Further info re Ireland, Depfa and Hypo Real Estate

Further to recent comments I made on Twitter regarding the silence of Dublin & Berlin about what German banks got up to in the IFSC [Irish Financial Services Centre], I have received a number of emails asking for further information. My response to these emails is to simply quote a sub-article of the article that was written about me by Fintan O'Toole in the Irish Times. The article was published on Saturday, 3 April, 2010. 

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The finance manager who tried to play by the rules 

- Fintan O'Toole, Irish Times, Saturday, 3 April, 2010

The experience of this former IFSC banker is a parable of Celtic Tiger Ireland, illustrating the culture of light touch regulation that led the country to NAMA and bank bailouts....

Light Regulation: The lure of the IFSC

Catastrophic as this week's [Irish, JS] banking bailout figures are, they could actually have been much worse. It is a matter of sheer luck that in 2007, before the credit crunch, a Dublin-based bank called Depfa was bought by the German financial group Hypo Real Estate. Very few people in Ireland had ever heard of Depfa. Although it was as German as sauerkraut, it was actually the largest bank in Ireland - bigger than AIB. It was, in legal and regulatory terms, an entirely Irish company. When the financial crisis unfolded, Depfa brought down Hypo. The cost to the German government so far is €102 billion.

The IFSC [Irish Financial Services Centre, JS], where Depfa was based, provides 25,000 jobs, and at its height brought in well over €1 billion a year in taxes. The downside was that, as well as low corporate taxes, part of the attraction for foreign banks was light regulation. And the need to keep these banks sweet reinforced the ultimately disastrous idea that all our regulators should fight in the featherweight division.

Ireland already suffered, as the Dail's [parliament] Dirt inquiry put it, from "a particularly close and inappropriate relationship between banking and the State and its agencies...[who] were perhaps too mindful of the concerns of the banks, and too attentive to their pleas and lobbying".

These lobbies were immensely strengthened by the growth of the IFSC. The problem was that, as well as having many legitimate operations, the IFSC also contained brass-plate tax-avoidance operations that earned it the tittle of 'Liechtenstein on the Liffey' and sharp operators that led the new York Times to label it 'The Wild West of European Finance'. Yet, even after IFSC-based companies were involved in three spectacular frauds - Europe's biggest corporate collapse (Parmalat); a $500 million fraud by the American Insurance Group (AIG); and the largest single collapse in Australian history - there was no attempt to enhance the regulatory regime. Banks like Anglo Irish couldn't be subject to serious regulation without imposing the same rules at the IFSC. And the absolute understanding was that no one at the IFSC was to be given the slightest cause for anxiety.

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It is not for me to comment about who brought who down - Depfa, or Hypo Real Estate, but I do recommend reading these blog postings by David Malone on his Golem XIV blog:

http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart/

http://www.golemxiv.co.uk/2011/01/ireland-was-germanys-off-shore-tart-part-2-the-us-connection/

David McWilliams, an Irish economist, made a very interesting remark when interviewed for German TV (in English)

http://www.youtube.com/watch?v=8RE56XsRmRU

Unpleasantness in Belgium, Silence in Ireland. - David Malone, Golem XIV blog, 12 March 2013

A small storm has begun to form in Belgium this morning. The centre of the storm is a comment made on a Belgian television documentary (begins 26 minutes in) by none other than Jonathan Sugarman, AKA WhistleblowerIRL, whom the Village Magazine called the most significant whistleblower in Ireland.

You have to hand it to Sugarman. He has a knack for giving the authorities heartburn. I wrote an update about his case at the time of the Village Magazine piece which filled in a couple of interesting details.

This time he happened to mention as an example of the total lack of financial regulatory oversight in Ireland during the bubble years the Belgian Bank KBC.  As Sugarman said, just this month KBC Belgium had to give KBC Ireland another €100 million in order to bail it out. To illustrate how KBC had got itself into the state where it is still being bailed out by the Belgian tax payer via its parent company, he told how he himself had been given a mortgage by KBC in Ireland. As he said in the interview,

“When I looked at the forms I had to fill in for KBC Ireland, it was a joke. I could have said I was Mickey Mouse and I work in La la land and I would still have a million euro to buy a house with maybe was woth 200 000 euro. Did anybody ask questions. No. The bank is growing. Where’s the problem.”

Where indeed? What he didn’t say in the interview is that the bank did not actually bother to value the property he was buying before it gave him the mortgage. It looked at the house next door and guessed.

So now given the continued bleeding and rotting going on inside KBC as well as the epic implosion of Dexia and the fact that, as in Ireland, no one has been held responsible, there are questions being asked in Belgium that powerful people don’t want asked.

Back in 2010 I wrote an article about the way German banks used Ireland as a dark pit for doing deals they could not do elsewhere. It was called Ireland was Germany’s Off-shore Tart. It seems she was Belgium’s tart too.

What Sugarman’s story reveals above all is how no one in power, whether that be financial, political or media power, wants any questions asked or truths exposed.  Sugarman has been ignored by everyone in the Irish establishment: his bank, the banks regulator, all the Irish political parties, all the newspapers and I was there when he told his story to one of Ireland’s top TV journalists only to never hear from him again.

Sugarman was the risk manager who resigned from Unicredit when his warnings to senior management, that the bank was routinely failing to hold enough capital to protect depositors from a bank run, were being ignored.

Irish law says clearly a breach of the minimum holdings of even 1% must be notified to the regulator immediately. He was finding UniCredit being routinely 19% short. When he asked an independent company to check his figures they told him the breaches were as high as 40%. This means the bank was short billions. Such a shortfall means if there was run on the bank it would not have a hope of surviving.

Sugarman was ignored and told to stop complaining. He resigned.

A month later Northern Rock collapsed when a run on the bank exhausted its cash reserves. A year later the Irish banks collapsed.

You might have thought the Irish Bank regulator would want to know what Sugarman had to say. You’d be wrong. The Irish regulator has gone out of his way to ignore him. I have been privy to all the emails and correspondence and it is a shameful and tawdry story of obfuscation, lying and threats. Meetings where he was told he could come and tell the regulator what he knew, but that if he revealed any wrong doing by the bank that occurred during the time he was there, the regulator would have to report him to the police. Despite the fact he had been the one trying to raise the alarm.

And so it is that Sugarman has been interviewded by Australian television, Belgian television,Greek television, interviewed by the major Greek newspaper Kathemarini (which is affiliated with the NY Times) which was picked up, written about and made available to an English speaking audience by the noted and respected  British financial journalist Ian Fraser on his blog,

And all the while there has been nothing in Ireland.

If it were just the banks who we had to fight for truth and justice life would be easy. But we are fighting our own political class and our media as well.

We are not all in this together. They are all in it together, against us.  We are on our own.

http://www.golemxiv.co.uk/2013/03/unpleasantness-in-belgium-silence-in-ireland/

Unicredit and the trouble with Dublin’s Cayman-on-the-Liffey - Ian Fraser, 10 Feb. 2013

Ian Fraser, a UK-based journalist who writes & comments for the Financial Times and the BBC - among others, recently wrote about my interview with Greece's Kathimerini (The IHT/New-York Times affiliate in Greece).

 

"In September 2007, a year before Ireland’s banks went belly up, Jonathan Sugarman, risk manager Unicredit Bank Ireland, alerted his bosses and regulators at the Central Bank of Ireland to the fact that Unicredit was in massive breach of liquidity requirements. The law was clear: liquidity cover was allowed to fall to 89 per cent but any lower and a report had to be filed with the regulator and the bank faced a fine. Sugarman identified that Unicredit was operating with cover of just 70 per cent, twenty times less than allowed. But his superiors at the bank and the regulators were intensely relaxed about the law-breaking. After six weeks of being stonewalled, Sugarman decided he had no choice other than to resign, as he did not wish to incriminate himself. Now a whistleblower, he has spent five years seeking to raise awareness of the failures of both the Irish central bank and Unicredit. He was interviewed by Kathimerini, the Greek affiliate of the New York Times."

To read further, please visit Ian Fraser's blog at:
http://www.ianfraser.org/unicredit-and-irelands-dark-heart-of-finance/

Here is the first page of the article as it appeared in Greece:
https://docs.google.com/file/d/0B7sRHdMOz5GVX2ZFTFVheDc1cTA/edit?usp=sharing