A decade ago, Ireland was held up as a model for how the European Union was bringing countries wealth and comfort. The Celtic tiger roared as the low-taxation environment brought billions in fund assets to the nation, creating opportunities in the middle and back office, international companies relocated their headquarters, and Irish firms (and individual investors) expanded outwards.
A decade ago, Ireland was held up as a model for how the European Union was bringing countries wealth and comfort. The Celtic tiger roared as the low-taxation environment brought billions in fund assets to the nation, creating opportunities in the middle and back office, international companies relocated their headquarters, and Irish firms (and individual investors) expanded outwards.
Dublin became a boom town. In the financial world - as well as, to a lesser extent, technology and other sectors - the issue wasn’t about locals getting a job, it was about employers attracting and retaining staff. Salaries rose, property prices rocketed and luxury brands poured into the country. Ireland went from being one of the poorest members of the European Union to one of the richest in the space of a generation.
And then it all went wrong. Much of the country’s prosperity had been built on property and when the credit crunch hit, everyone suffered. Property values reached a peak in 2007, and have seen some of the biggest falls in the world - many properties are now worth less than half what their owners paid for them. Development companies, expecting the boom to last for ever were left with a stockpile of homes they were even unable to sell at a huge loss.
Unemployment started to rise, going over 300,000 or more than 11 per cent of the population. And Ireland returned to its historic status as a net exporter of talented and motivated professionals. The Irish Stock Exchange Index, which had hit a peak of over 10,000 in 2007, fell to a 14-year low of 1,987 less than two years later.
All of this had the obvious effect on the banking sector. While Ireland is home to hundreds of banks, most of the international names didn’t have a huge footprint when it came to domestic retail or property transactions. Instead, it was the domestic banks who had taken on all the debt, and almost all of the risk - although some UK banks did have significant business in the country, simply adding to their woes at home. Following the Lehman collapse, there were significant worries about the same thing happening to the Celtic providers. The Irish Government stepped in, guaranteeing the savings of everyone who had an account with an Irish bank, even those with savings in their international subsidiaries.
Technically, no Irish bank did go to the wall, but it was a close-run thing. As the global crisis began to bite, things went from bad to worse, and state support was needed. A hidden loans scandal at Anglo Irish Bank, where the chairman admitted to 87 million euros of additional debt at the bank led to its nationalisation, while Allied Irish Bank and Bank of Ireland required Government recapitalisation. The cost to the state has run into tens of billions of euros.
And the Government simply couldn’t afford it. Officially, the bank liabilitied are around 109 per cent of the country’s GDP, but this counts all the foreign banks and funds that domicile in Ireland but have few of the problems the locals have - and few of the responsibilities. In reality, the figure is likely to be over 300 per cent,
So it was inevitable that Ireland became the second EU country - after Greece - to require a bailout. At the end of 2010, Ireland received 85 billion euros from a number of resources within the EU and the International Monetary Fund. While this has put a plaster over the wound, there remain fears that it won’t be enough and that Ireland may have to do an Iceland - or at least work quickly to restructure some of its debts.
Politically, the downturn has been a disaster. The Government fell, and while there hasn’t been the violence seen in Greece and elsewhere, there have been serious demonstrations about spending cuts and bankers’ recklessness, while the country has come under intense international criticism over its low-tax environment that some countries say siphon off the revenues due to them.
Surprisingly, though, the institutional finance industry has fared rather well. As global sources of funding dried up, so of course did funding in Ireland. But what appears to have happened is that Ireland has been one of the destinations investors have gone to in their flight to quality.
Total assets under administration in Ireland have reached a record high and are fast approaching the €2 trillion mark, according to the Irish Fund Industry Association. At the same time it claimed that the Irish funds industry is now credited with servicing an estimated 43 per cent of the world’s hedge fund assets.
Figures from the Central Bank and IFIA show that total assets under administration in Ireland hit an all time high of €1.88 trillion at the end of 2010 – up from €1.4 trillion at the end of 2009.
Recently published figures from the Central Bank reported that the value of Irish domiciled investment funds had reached an all high time of €964 billion as at the end of December – up nearly a third (29 per cent) on the same time last year from €748 billion. Some €914 billion worth of assets held in non Irish domiciled funds is serviced in Ireland.
The IFIA also highlights that the Irish funds industry now services a whopping 43 per cent of total assets held in the world’s hedge funds – up from an already impressive 42 per cent, according to analysis of the latest available report from HFM Week.
Gary Palmer, chief executive of the IFIA, says: “This is excellent news and the fact that both domiciled assets have reached an all time high and that fact that Irish funds industry companies now service some 43 per cent of all hedge funds is truly testament to the excellence, innovation and reach the jurisdiction provides.
This growth continues to highlight the opportunities, solutions and efficiencies Ireland offers to the international funds industry.”
It’s now estimated that over 850 fund providers from more than 50 countries use Ireland as their fund domicile and asset servicing centre. While there have certainly been job cuts, the country’s fund industry remains a major player.
But it’s not really the domestic banks that are offering securities lending any more. In an attempt to repay debts and improve their balance sheets, many of the subsidiary businesses of the banks have been put on the market, with the major international players snapping up the business.
In October last year, State Street Global Advisors (SSgA) agreed to acquire Bank of Ireland Asset Management (BIAM) for 57 million euros.
With approximately EURO26 billion in assets under management among more than 500 clients the firm offers a broad range of investment solutions to institutional investors and intermediaries including global fundamental equities, fixed income, cash, asset allocation, property and balanced funds.
“This acquisition enables SSgA to expand its range of investment capabilities to include active fundamental management,” said Scott Powers, president and chief executive officer of State Street Global Advisors.
“As our clients look for more solutions-driven investment management strategies that span the risk spectrum, the addition of this team and capabilities will enhance our ability to deliver on these needs. Like SSgA, Bank of Ireland Asset Management’s investment philosophy is rooted in a disciplined, team-based approach and has a strong track record of excellent performance. We look forward to building on this track record and extending its capabilities to our global client base.”
This was followed by Northern Trust’s acquisition of the fund administration, investment operations outsourcing and custody business of the Bank of Ireland Group, Bank of Ireland Securities Services (BOISS).
Northern Trust has paid around €60 million (approximately US$82 million) to acquire the business.
“Ireland is one of the largest European domiciles for cross-border fund administration,” says Northern Trust chairman and chief executive officer Frederick H. Waddell. “We look forward to combining this business with our existing activities in Ireland and continuing to provide the exceptional client service and solutions for which Northern Trust and Bank of Ireland Securities Services are both known.”
Following the completion of the acquisition, however, Northern Trust transferred many operations over to London, including its securities lending services. Jobs are being lost in a market that has already seen huge cutbacks.
And it’s unlikely to end there - while the underlying business continues to grow in Ireland, the country’s domestic banks are on their knees and simply unable to compete.
