IFSC firm reclassified €3bn of assets
19 December 2010
By Kathleen Barrington
UniCredit Bank Ireland plc, a wholly owned subsidiary of the giant Italian bank UniCredit, was among the banks that availed of emergency amendments to accounting rules introduced at the height of the 2008 financial crisis.
The Irish subsidiary, which is based at the International Financial Services Centre (IFSC) in Dublin, reclassified about €3 billion of assets.
This meant that those assets did not have to be valued at market prices which were then in turmoil.
‘‘Clearly the turmoil in global financial markets deepened significantly during the course of 2008 rendering the group’s operating environment very difficult. In the absence of a properly functioning market for credit assets, the group reclassified €3billion of assets from held for trading to loans and receivables," Ronan Molony said in his chairman’s statement.
UniCredit Ireland showed a profit after tax of €133.6 million in 2008 compared with a profit after tax of €38 million the previous year, the accounts reveal.
The notes to the accounts state that UniCredit Ireland availed of an amendment to International Accounting Standard IAS 39 made by the International Accounting Standards Board in October 2008.
The accounts state the company reclassified financial assets which it no longer intended to sell, to loans and receivables as they are not actively traded and the group said it planned to hold these assets.
‘‘These financial instruments have a minimal recent history of selling due to significantly reduced liquidity and market turmoil," the accounts stated. UniCredit Ireland continued to avail of the accounting treatment in subsequent reporting periods.
Wednesday, December 22, 2010
Monday, December 20, 2010
Little festive cheer for Irish shoppers as supermarket chains profit
19 December 2010
By Kathleen Barrington
Do not be fooled into thinking that a little extra competition in the groceries market has delivered much in the way of value for consumers as we approach Christmas.
The reality is that while the prices of certain goods may have fallen from great heights, Ireland still has the second highest grocery prices in the EU.
Irish food prices are 29 per cent higher than the average in 27 EU countries, according to figures from Eurostat published earlier this year. The figures related to 2009, a period in which Ireland was in the midst of the deepest recession in the EU.
It was difficult for retail sector analysts to definitively identify whether the higher prices were down to higher costs or profiteering. Grocers tend to talk about higher costs, while consumers suspect higher profits are being made.
The easiest way to resolve the debate would be to look at the accounts of the grocers selling in the Irish market, and compare their margins with the margins of those operating in other EU markets.
However, Dunnes Stores, Superquinn, Aldi and Lidl do not publish their accounts, while Tesco’s Irish results aren’t separately broken down by its parent company.
The suspicion has always been that Irish grocers don’t publish accounts because the profits they make are embarrassingly large. But, in the absence of clear financial information about their performance, analysts are left to speculate on the basis of other indicators.
One indicator is the juicy dividend which Dunnes Stores directors paid themselves earlier this year. Dunnes Stores (Northern Ireland) is the exception to this culture of secrecy, as it publishes its accounts for its operations in Britain and the North (though not for the Republic).
The accounts showed that Christmas came early this year for Dunnes Stores directors Margaret Heffernan and Frank Dunne, as they were paid a dividend of £11.9 million
(€14.3 million) for the 12 months to the end of January 2010.
During that period, pre-tax profits rose slightly to almost £28 million (€33.4 million), while turnover increased 3.7 per cent to £194.6 million (€232.6million), according to the account information obtained by the Irish Times.
Those figures would tend to suggest that Dunnes Stores did very well in 2009 - though analysts have cautioned that the businesses in the Republic and the North are not entirely comparable.
This is because the business in the North has a greater home ware and clothing component which results in higher margins, while the economic downturn there was less acute.
Another indicator that times are good for supermarkets here is that Tesco has briefed British stock market analysts about how well it has done in Ireland.
At the half-year stage of 2010, Tesco said Irish sales were up by 7.7 per cent on the comparable period the previous year, while it had enjoyed market share gains and ‘‘strong profit performance’’.
British stockbroker Shore Capital subsequently noted that Tesco made greater profits in Ireland than in any other part of its retail empire, with the exception of South Korea.
The stockbroker said last month that Tesco Ireland’s profit margin would rise in the current financial year to more than 7 per cent - a very generous margin in the retail sector.
German discounters Aldi and Lidl have brought some welcome competition to the grocery sector and, between them, now command almost 10 per cent of the Irish grocery market.
But successive surveys have shown that, while they maybe undercutting the competition here, they are also charging more for groceries in Ireland than in other markets they operate in.
John Ruddy, editor of Checkout magazine, which monitors trends in the grocery sector, said that supermarket prices here were more expensive, but were the result of a much higher cost base.
‘‘Even when we take €1 off the minimum wage, it will still be 8 per cent higher than in Britain. We also have a lot of legacy costs, where everyone in the whole manufacturing and supply chain has traditionally received a slightly larger cut, so it’s unfair just to blame the Irish retailers for high prices," he said.
Irish purchasing power remains relatively high in an EU context. Figures published by Eurostat last week showed that Irish purchasing power remained at 27 per cent above the EU average in 2009, down from 47 per cent above the EU average in 2007.
However, British food prices are 3 per cent below the EU average, even though British purchasing power is 12 per cent above the equivalent EU figure.
The National Consumer Agency engages in occasional price surveys in order to encourage consumers to shop around.
But it has failed to provide consumers with up-to-date comparative grocery price information, which is an ambition of the agency’s.
Last year, it sought to engage with the main grocery retailers to develop an online prices database, but noted that ‘‘the retailers’ current pricing systems do not allow for the provision of sufficiently detailed grocery price data in a common format that would be useful to consumers’’.
The agency appears to have backed-off from forcing such transparency on grocers. In its latest annual report, it said that it had reason to believe a number of retailers were either considering or actively developing online grocery shopping websites, which would complement those already operated by two of the multiples, Tesco and Superquinn.
‘‘If a sufficient number of retailers in Ireland operate online grocery sites, it is likely that a commercially-driven price comparison site may be developed, drawing on information from these websites.
The agency will monitor this situation. Should no such commercial venture emerge in due course, the agency may examine the options for such a site itself."
In the meantime, though, it appears that our supermarkets remain masters of what the grocers call price-flexing, and what consumers might call confusion pricing.
This means that, when the price goes down in one area, adjustments are made in other areas to offset the lost revenue.
Tesco, in particular, is seen as a master of the skill of price flexing.
The savvy investor will know that it makes sense to invest in companies which enjoy pricing power and wide margins.
Unfortunately for Irish investors, however, our domestically-owned retailers are privately held - leaving only Tesco as representing a potential opportunity to hedge against the cost of the Christmas shopping.
By Kathleen Barrington
Do not be fooled into thinking that a little extra competition in the groceries market has delivered much in the way of value for consumers as we approach Christmas.
The reality is that while the prices of certain goods may have fallen from great heights, Ireland still has the second highest grocery prices in the EU.
Irish food prices are 29 per cent higher than the average in 27 EU countries, according to figures from Eurostat published earlier this year. The figures related to 2009, a period in which Ireland was in the midst of the deepest recession in the EU.
It was difficult for retail sector analysts to definitively identify whether the higher prices were down to higher costs or profiteering. Grocers tend to talk about higher costs, while consumers suspect higher profits are being made.
The easiest way to resolve the debate would be to look at the accounts of the grocers selling in the Irish market, and compare their margins with the margins of those operating in other EU markets.
However, Dunnes Stores, Superquinn, Aldi and Lidl do not publish their accounts, while Tesco’s Irish results aren’t separately broken down by its parent company.
The suspicion has always been that Irish grocers don’t publish accounts because the profits they make are embarrassingly large. But, in the absence of clear financial information about their performance, analysts are left to speculate on the basis of other indicators.
One indicator is the juicy dividend which Dunnes Stores directors paid themselves earlier this year. Dunnes Stores (Northern Ireland) is the exception to this culture of secrecy, as it publishes its accounts for its operations in Britain and the North (though not for the Republic).
The accounts showed that Christmas came early this year for Dunnes Stores directors Margaret Heffernan and Frank Dunne, as they were paid a dividend of £11.9 million
(€14.3 million) for the 12 months to the end of January 2010.
During that period, pre-tax profits rose slightly to almost £28 million (€33.4 million), while turnover increased 3.7 per cent to £194.6 million (€232.6million), according to the account information obtained by the Irish Times.
Those figures would tend to suggest that Dunnes Stores did very well in 2009 - though analysts have cautioned that the businesses in the Republic and the North are not entirely comparable.
This is because the business in the North has a greater home ware and clothing component which results in higher margins, while the economic downturn there was less acute.
Another indicator that times are good for supermarkets here is that Tesco has briefed British stock market analysts about how well it has done in Ireland.
At the half-year stage of 2010, Tesco said Irish sales were up by 7.7 per cent on the comparable period the previous year, while it had enjoyed market share gains and ‘‘strong profit performance’’.
British stockbroker Shore Capital subsequently noted that Tesco made greater profits in Ireland than in any other part of its retail empire, with the exception of South Korea.
The stockbroker said last month that Tesco Ireland’s profit margin would rise in the current financial year to more than 7 per cent - a very generous margin in the retail sector.
German discounters Aldi and Lidl have brought some welcome competition to the grocery sector and, between them, now command almost 10 per cent of the Irish grocery market.
But successive surveys have shown that, while they maybe undercutting the competition here, they are also charging more for groceries in Ireland than in other markets they operate in.
John Ruddy, editor of Checkout magazine, which monitors trends in the grocery sector, said that supermarket prices here were more expensive, but were the result of a much higher cost base.
‘‘Even when we take €1 off the minimum wage, it will still be 8 per cent higher than in Britain. We also have a lot of legacy costs, where everyone in the whole manufacturing and supply chain has traditionally received a slightly larger cut, so it’s unfair just to blame the Irish retailers for high prices," he said.
Irish purchasing power remains relatively high in an EU context. Figures published by Eurostat last week showed that Irish purchasing power remained at 27 per cent above the EU average in 2009, down from 47 per cent above the EU average in 2007.
However, British food prices are 3 per cent below the EU average, even though British purchasing power is 12 per cent above the equivalent EU figure.
The National Consumer Agency engages in occasional price surveys in order to encourage consumers to shop around.
But it has failed to provide consumers with up-to-date comparative grocery price information, which is an ambition of the agency’s.
Last year, it sought to engage with the main grocery retailers to develop an online prices database, but noted that ‘‘the retailers’ current pricing systems do not allow for the provision of sufficiently detailed grocery price data in a common format that would be useful to consumers’’.
The agency appears to have backed-off from forcing such transparency on grocers. In its latest annual report, it said that it had reason to believe a number of retailers were either considering or actively developing online grocery shopping websites, which would complement those already operated by two of the multiples, Tesco and Superquinn.
‘‘If a sufficient number of retailers in Ireland operate online grocery sites, it is likely that a commercially-driven price comparison site may be developed, drawing on information from these websites.
The agency will monitor this situation. Should no such commercial venture emerge in due course, the agency may examine the options for such a site itself."
In the meantime, though, it appears that our supermarkets remain masters of what the grocers call price-flexing, and what consumers might call confusion pricing.
This means that, when the price goes down in one area, adjustments are made in other areas to offset the lost revenue.
Tesco, in particular, is seen as a master of the skill of price flexing.
The savvy investor will know that it makes sense to invest in companies which enjoy pricing power and wide margins.
Unfortunately for Irish investors, however, our domestically-owned retailers are privately held - leaving only Tesco as representing a potential opportunity to hedge against the cost of the Christmas shopping.
Monday, December 13, 2010
Bad time for a punt on gambling
12 December 2010
By Kathleen Barrington
Minister for Finance Brian Lenihan may rue the day his party allowed casino banking to get out of hand in Ireland, but that hasn’t stopped him gambling on making the country a low-tax centre for the betting industry.
Lenihan appears to have bowed to requests from the likes of Independent TD Michael Lowry to offer the industry a new licensing framework.
Lowry, who agreed to support the budget at the last minute, had made no secret of the fact that he wanted the government to introduce legislation allowing for the establishment of casinos such as the one proposed by businessman Richard Quirke, a constituent of his in North Tipperary.
Quirke has already obtained planning permission for a €460 million 6,000-square metre casino and 500-bedroom hotel. However, to proceed further, he needs legislative changes, as there is no legislation in place governing the establishment of casinos.
In last week’s budget, Lenihan signalled that ‘‘work under way by the Department of Justice has been progressing on a proper licensing regime which will serve to protect vulnerable people."
A spokesman for the minister played down the suggestion that the move was to please Lowry, saying the initiative came from the Industrial Development Authority which wanted a framework to cover betting exchanges such as Betfair and Betdaq.
Online sports betting firm Betfair last month announced plans to create up to 100 jobs at a new Dublin office.
Lenihan has also proposed that all bookmakers taking bets from Ireland will pay 1 per cent duty on those bets, as betting shops currently do.
‘‘The minister is hopeful that by including the high-growth area of the betting sector, particularly given the increasing prevalence of smart phones, the tax base from betting will be boosted significantly.
In a full year it is expected that the tax yield could grow up to €20 million," briefing material for the budget stated.
‘‘Just as important is the positive signal this measure will convey to international betting operations that have expressed an interest, in or have already invested in, Ireland.
‘‘A location with an appropriate licensing framework coupled with relatively low taxes provide real investment and employment opportunities in this sector.
The details will be contained in the Finance Bill and the proposed amendments to the Betting Act."
Ireland has already benefited from the arrival of certain US companies since the US Congress in 2006 passed the Unlawful Internet Gaming Enforcement Act, which made it illegal for financial institutions to transfer funds between punters and online-gambling sites. The hope is that the country could attract some of those companies to locate here.
Take Pocket Kings, for example. The US company provides technology and marketing consulting services to the online poker industry and to Full Tilt Poker, one of the fastest growing poker sites worldwide. It moved to Ireland in 2006. By 2008,it was reporting pre-tax profits of €8 million on sales of €47 million, according to the latest accounts filed in the Companies Office.
The accounts reveal that founder director Raymond Bitar and director Deirdre O’Shaughnessy shared emoluments of €1.3 million. Bitar is an American entrepreneur with a background in securities trading.
Pocket Kings already employs 221 people at its headquarters in Cherrywood, Loughlinstown, the accounts reveal.
More than half are employed in information technology and marketing roles, with the balance made up of administrative staff.
The company did not respond to a request for comment. But its website states that Pocket Kings is ‘‘a young, growing and ambitious company, and our success depends on our employees. ‘‘We believe that hard work should be rewarded, which is why we offer highly competitive salaries and a benefits package that is second to none.
We reward performance, initiative and loyalty, and many of our benefits increase in value over time because we believe that employees who dedicate themselves to growing our business should share in our success," the site states.
The claim is borne out in the accounts which show that, when directors’ pay is excluded, the company paid out salaries of €14 million giving an average salary of €63,000 per employee.
The prospect of Ireland attracting more well-paid jobs in the gaming and casino sector is being dangled in front of politicians and the public as a way of increasing employment and tax revenues at a very difficult time for the country.
The government in 2008 published the review group’s report Regulating Gaming in Ireland: Report of the Casino Committee.
The committee, chaired by Michael McGrath, a barrister and licensing expert, recommended that consideration should be given to licensing casinos.
It also recommended examining the possibilities of providing a legislative framework for the regulation of online or remote gaming. Pocket Kings was one of the companies that made submissions to the committee.
Then justice minister Michael McDowell didn’t act on the committee’s recommendations after receiving the report.
However, current justice minister Dermot Ahern set up another review group last year, this time staffed only by civil servants who work in the gaming and lotteries department of the Department of Justice.
The objective of the Ahern review is to put in place a ‘‘modern responsive code that recognises the fact that some people gamble and enjoy gambling and at the same time acknowledge that there are inherent dangers involved that need to be addressed, not least in terms of problem gambling."
The view among supporters of legislating for casinos and other forms of gaming is that attempts to ban them are doomed.
They point out that many casinos already operate in Ireland under the guise of private members’ clubs.
They argue that it is better to legalise, tax and regulate the industry rather than have it go underground.
Supporters also point to the size of the industry.
The Economist magazine recently said that the legal gambling market amounted to about $335 billion globally in 2009. Nearly two thirds of that came from lotteries and casinos, while online gambling accounted for just over $25 billion.
Supporters also cite the success of the International Financial Services Centre (ISFC) in attracting foreign banks to Ireland and point to the employment and tax revenues that the IFSC has attracted.
However, those arguments appear far less compelling given the failure of bank regulation in Ireland and the fact that some of the foreign banks that located in the IFSC have gone spectacularly bust.
Then there is the question of betting and gaming being considered socially undesirable because of concerns about gambling addiction, a not insignificant issue given that the country is still in recovery from a bout of property addiction.
However, these issues do not appear to have weighed on Lenihan last week. It seems that after a decade of betting the ranch on banking and property, he sees no reason not to give the gambling industry a go, especially if it keeps Lowry happy.
By Kathleen Barrington
Minister for Finance Brian Lenihan may rue the day his party allowed casino banking to get out of hand in Ireland, but that hasn’t stopped him gambling on making the country a low-tax centre for the betting industry.
Lenihan appears to have bowed to requests from the likes of Independent TD Michael Lowry to offer the industry a new licensing framework.
Lowry, who agreed to support the budget at the last minute, had made no secret of the fact that he wanted the government to introduce legislation allowing for the establishment of casinos such as the one proposed by businessman Richard Quirke, a constituent of his in North Tipperary.
Quirke has already obtained planning permission for a €460 million 6,000-square metre casino and 500-bedroom hotel. However, to proceed further, he needs legislative changes, as there is no legislation in place governing the establishment of casinos.
In last week’s budget, Lenihan signalled that ‘‘work under way by the Department of Justice has been progressing on a proper licensing regime which will serve to protect vulnerable people."
A spokesman for the minister played down the suggestion that the move was to please Lowry, saying the initiative came from the Industrial Development Authority which wanted a framework to cover betting exchanges such as Betfair and Betdaq.
Online sports betting firm Betfair last month announced plans to create up to 100 jobs at a new Dublin office.
Lenihan has also proposed that all bookmakers taking bets from Ireland will pay 1 per cent duty on those bets, as betting shops currently do.
‘‘The minister is hopeful that by including the high-growth area of the betting sector, particularly given the increasing prevalence of smart phones, the tax base from betting will be boosted significantly.
In a full year it is expected that the tax yield could grow up to €20 million," briefing material for the budget stated.
‘‘Just as important is the positive signal this measure will convey to international betting operations that have expressed an interest, in or have already invested in, Ireland.
‘‘A location with an appropriate licensing framework coupled with relatively low taxes provide real investment and employment opportunities in this sector.
The details will be contained in the Finance Bill and the proposed amendments to the Betting Act."
Ireland has already benefited from the arrival of certain US companies since the US Congress in 2006 passed the Unlawful Internet Gaming Enforcement Act, which made it illegal for financial institutions to transfer funds between punters and online-gambling sites. The hope is that the country could attract some of those companies to locate here.
Take Pocket Kings, for example. The US company provides technology and marketing consulting services to the online poker industry and to Full Tilt Poker, one of the fastest growing poker sites worldwide. It moved to Ireland in 2006. By 2008,it was reporting pre-tax profits of €8 million on sales of €47 million, according to the latest accounts filed in the Companies Office.
The accounts reveal that founder director Raymond Bitar and director Deirdre O’Shaughnessy shared emoluments of €1.3 million. Bitar is an American entrepreneur with a background in securities trading.
Pocket Kings already employs 221 people at its headquarters in Cherrywood, Loughlinstown, the accounts reveal.
More than half are employed in information technology and marketing roles, with the balance made up of administrative staff.
The company did not respond to a request for comment. But its website states that Pocket Kings is ‘‘a young, growing and ambitious company, and our success depends on our employees. ‘‘We believe that hard work should be rewarded, which is why we offer highly competitive salaries and a benefits package that is second to none.
We reward performance, initiative and loyalty, and many of our benefits increase in value over time because we believe that employees who dedicate themselves to growing our business should share in our success," the site states.
The claim is borne out in the accounts which show that, when directors’ pay is excluded, the company paid out salaries of €14 million giving an average salary of €63,000 per employee.
The prospect of Ireland attracting more well-paid jobs in the gaming and casino sector is being dangled in front of politicians and the public as a way of increasing employment and tax revenues at a very difficult time for the country.
The government in 2008 published the review group’s report Regulating Gaming in Ireland: Report of the Casino Committee.
The committee, chaired by Michael McGrath, a barrister and licensing expert, recommended that consideration should be given to licensing casinos.
It also recommended examining the possibilities of providing a legislative framework for the regulation of online or remote gaming. Pocket Kings was one of the companies that made submissions to the committee.
Then justice minister Michael McDowell didn’t act on the committee’s recommendations after receiving the report.
However, current justice minister Dermot Ahern set up another review group last year, this time staffed only by civil servants who work in the gaming and lotteries department of the Department of Justice.
The objective of the Ahern review is to put in place a ‘‘modern responsive code that recognises the fact that some people gamble and enjoy gambling and at the same time acknowledge that there are inherent dangers involved that need to be addressed, not least in terms of problem gambling."
The view among supporters of legislating for casinos and other forms of gaming is that attempts to ban them are doomed.
They point out that many casinos already operate in Ireland under the guise of private members’ clubs.
They argue that it is better to legalise, tax and regulate the industry rather than have it go underground.
Supporters also point to the size of the industry.
The Economist magazine recently said that the legal gambling market amounted to about $335 billion globally in 2009. Nearly two thirds of that came from lotteries and casinos, while online gambling accounted for just over $25 billion.
Supporters also cite the success of the International Financial Services Centre (ISFC) in attracting foreign banks to Ireland and point to the employment and tax revenues that the IFSC has attracted.
However, those arguments appear far less compelling given the failure of bank regulation in Ireland and the fact that some of the foreign banks that located in the IFSC have gone spectacularly bust.
Then there is the question of betting and gaming being considered socially undesirable because of concerns about gambling addiction, a not insignificant issue given that the country is still in recovery from a bout of property addiction.
However, these issues do not appear to have weighed on Lenihan last week. It seems that after a decade of betting the ranch on banking and property, he sees no reason not to give the gambling industry a go, especially if it keeps Lowry happy.
Monday, December 6, 2010
Whistling down the wind?
05 December 2010
By Kathleen Barrington
Pressure is mounting on the authorities here to explain what action they took after liquidity breaches by a major financial institution, located at the International Financial Services Centre in Dublin, were brought to their attention by a whistleblower.
A number of international and domestic news organisations are investigating the story after the whistleblower posted details of his claims on the Guardian and New York Times websites. The postings came just as Ireland was at the centre of global media attention, due to our need for an €85 billion bailout from the IMF and the EU.
The whistleblower formerly worked as a risk manager at the IFSC subsidiary of a leading European bank. He claims that in 2007, there were serious breaches of liquidity regulations amounting to billions of euro at the subsidiary.
The risk manager was particularly concerned because the rules stated clearly that any breaches were punishable by a fine or a jail sentence. He says he reported his concerns to the Financial Regulator at the time, but eventually resigned in order not to incriminate himself. He has not obtained employment since.
His allegations were earlier this year highlighted by The Sunday Business Post, the Irish Times and Germany’s Süddeutsche Zeitung, after they were first raised in the Seanad by Senator David Norris, who took the view that the risk manager had honourably resigned.
However, the risk manager remains unhappy at the failure of the government and the regulator here to offer an adequate explanation of what action they took after he reported the breaches.
The risk manager has for months been asking various members of the Opposition to press the government for full answers to his questions, which he feels were inadequately answered when Norris raised the matter.
Labour Party finance spokesperson Joan Burton took up the issue in the Dáil on November 25 after a meeting with the risk manager.
Minister for Finance Brian Lenihan responded that the Central Bank of Ireland was subject to strict confidentiality requirements and consequently did not share information with his department, ‘‘unless the issue gives rise, for example, to some broader financial stability issue’’, which ‘‘did not arise in this instance’’.
He confirmed, however, that in response to Burton’s question, his department had been informed by the Central Bank that an overnight liquidity breach was reported by an institution at the time referred to in the media reports enclosed with Burton’s question.
Lenihan added that the Central Bank had followed up on this liquidity breach with the institution, which rectified the position to the satisfaction of the Central Bank at the time.
The Central Bank also required an external review of liquidity reports submitted to it and the related control environment, he said. This review did not identify material issues relating to breaches of the required liquidity ratios, other than on the date highlighted by the institution, he added.
Lenihan said that the Central Bank imposed liquidity risk management requirements on all credit institutions, and that compliance with these requirements is monitored by a combination of on-site and off-site review and inspections.
He said that all credit institutions were required to complete an annual internal audit review and submit this report to the Central Bank.
He said an external auditor must notify the Financial Regulator if the auditor had reason to believe there were material defects in the financial systems and controls of an institution, or material inaccuracies in any financial returns submitted to the Central Bank.
‘‘The Central Bank of Ireland has confirmed that this matter has now been fully investigated and the Central Bank is satisfied that all liquidity risk management requirements have been complied with, and appropriate steps necessary to prevent any recurrence of this issue have now been taken by the institution concerned."
The risk manager, who wishes to remain anonymous, but who is known to The Sunday Business Post, is not at all satisfied with this response. Writing on his newly established blog, he said the regulator’s own definition of a material breach referred to a 1 per cent deviation from a prescribed ratio.
‘‘The breach reported to the regulator exceeded the regulator’s own benchmark by 1,900 per cent (yes, one thousand and nine hundred per cent), and amounted to billions of euro," he wrote.
He asks whether Lenihan doesn’t find it puzzling that a breach of such magnitude could occur overnight, and what scale of breach would Lenihan deem to be of significance to ‘‘broader financial stability’’.
He wants Lenihan to confirm that the relevant European regulator was notified of the liquidity breach at the bank. He wants to know what the response of the relevant regulator was. And he wants Lenihan to inform the Dáil who carried out the external review and what were its findings.
In another strange twist, he also asks why the Financial Regulator’s liquidity requirements document issued in June 2009 refers to the already-existing liquidity regulations as ‘‘new’’.
He also wants Lenihan to explain why no administrative sanction procedures or prosecutions were initiated.
The IFSC operation at the centre of the risk manager’s allegations is the Irish subsidiary of a leading European bank. The parent bank previously denied to this newspaper that its Irish subsidiary was the one referred to by Norris in the Seanad.
The story is of interest to a wider European audience, particularly to Germany, due to a perception that light touch regulation at the IFSC was a major contributory factor to the problems experienced by a number of German banks which had operations there.
If Irish taxpayers wonder why the EU has imposed such harsh bailout terms on us, then the IFSC is part of the answer to that question.
The Germans are picking up the tab for more than €100 billion in losses, partly attributable to the activities of subsidiaries of German banks located in the IFSC.
The Germans were understandably furious with us even before they had to contribute to the funds to help us bail out our own banks.
For example, Michael Somers, the former head of the National Treasury Management Agency, is on record as saying that he was receiving ‘‘quite a lot of flak’’ from the German delegates at the IMF World Bank meetings as far back the autumn of 2008.
Few in Ireland paid much attention when our government refused requests from Germany for a contribution to the bailout of IFSC-based bank Depfa, even though the full bill for bailing out Depfa might have landed entirely at the door of the Irish taxpayer, had it not been for the fact that it had been taken over by another German bank, Hypo Real Estate - headquartered in Germany - just before it collapsed.
Against that background, it is not surprising that the whistleblower’s allegations have attracted international attention.
He says that, within three days, his blog had attracted 4,000 hits, including 750 from German-speaking countries.
Given the mounting international interest in the whistleblower’s allegations, it will be interesting to see if the government can continue to dodge questions on what was going on at the subsidiary where the whistleblower worked, given the way they have handled him and the few politicians and journalists who have raised questions on this matter.
By Kathleen Barrington
Pressure is mounting on the authorities here to explain what action they took after liquidity breaches by a major financial institution, located at the International Financial Services Centre in Dublin, were brought to their attention by a whistleblower.
A number of international and domestic news organisations are investigating the story after the whistleblower posted details of his claims on the Guardian and New York Times websites. The postings came just as Ireland was at the centre of global media attention, due to our need for an €85 billion bailout from the IMF and the EU.
The whistleblower formerly worked as a risk manager at the IFSC subsidiary of a leading European bank. He claims that in 2007, there were serious breaches of liquidity regulations amounting to billions of euro at the subsidiary.
The risk manager was particularly concerned because the rules stated clearly that any breaches were punishable by a fine or a jail sentence. He says he reported his concerns to the Financial Regulator at the time, but eventually resigned in order not to incriminate himself. He has not obtained employment since.
His allegations were earlier this year highlighted by The Sunday Business Post, the Irish Times and Germany’s Süddeutsche Zeitung, after they were first raised in the Seanad by Senator David Norris, who took the view that the risk manager had honourably resigned.
However, the risk manager remains unhappy at the failure of the government and the regulator here to offer an adequate explanation of what action they took after he reported the breaches.
The risk manager has for months been asking various members of the Opposition to press the government for full answers to his questions, which he feels were inadequately answered when Norris raised the matter.
Labour Party finance spokesperson Joan Burton took up the issue in the Dáil on November 25 after a meeting with the risk manager.
Minister for Finance Brian Lenihan responded that the Central Bank of Ireland was subject to strict confidentiality requirements and consequently did not share information with his department, ‘‘unless the issue gives rise, for example, to some broader financial stability issue’’, which ‘‘did not arise in this instance’’.
He confirmed, however, that in response to Burton’s question, his department had been informed by the Central Bank that an overnight liquidity breach was reported by an institution at the time referred to in the media reports enclosed with Burton’s question.
Lenihan added that the Central Bank had followed up on this liquidity breach with the institution, which rectified the position to the satisfaction of the Central Bank at the time.
The Central Bank also required an external review of liquidity reports submitted to it and the related control environment, he said. This review did not identify material issues relating to breaches of the required liquidity ratios, other than on the date highlighted by the institution, he added.
Lenihan said that the Central Bank imposed liquidity risk management requirements on all credit institutions, and that compliance with these requirements is monitored by a combination of on-site and off-site review and inspections.
He said that all credit institutions were required to complete an annual internal audit review and submit this report to the Central Bank.
He said an external auditor must notify the Financial Regulator if the auditor had reason to believe there were material defects in the financial systems and controls of an institution, or material inaccuracies in any financial returns submitted to the Central Bank.
‘‘The Central Bank of Ireland has confirmed that this matter has now been fully investigated and the Central Bank is satisfied that all liquidity risk management requirements have been complied with, and appropriate steps necessary to prevent any recurrence of this issue have now been taken by the institution concerned."
The risk manager, who wishes to remain anonymous, but who is known to The Sunday Business Post, is not at all satisfied with this response. Writing on his newly established blog, he said the regulator’s own definition of a material breach referred to a 1 per cent deviation from a prescribed ratio.
‘‘The breach reported to the regulator exceeded the regulator’s own benchmark by 1,900 per cent (yes, one thousand and nine hundred per cent), and amounted to billions of euro," he wrote.
He asks whether Lenihan doesn’t find it puzzling that a breach of such magnitude could occur overnight, and what scale of breach would Lenihan deem to be of significance to ‘‘broader financial stability’’.
He wants Lenihan to confirm that the relevant European regulator was notified of the liquidity breach at the bank. He wants to know what the response of the relevant regulator was. And he wants Lenihan to inform the Dáil who carried out the external review and what were its findings.
In another strange twist, he also asks why the Financial Regulator’s liquidity requirements document issued in June 2009 refers to the already-existing liquidity regulations as ‘‘new’’.
He also wants Lenihan to explain why no administrative sanction procedures or prosecutions were initiated.
The IFSC operation at the centre of the risk manager’s allegations is the Irish subsidiary of a leading European bank. The parent bank previously denied to this newspaper that its Irish subsidiary was the one referred to by Norris in the Seanad.
The story is of interest to a wider European audience, particularly to Germany, due to a perception that light touch regulation at the IFSC was a major contributory factor to the problems experienced by a number of German banks which had operations there.
If Irish taxpayers wonder why the EU has imposed such harsh bailout terms on us, then the IFSC is part of the answer to that question.
The Germans are picking up the tab for more than €100 billion in losses, partly attributable to the activities of subsidiaries of German banks located in the IFSC.
The Germans were understandably furious with us even before they had to contribute to the funds to help us bail out our own banks.
For example, Michael Somers, the former head of the National Treasury Management Agency, is on record as saying that he was receiving ‘‘quite a lot of flak’’ from the German delegates at the IMF World Bank meetings as far back the autumn of 2008.
Few in Ireland paid much attention when our government refused requests from Germany for a contribution to the bailout of IFSC-based bank Depfa, even though the full bill for bailing out Depfa might have landed entirely at the door of the Irish taxpayer, had it not been for the fact that it had been taken over by another German bank, Hypo Real Estate - headquartered in Germany - just before it collapsed.
Against that background, it is not surprising that the whistleblower’s allegations have attracted international attention.
He says that, within three days, his blog had attracted 4,000 hits, including 750 from German-speaking countries.
Given the mounting international interest in the whistleblower’s allegations, it will be interesting to see if the government can continue to dodge questions on what was going on at the subsidiary where the whistleblower worked, given the way they have handled him and the few politicians and journalists who have raised questions on this matter.
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