Top Irish executive tells CLIFFORD COONANIreland went wrong where the world did – in banking
THE ECONOMIC crisis, and the hubris at the heart of the catastrophe, has hit Irish pride and there are no quick fixes in sight. Yet Ireland’s membership of the euro zone will help the country emerge from the doldrums, said Patrick O’Sullivan, an Irish senior executive at Zurich Financial Services AG, Switzerland’s biggest insurer.
“I noticed it from abroad as an emigrant Irish person that the sense of pride, of punching above its weight, was very strong. Some of that might get knocked a bit now,” said Mr O’Sullivan, who is vice-chairman of the insurance-based financial services provider, and also its chief growth officer.
“Where Ireland went wrong is where the world went wrong – in banking. What happened was the shadow banking system that grew up in the major financial centres created the sense that there is no limit to the kind of growth you can achieve either on or off balance sheet.”
While not commenting specifically on the Irish banking sector, he said Sean FitzPatrick seemed to have been living a “charmed existence”.
In Ireland’s favour was its membership of the euro zone.
“I don’t think Germany and France will allow monetary union to fail. Britain has a much bigger economy, of course, and that ability to bail themselves out through currency depreciation is a big help, but Ireland would have not have had that option, even if it had the punt back, because it was tied to sterling effectively,” said Mr O’Sullivan.
A graduate of Trinity College who then did postgraduate work at the London School of Economics, Mr O’Sullivan expects greater regulation to come into play but sees the current efforts to rein in the excesses of boom-era behaviour as largely cyclical.
“The talk today is about boards being much more responsible and having much better risk-management and controls, and not sacrificing themselves at the altar of growth. It’s going to be tough to impose it. For a while there will be contraction so it won’t be a problem, but the model will take a lot of tweaking to be able to make sure these things don’t happen again.
“Regulation will be part of the way it’s done. But then it won’t take long until we’re back to looking at jurisdictions that have more liberal regimes from a regulatory perspective and you’ll see the whole cycle all over again. You’ve seen quite a few booms and busts over the past 100 years.”
He said when the collateral damage was as big as in the current recession, do not expect a quick recovery.
“With this bust the impact is significant – think of how much financial services came to be part of GDP in the UK. Overseas earnings will collapse as banks pull back to their domestic borders under government direction; eventually this filters into the domestic economy. You already see it in the auto market,” he said.
“Growth is out here in the emerging markets.
“Largely, financial institutions are, although I don’t think the banks realise this, playing in a zero sum game. There are winners and losers, and the winners are those who have the disciplines and the rigour managing their exposures to survive,” he said.
“China is a long-term play. You don’t walk in with a cheque book and expect to make money in two or three years. China has a long history and they want to see your commitment as an organisation.
“Insurance has very low penetration here ... insurance is not the kind of thing you wake up in the morning and say ‘I need insurance today’. But sometimes people say to you: ‘What about that nice new holiday home you have in Shenzhen or whatever. Have you thought about insuring it?’”
