BILLIONAIRE BUSINESSMAN Sean Quinn and his family are buying a stake of almost 15 per cent in Anglo Irish Bank after unwinding their interest in the bank held through high-risk investment products known as contracts for difference (CFDs). Simon Carswellreports.
The decision by Mr Quinn to reveal his interest in Anglo and convert his and his family's CFD positions into shares confirms long-running speculation that the Co Fermanagh businessman has been a significant investor in the bank.
However, the move failed to encourage investors as Anglo dropped 6.5 per cent to €4.08, having fallen below €4 at one point for the first time in five years. Investment bank Credit Suisse lowered its share price estimate on Anglo to €6 from €11.35 yesterday, while European stock markets fell due to continuing worries about financial institutions.
AIB led Irish bank stocks lower after Credit Suisse said the credit turmoil would reduce lending and accelerate Irish house price falls.
AIB fell 6.5 per cent to €7.10, while Irish Life Permanent dropped 13 per cent to €4.07.
The ISEQ index of Irish shares closed down 3.2 per cent, its lowest closing level in almost five years, knocking another €2.5 billion off the value of shares.
Crude oil fell heavily, wiping out earlier gains, amid concerns that a slower US economy will curtail demand for oil and gasoline. Oil prices had jumped earlier towards recent record peaks in response to the dollar hitting a record low of $1.60 against the euro.
Mr Quinn is known to be a long-time supporter of Anglo and its management but has previously refused to declare the scale of his interest.
The Quinn family said in a statement that they were in the process of "unwinding" their interests in Anglo through CFDs and were purchasing "long holdings" in the bank's shares, representing "close to 15 per cent" of the bank's ordinary share capital.
Mr Quinn said the family saw "significant opportunity for capital growth over such a period".
Based on yesterday's closing price of €4.08, their stake is worth almost €465 million. The bank has a market value of €3.1 billion.
A bank spokeswoman said it did not comment on shareholders or shareholders' transactions.
Mr Quinn said: "In recent years we have been highly impressed with Anglo's ability to outperform the banking sector in terms of profit growth, and we are confident this trend can be maintained over the longer term notwithstanding the current difficulties being experienced in international banking."
Like most Irish bank stocks, Anglo's share performance has been affected by the unprecedented market volatility due to the global financial crisis. Its share price fallen 62 per cent this year, and Anglo has lost three-quarters of its value since the share price peaked at €17.85 in May 2007.
Mr Quinn and his family have been building up their interest in Anglo over the last 18 months, increasing their investment at various prices over that period.
A spokesman for Mr Quinn declined to reveal how much they had spent on their investment.
It has been speculated that Mr Quinn has invested up to €1 billion building up his interest in Anglo through CFDs, which would leave him and his family nursing a paper loss of about €500 million based on the bank's current price.
However, Mr Quinn and his family have declared themselves long-term investors, and will not realise these losses unless they were to sell at the current price.
The businessman, who by some measures has been described as Ireland's richest man, has an estimated fortune of €4.6 billion.
His interests range from insurance, as the owner of Quinn Direct and Quinn Healthcare, energy, property and hotels to glass-making, concrete and quarrying. His company, Quinn Group, made a profit of €433 million in 2006.
Contracts for Difference: how they work
Contracts for Difference (CFDs) are financial instruments that enable investors to take an interest in a company without owning any shares or having to declare their interest. Owners of ordinary shares in Irish quoted companies must declare their interest when their stake passes the 3 per cent mark.
CFDs allow investors to borrow money to take a position in a company, with as little as 10 per cent of the stock's price required for the purchase. Buyers and sellers of CFDs agree to exchange the difference in an asset's price between the time a contract is opened and its closing.
CFD investors can be exposed to margin calls from the contract providers, forcing the holders to put up additional cash on their initial investment outlay if a share price falls below a particular level.
Patrick Neary, chief executive of the Financial Regulator, said last month that it was planning to change market rules so that investors with significant CFD holdings in a public company would be forced to declare their interest.