed Northern Quarter. Anglo Irish Private Banking had already teamed up with Niall McFadden's Boundary Capital to pay €65m for a 45 per cent stake in the retailer.
The Northern Quarter has since been shelved and Anglo secured a judgement for €15m against McFadden last month.
There are scores of other such schemes which have also gone awry with heavy losses to investors. How heavy? Davy's 2008 financial statements reveal that the value of client assets had been written down by €3.5bn to €6.5bn.
If the Davy numbers are representative, then the HNWIs could be nursing losses of billions, possibly tens of billions, of euro. If this was ready cash then it's only an issue for the investors. However, it is far more likely that a significant proportion of the money invested was in fact borrowed. That makes it a problem, a very big problem, for the banks also.