INVESTORS AND banks will be forced to write off €820 million in the Dublin specialist lender International Securities Trading Corporation (ISTC), making it the largest cash loss in Irish corporate history, under a proposed rescue plan.
Some of the State's wealthiest businessmen, investors and leading international banks are owed €878 million by ISTC, which earned profits by borrowing money in the international markets and lending it on to banks. However, the cash-strapped company only has assets worth €57.8 million, leaving investors and bankers facing massive losses, according to a copy of the plan, seen by The Irish Times.
The shortfall surpasses the $691 million loss made by AIB in 2002 as a result of a rogue trader, John Rusnak, at its US bank, Allfirst.
ISTC is the largest Irish casualty of the global financial crisis, which was caused by US homeowners in the sub-prime market missing repayments.
In a speech last night, Central Bank governor John Hurley said that, as the lessons of recent months were absorbed, it would be important "to improve risk management".
The crisis has led to a massive drop in the value of investments, knocking tens of millions off the value of ISTC's assets and forcing it to seek High Court protection last year. The rescue plan has been sent to the firm's banks and creditors, who will meet next week to decide whether to accept it. The High Court must then sanction the scheme.
British investment bank Collins Stewart has agreed to buy the company for €5 million on the basis that the scheme is approved.
Under the plan, ISTC's bank creditors will receive 12 cent for every euro owed, which would be paid from the sale of ISTC's assets.
However, wealthy shareholders, including entrepreneur Denis O'Brien and businessman Seán Quinn, who invested soon after the firm's launch in 2005, and 125 individuals, who invested €43 million through financial group Friends First, will lose all their money.
The company's banks, which High Court judge Mr Justice Peter Kelly described as "a veritable who's who of the banking world on an international scale", will have to write off €435.6 million. These institutions provided loans of €2.6 billion through investments which the Dublin firm then sold on to its banking customers.
The company's lenders decided to sell these investments after the ISTC sought High Court protection through the appointment of an examiner in November. They recouped all but €435.6 million, which is now owed by ISTC.
In addition to this debt, ISTC owes €270.5 million in unsecured loans provided by bond investors, including Friends First's clients, and another €6.8 million, mostly to trade creditors. A further €165 million is owed to the wealthy investors who put money into the company shortly after the firm was set up by former Anglo Irish Bank executive Tiarnan O'Mahoney. This brings ISTC's total debts to €878 million.
Despite the massive debt at ISTC, the examiner, Dublin accountant John McStay, says in his survival planthat some of its lenders have "expressed a willingness to consider" offering more loans, should the rescue plan be approved.