A gamble that soured spectacularly

The full scale of Quinn Group's investment losses is staggering, writes Simon Carswell, Finance Correspondent

THE UNPRECEDENTED fine against Quinn Insurance, the State's second-largest insurer, and the decision of its director and chairman Sean Quinn to resign from the company, stem from a massive gamble on Anglo Irish Bank that soured spectacularly.

Mr Quinn's investment in the State's third-largest public bank, which must rank as one of the worst in Irish corporate history, has indirectly led to his insurance company being fined €3.25 million by the financial regulator and Mr Quinn being personally fined €200,000.

The fines arose because Quinn Insurance failed to notify the regulator that it was making loans to "related companies" and that the main issue related to a loan of €288 million.

This money was used to finance share purchases in Anglo Irish last summer when the Quinn family took a stake of almost 15 per cent in the bank.

The regulator said that it had "reasonable cause to suspect that breaches of regulatory requirements" had occurred.

Mr Quinn has said: "We will pay the fines and move on."

This is not the first time Mr Quinn has suffered major losses on the stock market. He famously sacked himself as a fund manager when Quinn Group, the overall company behind his many and varied business interests, lost up to €70 million in the dotcom bubble of 2001.

Last July, Mr Quinn decided to convert the investment in Anglo Irish Bank that he and his family had been amassing for over a year through contracts for difference (CFDs), a type of share derivative which allowed them to borrow heavily to invest in the bank, into an actual shareholding in Anglo.

The decision arose due to the dramatic falls in the bank's share price, which magnified the family's losses. Anglo's share price has fallen 90 per cent from its peak 18 months ago and Mr Quinn's investment has nosedived.

His losses in Anglo were estimated at up to €1 billion when the share conversion was announced.

Yesterday, for the first time, Quinn Group acknowledged the full scale of its investment losses.

The group issued its 2007 results 36 minutes after the regulator announced the fine. The company said it had incurred exceptional charges - essentially write-offs on its investments - of €829 million in 2007.

It added that further write-offs in 2008, due to the turmoil in the investment markets, "would not exceed €130 million".

All told, the group will write off up to €959 million over the two years to the end of this year.

The bulk of this is thought to relate to the Anglo stake, though Mr Quinn's spokesman said it also covered other group investments.

The €829 million write-off charge turns the group's healthy €403 million pretax profit into a loss of €425 million for the year - a figure that can be offset against taxes.

It is entirely appropriate that a health, motor and general insurance business as large as Quinn Insurance, with such long-reaching tentacles into households and businesses across the State, should reveal the full extent of its investment losses, especially in a large bank with its own difficulties.

The crystallisation of the Quinn Group's heavy stock market losses and the 2007 shortfall reflect the task facing auditors signing off on large corporate accounts.

Other companies will undoubtedly follow.