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Roundup-Quinn bet big and lost big

Wednesday, October 24 08:24:04

The downfall of businessman Sean Quinn into bankruptcy and the threat of jail in the contempt proceedings taken by the former Anglo Irish Bank can be traced back to his reckless bet on the bank's share price.

Had he not lost E3 billion on Anglo, he would not have had to dip in the cash reserves of his insurance company to cover his early gambling debts; he and his company would not have been fined a combined record amount by the Financial Regulator as a result; he would not have had to borrow more than E2 billion from Anglo to cover his later gambling debts; he might not have lost control of Quinn Insurance; he might not have been ejected from his Quinn Group; and he might not be "dealing with the risk to his liberty" as his new lawyer put it in court last week. His side has maintained, as many small shareholders could also argue, that Anglo hoodwinked him, presenting its financial position to be far healthier than it actually was as markets turned against it during the start of the financial crash in 2007 and 2008.

Quinn and many others may have a case here, but Quinn is being kind to himself. His decision to invest so heavily in the bank, up to 28 per cent at its peak, and by way of a contract for difference (CDF), whereby he only put up a small cash proportion of the overall bet (between a fifth and a third) and was exposed to either the full profits or losses, meant he was betting with borrowings, not cash he had. Quinn in effect called "pot" many times on the Anglo share price, lost and, cash-strapped, turned to Anglo as his ATM. The nature and size of his bet meant he was left recklessly exposed when the share price fell, as it did so dramatically in 2008. In fact, Quinn's own gambling in the stock had in itself a destabilising effect on the bank.

Quinn said last year his mistake was to rely on Ireland's banks and predictions for their continued growth by financial experts. Yet anyone who could be described as an expert in financial matters would point to the craziness of taking such a large position on one company in a highly leveraged bet. The fact that CFDs allow investors to build stakes anonymously meant Quinn did this in secret until he showed his hand in September 2007. By then it was too late - the stake was too high and Quinn too exposed at a time when the deck was stacked against Ireland. The Irish Times

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Investors in two European property funds at the failed investment firm Custom House Capital have been told that winding up the company behind the funds is the cheapest way to recover more than a third of their money on one fund and a fifth on the other. Accountants appointed to manage the properties by the Central Bank last year have recommended investors vote to wind up Custom House Capital Investment Property Funds plc in a ballot by a deadline of November 9th.

Investors were told last week in letters from Horwath Bastow Charleton Wealth Management they could eventually recover E22 million of E55 million invested in the first fund and E6 million of E29 million in the second fund. The firm identified various problems with how the funds were set up and recommended that the cheapest way of returning funds to investors was to have the company wound up via the High Court. Investors face losses of almost E58 million of the E85 million invested in the funds, according to the letters seen by The Irish Times. Without any changes, they face costs of E674,000 compared with E216,000 on the first fund if the liquidation route is followed and E196,000 instead of E593,000 on the second. The bulk of the higher expense relates to compliance costs associated with audit, custodian and administrator fees to meet regulations on qualifying investor funds. The Irish Times

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Irish civil servants have contacted counterparts in Moscow seeking approval for Ryanair to possibly enter the Russian market. It is understood the formal request was sent from the Department of Foreign Affairs in Dublin to the Russian Foreign Ministry as the low-fares carrier considers the move. It's understood the Department of Transport initiated the process at the request of the airline, with Iveagh House acting as the "messenger". The Russian authorities have yet to respond, it is believed. The Department of Transport declined to comment.

The airline remained tight-lipped about its plans, other than to describe them as exploratory. It said Ryanair has had discussions with a number of Russian airports. "We talk to many airports and always keep the door open to new route options; and the best way to do that is by meeting them," the airline said. The Irish Independent

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Eircom's biggest shareholder is looking to raise E2.3bn to invest in real-estate loans after closing a smaller "special situations" fund to invest in troubled property debt. News that the US investor is raising a war chest targeting the property sector will be closely read by bank chiefs here. All of the main banks, as well as NAMA and Irish Bank Resolution Corp (IBRC), have been seeking buyers for their portfolios of real-estate loans. Details remain scarce, but private equity firm Blackstone is known to have looked at Ireland and the assets of Irish banks.

Last year the firm lost out in an auction to buy E6bn of US property loans from NAMA. It has since became the single biggest shareholder in Eircom, after swapping loans owed to its GSO and Harbourmaster units for a stake in the company. The Eircom loans were bought by GSO at a discount before being converted into shares. Now Blackstone is fundraising among investors for the $3bn (E2.3bn) Blackstone Real Estate Debt Strategies II debt fund. The Irish Independent