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INSIDE THE WORLD OF BUSINESS

Founder unlikely to be part of Quinn Insurance rescue

THE ISSUE of the future ownership of Quinn Insurance (QI), which celebrated its first birthday in administration last month, appears close to reaching a conclusion.

The most likely outcomes don’t foresee any continuing role for Seán Quinn – who lost €3 billion on Anglo Irish Bank and other share punts, jeopardising the future of his group and the livelihoods of 5,700 staff – in any of his businesses.

A joint venture proposal from State-owned Anglo Irish Bank and US insurer Liberty Mutual (whose interest was first reported in these pages last year) seems to be in pole position. Insurer Zurich is also in the mix.

The Anglo-Liberty proposal is complex. It involves a clean-up of the inter-company debts within the Quinn Group that triggered the Financial Regulator’s concerns over the solvency of the insurer and the administration.

It also aims to satisfy the banks and bondholders (who have swelled in number to more than 30). They are owed €1.3 billion and will have to be relieved of about €500 million on guarantees provided by QI subsidiaries.

Then there is Anglo, which is owed a whopping €2.8 billion – about €500,000 per Quinn Group employee – by the Quinn family.

While a sale of Quinn’s customer renewal rights – aka “the forward book” – to an existing insurer may have been the cleaner option, this would inevitably lead to more job cuts among the 1,600-strong workforce at QI.

Quinn has his own proposal, which would involve the taxpayer – through Anglo – providing a €650 million bailout to QI so he can repay the €2.8 billion after seven years. This option doesn’t involve any interest payments on Anglo’s debt and is not thought to be a runner.

Everything is waiting on Michael Noonan to press a button. At that stage it will become clear if Seán Quinn will go quietly or resort to litigation to try and hang on to his empire.

AIB to reveal big picture of how small it will be

THE FOCUS at today’s 2010 results presentation at AIB will be less on the financial details around last year’s performance and more on how the bank plans to restructure.

As the second of the Government’s two planned “pillar” banks – combined with building society EBS – AIB requires major repair work with speculation (now more than a year old) that the bank will shed 2,000 jobs.

Internal plans were already afoot last year to cut about 1,500 jobs. Many of these were going to be at the bank’s head office, which employed about 2,500 people at the end of 2009.

The bank has about 12,000 staff in the Republic, although it has already made clear job losses will be spread out over this year and next, more out of the necessity to carry out the remediation work across the bank’s loans.

AIB may give an indication as to how many job losses it will seek but it could be light on detail as to where they will go and how soon the first workers will depart, given the work to be done. Either way, AIB has said that the preferred option is voluntary and not compulsory redundancies. Jobs will certainly go as AIB deleverages about €19.4 billion of loans and other assets, mostly from divisions in the bank’s UK, US and European operations, following the Central Bank’s stress tests.

Details of AIB’s loans and deposits at the end of 2010 were published in the stress test results. Loans stood at €86.9 billion, while deposits were €52.4 billion compared with €59 billion last June.

The bank, which tried to “out-Anglo” Anglo Irish Bank by chasing Ireland’s worst bank down the property development hole over the peak years of the boom, requires €13.3 billion, bringing the capital bill to €20.5 billion – some €9 billion shy of the cost of Anglo.

Executive chairman David Hodgkinson has said that AIB will be a smaller bank. We should get more detail today around where exactly he sees it shrinking in size.

Nama flexes muscles to show it means business

NAMA’s CONFIRMATION that it wanted Derek Quinlan to sell his stake in Citigroup’s London HQ and repay some of his debts to the State agency should make people take note.

The agency does not share vast amounts of information, but confirming this means it wants the public, and presumably other developer clients, to know that it is serious when it says it will pursue borrowers for their debts.

The legislation underpinning the agency gives it a lot of muscle, and the fact that it is flexing that muscle can only be read positively.

But it is not taking these steps with everyone on its books. Real Estate Opportunities, the Treasury Holdings-backed listed vehicle that owns Battersea Power Station, which is also in London, is getting closer to completing a restructuring begun last year.

All stakeholders have to approve this next month. From that date, Nama is committed to holding off on calling in €95 million of guarantees relating to some of REO’s Irish properties.

While there is not a whole lot of detail on either case, Quinlan and REO give us some extra insight into how the agency is going about getting the best deal for the State, and by extension its citizens. But we’re still a long way from the day when the agency can say to the public: “yes, we got you your money back, and a little bit extra as well”.

Today

Today: AIB is to release its full-year results for 2010 and is also expected to provide further details of its restructuring plan;

The Irish Insurance Federation is to publish details of the December 2010 freeze and its impact on the insurance industry.
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