Thursday 22 February 2018

Reversal of fortune

Tale of billionaire who went from rags to riches and back again is lesson to all on dangers of excessive leverage

Yesterday's bankruptcy filing in the Belfast High Court represents a truly astounding rev-ersal of fortune for Sean Quinn, once Ireland's richest man with an estimated personal fortune of €4.5bn.

Mr Quinn's rags to riches and now seemingly back again is a truly incredible story. Starting in 1973 with a small gravel quarry on the family farm at Derrylin, Co Fermanagh, close to the Cavan border, the former Fermanagh GAA captain built up an enormous conglomerate that, at its peak, included cement, building materials, glass, plastics, insurance, radiators, hotels, property and pubs.

In its 2007 Rich List, the 'Sunday Times' ranked Mr Quinn as the richest man in Ireland and calculated his net worth at a massive €4.6bn. Now, less than five years later, it's all gone. What went wrong? How did the largest private fortune ever assembled in Ireland disappear so quickly?

Even before the onset of the global credit crunch, the warning signs about the Quinn Group were there for those who knew where to look. In 2001 the Quinn Group had to pump fresh capital into Quinn Insurance after the company took a €20m hit on its investment portfolio after gambling on hi-tech stocks during the turn-of-the-century internet bubble.

Quinn Group's acquisition of plastics and radiator group Barlo in 2004 also set knowledgeable tongues wagging. Tony Mullins, then Barlo's chief executive, and his management team, submitted a €70m bid for the company only to be blown out of the water by the Quinn Group, which offered €84m. The MBO team, unable to justify matching or topping the Quinn bid, took the money on offer and most of them left the company shortly afterwards.

Even at the time, with the construction sector booming as never before, there were many who felt that the Quinn Group had seriously overpaid for Barlo.

Quinn Group followed this up by paying an incredible £270m for the Belfry, the plush golf resort outside Birmingham, UK, in 2005. It then announced plans for a £200m redevelopment of the resort.

However, it didn't seem to matter. Despite apparently overpaying for assets and pursuing a high-risk investment strategy at Quinn Insurance, the Quinn Group seemed to go from strength to strength, reporting pre-tax profits of €433m on a turnover of €1.6bn in 2006.

And then in August 2007 the credit crunch struck and the abundant pool of cheap credit, which had fuelled the breakneck expansion of entrepreneurs such as Mr Quinn, suddenly evaporated. Since then Mr Quinn and the Quinn Group have been under ever-increasing pressure, culminating in yesterday's dramatic developments, the largest personal bankruptcy filing in either British or Irish business history.

The first signs of trouble emerged in late 2007 when it became known that Mr Quinn was punting on Anglo Irish Bank. However, instead of buying shares in the bank, which would have had to be disclosed if his shareholding exceeded 3pc, he used financial instruments known as Contracts for Difference (CFDs) instead. Not alone did the use of CFDs allow him to, perfectly legally, sidestep disclosure requirements, he was also able to purchase CFDs with a small deposit or margin rather than paying the full share price.

Unfortunately Mr Quinn got his timing on Anglo disastrously wrong. What he saw as a profitable, well-run and under- valued bank, was, by mid-2007, viewed by just about everyone else as a lender dangerously over-exposed to an over-heated Irish property market that was about to crash.

This fed through into the Anglo Irish share price which, after peaking at over €17 in May 2007, rapidly went into freefall. Mr Quinn obviously thought that he knew better than the markets. As the Anglo share price continued to fall, instead of cutting his losses, he kept increasing his position in a high-stakes game of double or quits.

By mid-2008 he effectively owned over 25pc of Anglo through CFDs, at which stage he closed out almost half of his CFD position and converted the remainder into a 15pc stake in the troubled bank.

In December 2008, Anglo chairman Sean FitzPatrick and chief executive David Drumm were both forced to resign when Mr FitzPatrick's secret loans were uncovered. This destroyed whatever lingering credibility Anglo still possessed and the bank was nationalised the following month, effectively wiping out its shareholders, including Mr Quinn, who was left nursing losses of €2.8bn.

Even before the nationalisation of Anglo, further worrying signs emerged that all was not well within the Quinn Group when in October 2008 Quinn Insurance was fined €3.25m and Mr Quinn €200,000 by the Financial Regulator for lending €288m to other Quinn Group companies. Mr Quinn was also forced to resign from the Quinn Insurance board.

This set in train a series of events that led directly to the appointment of administrators to Quinn Insurance in March 2010. The administration process uncovered losses of €706m at Quinn Insurance in 2009 and a further €160m in 2010. By the time Quinn Insurance was sold to Liberty Mutual and Anglo earlier this year there was a €496m deficiency in its shareholders' funds, a hole that will be plugged by a 2pc levy on all Irish insurance policies for years to come.

The appointment of administrators to Quinn Insurance, which seems to have acted as a sort of corporate piggybank, marked the beginning of the end of the end of Mr Quinn's control of the Quinn Group. In April he was ousted from the business he had founded 38 years earlier when Anglo Irish appointed a share receiver to the Quinn Group.

Bitter legal combat

Over the past seven months, Anglo and the Quinn family have engaged in bitter legal combat with cases being heard in Ireland, Cyprus and Sweden as the two sides have fought for control of an Eastern European property portfolio.

In a court case being heard in Cyprus, Anglo alleged that one company, which it claimed has assets worth $180m (€131m), was sold to Mr Quinn's nephew Peter Quinn for $1,000 while another company, which Anglo claimed has assets worth $13.5m, was sold to Mr Quinn's son-in-law Stephen Kelly for a laptop computer worth $1,000.

Mr Quinn has vigorously denied the claims, with a spokesperson stating: "Such spurious allegations will be seen for what they really are; yet another attempt on the part of Anglo to blacken the name of Mr Quinn and his family".

Regardless of the truth or otherwise of such allegations, the financial noose was tightening around Mr Quinn. Anglo was due to seek a personal judgement for the €2.8bn, which it claims he owes it, in the High Court next week. By filing for bankruptcy in Belfast, Mr Quinn stands to benefit from the UK's more benign insolvency regime, which allows bankrupts to discharge their debts in just one year compared to 12 years in the Republic.

When in future years business schools present case studies, the story of Mr Quinn and the Quinn Group will surely be drummed into generations of MBA students to illustrate the dangers of excessive leverage. As we survey the wreckage of Mr Quinn's business empire it is clear that what leverage gives, it can just as quickly take away again.

Irish Independent

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