Sunday 23 July 2017

IFSC: Three incidents that tarnished hub’s reputation

Joe Brennan

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.

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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