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A Regulator who regulates… that’d be nice. April 9, 2010

Posted by WorldbyStorm in Economy, Irish Politics.

You’d have to wonder at the advice Sean Quinn is getting, or whether he is availing of any at all. Because there is such a massive disconnect between the rhetoric and certain analyses of this situation that are available.

Simply put pressure is being put to make the Regulator rethink an approach to Quinn Group which would see the fully nationalised Anglo Irish Bank take it under its financial wing. Or to put it another way, to take the €2.8bn debt that the Group has incurred – in no small part in purchasing shares in (doh!) Anglo Irish Bank – and try to work through it, using Anglo Irish. The problematics are rife.

Firstly it’s not as if Anglo Irish appears itself to be in any shape to assist. Secondly, why not other banks stepping up to the plate… or is it that no other ones would do so – the answer to that question being crucial to understanding the situation. Thirdly, there is the small matter that this would then essentially be yet another taxpayer bail out, and directly enough at that, of private enterprise.
Quinn himself plays the injured (near) innocent (and I’m all for sympathy, but some of the statements at the weekend, given the context were bizarre).

I feel disappointed in myself, to have allowed it to happen. I feel disappointed that we bought so many shares and just got it wrong . . .
“I feel disappointed that we weren’t allowed to sort it out without this sort of controversy and without this hassle,” he said.
“We should never have got ourselves into it. We were wrong. I believe he [the Financial Regulator] took the wrong action. I believe the regulator himself should have met group directors. I don’t believe it should have arrived in court and us not knowing anything about it.” Mr Quinn said he had not even met the “No 1” or “No 2” in the regulator’s office.


Asked whether his actions in running Quinn Insurance and buying shares were based on someone else’s advice, he said: “No, I wouldn’t be blaming anybody only myself. It was my idea to push forward and buy shares.”
He said his family had even asked why he was buying shares in other companies when he had no control over those companies.
“I accept that we are technically wrong, but there is nobody . . . saying we haven’t got a very good model and a proven track record making money, so if we have, why put us into administration?”

There’s a problem with that analysis. A deep deep problem. It would appear that this isn’t simply a process of being ‘technically wrong’, whatever that may mean. If one reads a piece by John McManus from Monday in the Irish Times one would be hesitant in the extreme at accepting Quinn’s argument.

In the news and in several subsequent interviews, he has gone on at length about the profitability of Quinn Insurance, which he tells us makes profits of €20 million a month, and which in theory will allow him repay the Quinn Group’s €4 billion of debt.

The first point to make here is that Quinn Insurance does not meet the solvency requirements set by the regulator and has a history of not doing so. The Government allows companies sell insurance provided they obey certain rules, the most fundamental of which is the requirement to have enough assets to meet your liabilities. One of the ways you do this is set aside some of your profits.

Anyone in insurance will tell you that it’s much easier to make profits if you don’t meet your solvency targets. The trouble is that if you are not meeting your solvency targets you are not running an insurance company, you are running something else. And it’s something that might not have the wherewithal to meet its commitments.

That in turn is not something that the Government can let you do if it’s serious about protecting its citizens. In fact its something they should take off you before people get hurt, including the employees.


The only amazing thing about Quinn Insurance – and sadly it’s not that amazing in the Irish context – is that the company was not seized years ago. Mr Quinn’s decision to use the reserves of the insurance company to finance his disastrous foray into Anglo Irish Bank shares should have been sufficient grounds to seize the company in 2008, demonstrating as it did his blindness to the prudential fundamentals of insurance.

Over and above that, the whole – and as yet unexplained – thinking behind taking a secret 28 per cent stake in the country’s third-largest bank should, as a minimum, have shown an approach to investment at odds with running an insurance business. Never mind what it said about an attitude to corporate governance.

But more importantly, if that were possible:

The second point on which Mr Quinn needs to be wised up on is that his folksy code of “if I make a mistake I will fix it” does not actually cut when you have helped wreck a bank that will end up costing €20 billion to put down, never mind save.

When the consequences of that include putting in jeopardy an insurance company that one million people count on and that 2,400 work for, “I made a mistake, I will fix it” just sounds like the recipe for mashing up what is left of the business.

And the coup de grace?

The third thing that Seán Quinn needs to grasp is that the fact that he lost €3 billion on shares – most of which went on a disastrous investment in Anglo Irish Bank shares – makes him even less qualified to be let near an insurance company. But, by his tortured logic, the scale of his losses should engender some sort of empathy and lead to us giving him a further chance. It’s crackers.

Indeed. That these issues can be dismissed as ‘technically’ wrong demonstrates that little has been learned over the past four or five days.

Problem is all that comes next, and as McManus recognises…

The real issue is how to save Quinn Insurance, because if it goes down the unintended collateral damage will be huge. Not only are jobs at risk, there is the nightmarish scenario of what happens to the health insurance market if Quinn Insurance flounders. Private health insurance is one of the creaky pillars on which the health service is built. Withdraw cover from 400,000 people and the whole thing falls over.
The preferred solution is to find a buyer for Quinn Insurance as quickly as possible and before the whole thing unravels as its bankers and customers take flight. An international buyer would be preferable because it would shift the risk on to their balance sheet and away from the State.


The other alternative is for the State to take it on to its already rather stretched balance sheet via Anglo Irish Bank, which is owed €2.8 billion by the Quinn family and has a charge over the family’s assets. But Anglo is in deep enough trouble as things stand without also turning it into a lifeboat for Quinn Insurance.

Indeed. And Simon Carswell in yesterday’s Irish Times noted that:

The root cause of Seán Quinn’s debt problems and the difficulties at Quinn Insurance stem from the decision of the businessman and his family to take a highly leveraged position in Anglo Irish Bank.
It was a disastrous investment which together with some other share investments have cost the Quinn family losses of €3 billion. Quinn has only reluctantly – and on an entirely unsatisfactory drip-feed basis – released details of the impact of that investment and how owning an indirect stake of more than a quarter of the State’s third largest bank has undermined one of Ireland’s largest insurers.


Yesterday brought a little more disclosure from Quinn – a statement from his overall business, the Quinn Group, said that “due primarily to equity losses of circa €3 billion outside of the Quinn Group, the Quinn family owe Anglo Irish Bank €2.8 billion”.
In other words, the bank in which the family lost most of the €3 billion in equity investments gave loans to cover those losses. This confirmed what had been suspected for a considerable time.

This is, by any reckoning astounding stuff. At what point does the Quinn Group begin to soak up the losses that are made in a supposedly ‘free’ market (and interesting that this mornings Irish Times editorial points to that small issue)?

And Carswell echoes McManus in terms of the acuity of the Regulator…

The difficulty for the Quinn Group and its 5,500 employees is that the reality is only now dawning on the group’s founder that the business is in severe financial difficulty when it appears to be too late to find a solution for his beleaguered Quinn Insurance.

The regulator told the court last week that it had “grave concerns” in respect of “the financial position of the insurer, the manner in which it has been, and continues to be, managed and its inability to comply with supervisory regulations in a material respect – namely the obligation to maintain an adequate solvency margin”.

Ever since Quinn Insurance was fined €3.25 million – and Quinn €200,000 – by the regulator in October 2008 over loans to help fill the hole left by his Anglo losses, the regulator has had concerns about the solvency of the insurer as it fell below the thresholds for how much it must hold in reserve.

That small fact that as far back as 2008 our formerly ‘soft-touch’ Regulator saw its way to fining Quinn Insurance is telling. That, as Carswell notes… The company has, since October 2008, been a repeat offender when it comes to holding proper reserves in a company that is the largest Irish-owned insurer covering the lives, cars, homes, businesses and liabilities of one million customers… is near impossible to explain rationally. Unless, unless, we put aside all the cant about the rigour of the market, the inherent and intrinsic logic of it, and we see this as a vehicle for a personality.

Which leads to a further point by Carswell…

The regulator is also unhappy with how the company is being managed – a problem that will only be solved if the profitable insurance firm is taken out of the management of the wider Quinn Group and sold to another party.
This could prove disastrous for the State given that Anglo is at the back of the queue – behind the other banks and bondholders who are owed €1.2 billion by the Quinn Group – on its €2.8 billion in loans when it comes to being repaid.

And the outlook?

Minister for Finance Brian Lenihan, the bank’s shareholder, has charged Anglo’s new management team with devising the best commercial solution that will lead to the best financial outcome for the State. As mad as it may seem, this could involve the State taking control of Quinn’s group and the largest Irish-owned insurer.

Yeah, that seems to qualify under the definition of madness.

This could also appease the politicians who have been lobbying desperately to save the 5,500 jobs at the wider Quinn Group, including some 2,500 jobs at the insurer. However, Financial Regulator Matthew Elderfield has already taken the nuclear option by turning to the High Court and administration. This is the first public flexing of his muscles following years of lax regulation and a banking meltdown that has crippled the State. A compromise will prove very difficult to reach before next Monday’s crunch court hearing.

Let me say a kind word for Brian Cowen, something not often heard around these parts… he was dead right last evening when he said:

“Every person has a role to play here [in resolving the issue]. But the independence of the regulator is respected obviously,” said Mr Cowen.

“There are issues to be addressed in that respect and all the discussions that are taking place is an effort to find a solution and meet those sort of requirements.

Asked if taxpayer’s money would be used to bail out the group, Mr Cowen said: “The Minister for Finance has pointed out the need to see in what way a solution can be found that best protects the taxpayer in this whole situation.”

One hopes he can hold that line… particularly the last one about the taxpayer.

Although perhaps he knows better than most that yesterday’s business hero may strike a quite different pose today. Think of one S. FitzPatrick (and while we think of that, myself and Conor McCabe were just saying last night how incredibly few names are coming up in relation to Anglo and yet how vast the sums that are being discussed. Think about it. Think about the fact that only a few individuals can be at the centre of actions that dictate the socio-economic and political direction of this state for decades to come. And affect me, you, my child, yours, or your parents, or your friends, or your neighbors. All of us. There’s something so profoundly wrong about that, and yet.. who is going to pay and what penalty could possibly come close to matching the pernicious outcomes? I think we all know the answer to that).

Meanwhile it seems the Regulator may be approaching this with something approaching zeal. A zeal that sees the Office of the Director of Corporate Enforcement and the Garda Síochána entering the picture. A development which speaks of the seriousness of this issue, and again the disconnect between rhetoric and reality.

It’s essential that the Regulator, well, regulates. We’ve had sufficient of the alternative to see how that goes. Indeed the present situation, as McManus notes, is in no small part directly attributable to too little regulation. Clearly workers must be protected, it doesn’t take a genius to posit some alternatives that would be much more palatable both economically and more broadly societally, but that in itself doesn’t mean that a long hard look shouldn’t be taken at the personalities and structures that have led to this situation.

There’s nothing ‘technical’ about that.


1. EWI - April 9, 2010

I think that there would be riots in the streets if a PMPA-style levy were to be imposed to fund Quinn’s own personal little NAMA.

Btw, how can an insurance company confidently say that it has plenty of money?


2. EWI - April 9, 2010

And, while I’m at it, anyone else disgusted at the fawning coverage that RTÉ etc. are giving the Quinn rent-a-protest, in contrast to how public sector workers have been treated?

It’s an amusing past-time to Google for the names of Quinn ‘worker spokespersons’ to see in each case whether they’re Quinn management or Quinn PR staff. And to marvel at the amazing protest-organisation skills of a (non-union) Quinn workforce.


3. Terry Quinn - April 9, 2010

Just what is Sinn Fein’s position on this? There was fighting words from Jack Crowe last week at the GPO but Michelle Gildernew was on The Last Word yesterday basically defending Quinn. Does an Ulster accent and a GAA record give you a bye in terms of being a financial gambler these days?


4. Tomboktu - April 9, 2010

This morning’s headline in the Irish Times may bring some balance to the fawning:
Regulator may refer Quinn Insurance to Garda Síochána


5. Paul Moloney - April 9, 2010

“And to marvel at the amazing protest-organisation skills of a (non-union) Quinn workforce.”

Especially all those uniform well-printed placards on those “spontaneous” demonstrations.



6. Joe - April 9, 2010

“Especially all those uniform well-printed placards on those “spontaneous” demonstrations.”

Ah I see now. So the Quinn demos are really another SWP front?


Dr. X - April 9, 2010

Wrong font, comrade.


Tomboktu - April 9, 2010



7. Dr. X - April 9, 2010

Joking aside, am I alone in thinking that there’s more to this than meets the eye?

As I understand it (and I’m open to correction) Quinn has come very close to losing his shirt dabbling in Anglo speculation. . . and yet the plan seems to be (unless I’ve misread it) to have Anglo-Irish Bank take over large sections of Quinn insurance.

This seems a most peculiar route to take, given what Anglo-Irish Bank is, and was, so. . . What am I missing here?

(I mean apart from my marbles)


8. Eoin - April 9, 2010

One of the most vital statements by Quinn has not been picked up here: “I believe the regulator himself should have met group directors. I don’t believe it should have arrived in court and us not knowing anything about it.”

This goes to the heart of capitalism in Ireland: the personal touch. Quinn believes that if the regulator had come knocking on his door, it was the personal charm of the directors that would make him realise that all is well at Quinn Insurance. Never mind what the books say, these guys seem like good people.

As for the motivations of the workforce in making their interests heard, it is partly out of a genuine fear of losing their jobs but more a misplaced sense of loyalty to Sean Quinn who can just as easily run his business from Poznan as he can from Fermanagh and Cork. A union itself couldn’t organise these protests better. Did you see the number of buses he hired?


Tomboktu - April 9, 2010

I stumbled across some of the Quinn employees as I was heading through Dublin to a meeting, and I was struck by the number of corporate visibility vests. Do the combined Ryanair and Aer Lingus ground staff have as many?


9. Tomboktu - April 9, 2010

Karl Whelan makes an interesting point elsewhere:

We are where we are in large part due to very serious regulatory failures. If the first time our new regulator steps in and deals with what he sees as serious failures to comply with regulations, there is any sense of the government (any arm of it) stepping in to protect those who failed to comply, then this would do serious damage to our attempts to build an image of having made a fresh start on the regulatory front.


10. Captain Rock - April 9, 2010
WorldbyStorm - April 9, 2010



11. DC - April 9, 2010

So will the State have to resuce the financial industry every generation now? PMPA, Insurance Corporation/AIB?

Or perhaps they should invent a special kind of bankruptcy for Quinn like they did for Larry Goodman.


WorldbyStorm - April 9, 2010

That’s clearly the idea 😦


12. irishelectionliterature - April 10, 2010

Theres a feeling out there… ‘of all the guys to get caught, its Quinn’ who I’d imagine are of far more systematic importance to the economy than feckin Anglo ever were.
You’d wonder who else (aside from the whole country) will the horid tentacles of Anglo bring down.


13. sonofstan - April 10, 2010

Quinn has presented this as ‘if the regulator gets his way then 5,500 lose their jobs’ even though ‘the company is basically profitable’ – if the company, or most of its components are solid, then the administrators will have no problem finding buyers, and all those people keep their jobs. Except one. Sean Quinn – the man who actually jeapordised all those jobs by gambling with the company’s money. This is about saving one person, not 5,500.


14. Ian - April 11, 2010

This is going to be politically damaging for Brian Cowen. He will either be blamed for bailing out Quinn or he will get it in the neck for losing 5500 jobs. His involvement in the making of this decision will be quite peripheral but it will reflect on him either way.

Some may even feel sorry for him…


15. Tomboktu - April 12, 2010
16. ado - April 13, 2010

anyone who thinks that sean quinn wont be saved is a fool


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