Sunday 11 December 2016

IFSC: Three incidents that tarnished hub’s reputation

Joe Brennan

Published 18/02/2010 | 08:56

It's almost five years since the IFSC had its first brush with ignominy, when 'The New York Times' branded it "the wild west" of European finance, when a global reinsurance scandal was traced back to Dublin.

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The tag was slapped on the centre after it emerged that a Dublin-based reinsurance company called Cologne Re, a subsidiary of Warren Buffett's General Re, had entered into questionable reinsurance contracts in 2000 and 2001 which artificially boosted AIG's reserves by $500m.

Reserves figures give investors and regulators a clear picture of an insurance company's financial health.

Last summer, Cologne Re's former chief executive John Houldsworth, was sentenced by a US court to two years' probation, fined $5,000 and ordered to carry out 400 hours of community service. But not before his testimony helped convict five others in America.

In August 2007, Dublin's credibility was dealt a further blow as German state bank Sachsen LB needed a €17bn bailout after its two Dublin-based special purpose investment vehicles, stuffed with US sub-prime investments, were found to have insufficient assets to cover their liabilities. The implosion, just weeks after the sub-prime crisis erupted, resulted in Sachsen LB falling into the hands of larger rival Landesbank Baden-Württemberg.

Just over a year later, as the financial system globally teetered on the brink after the collapse of Lehman, IFSC-based Depfa Bank, a specialist lender to governments and local authorities, had to be bailed out by Berlin and a group of German banks with a €35bn loan guarantee.

Depfa, which was highly reliant on the unsecured funding markets, faced a massive liquidity problem in the weeks following the US investment bank’s demise.

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