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Depfa may sue Irish directors, Ireland's reputation on the line

cyberianpan

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Depfa in the IFSC was a very peculiar bank. It was only here for tax dodge & low regulation - it;s business remained in Germany. The German authorities were never happy about it. Our Financial Regulator... well dodged regulating it.

Irish Times

GERMAN LAWYERS investigating the near-collapse of the Hypo Real Estate (HRE) group are considering legal action against former board members of its Dublin-based subsidiary, Depfa plc.

Former directors of Depfa include ex-Central Bank head Maurice O’Connell and Frances Ruane, director of the Economic and Social Research Institute.

They could find themselves dragged into a bitter legal battle between Depfa parent Hypo Real Estate (HRE) and Georg Funke, its former chief executive and a former Depfa director.

“We are examining compensation suits against the entire boards of Depfa and of Hypo Real Estate,” Detlef Bauer of Gleiss Lutz, legal counsel to HRE, told The Irish Times.

Many of the risky activities carried out by the Dublin-based bank that brought HRE and Germany’s financial system to the brink of ruin last year took place when several prominent Irish businesspeople sat on the Depfa board.
...
The final rescue package cost €102 billion in loans and guarantees and was followed last year by full nationalisation.
...
As well as “gross negligence” in preparation for the Depfa purchase, HRE lawyers accuse Funke of presiding over faulty risk management procedures and “numerous breaches of Irish banking regulatory law” by Depfa.

The Irish Financial Regulator imposed a fine of €250,000 on Depfa ACS Bank, a subsidiary of Depfa plc, on December 16th last.

A German source claimed that the breach only came to light when Depfa itself approached the regulator....

Prior to any sense of global crisis the IFSC's & our regulatory system's reputation was on the line:
Indo 2005 : Taming the wild west

With an investigation by New York district attorney Elliot Spitzer into the activities of a Dublin-based subsidiary of insurance giant AIG, the Cologne Re kerfuffle was stunningly bad news for the image of Dublin's financial district. The regulator took a raking. The hugely influential New York Times rowed in to label the IFSC as "the financial wild west".
And there's been plenty of press in Germany on our poor regulation over the years, e.g. as evidenced here:
Irish Times June 2009
Even more damaging to its future health has been the degree to which its reputation has been called into question by problems at German banks Sachsen LB and Depfa Bank, and the regulatory approach – or the lack thereof – that the Financial Regulator has adopted to the sector. Coming on the back of reports that Ireland is the “wild west of European finance”, the latest attacks on the integrity of the IFSC may do more lasting damage.

Germany has never been a supporter of the IFSC, and while it continues to question regulatory oversight in Ireland, it is the UK which is emerging as its most vehement critic. Lord Oakeshott, a British treasury spokesman and managing director of investment management company OLIM, described Dublin as a “Liechtenstein on the Liffey”, claiming it “aggressively chases footloose financiers and less scrupulous British companies to move to Dublin to dodge tax”.
Now much of the IFSC is good, we're one of the top three places in the world for Funds Administration (and contrary to what many thing, Funds Administration is a complex , challenging & well paid job). However chunks are the IFSC are just shell games, who need directors. In Ireland our native pool of directors is of shockingly low quality.

This scandal threatens not only the IFSC, but would also threaten Ireland's low tax status... and it comes at a time when we desperately need brownie points , especially from Germany, in order that we get the aid & understanding required to recover.


cYp
 


southwestkerry

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Every Country has its closets and in said closets are what we fondly call skeletons... shame we cant hide ours better though.
 

FakeViking

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Lichenstein on the Liffey. But I'm sure that certain well connected (to FF of course) individuals do very well out of the IFSC. Of course the guy who promoted it to CJH in the first place assumed that every transaction would be kosher. In the words of that great Dub Roddy Doyle, Ha Ha Ha.
 

diablo

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The Lichtenstein on the Liffey comment was made by a treasury spokesperson and therefore, must be taken as a political statement and is not analysis. The "unsrupulous" British companies he describes includes some of Britain's largest PLC's.

This reminds me of the archives release yesterday which documented the British disgust in the seventies at Jack Lynch's proposals to reduce corporation tax to 10%. Meanwhile, Britain was paying £100k per job to bring investment to the North which Ireland could not compete with.

The phrase "They don't like it up em" springs to mind.
 

Cassandra Syndrome

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Some of the figures from within the IFSC in relation to the low level of employees are mind boggling. It is the Financial whorehouse of Europe.
 

Decko

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Some of the figures from within the IFSC in relation to the low level of employees are mind boggling. It is the Financial whorehouse of Europe.
well, they outsouce to exixting service providers who have lots of employees -- eg if I want to start a small finco why not pay AIB 100k a year to run it etc

that said the depfa story is shocking and people should think twice of becoming non execs
 

Digout

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Some of the figures from within the IFSC in relation to the low level of employees are mind boggling. It is the Financial whorehouse of Europe.
Your spot on there, no doubt a lot of "hot" money lives there also. When I worked in the City of London all the real bankers there used to laugh at the IFSC, banks could get fully trained accountants to work as "fund monkeys" for €30k a year, after a few years at that, the poor lads are stuck in the business. FF went around spinning that the IFSC was some kind of financial centre, but people who know what they are talking about think its more of a kinder garden.
 

cyberianpan

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Your spot on there, no doubt a lot of "hot" money lives there also. When I worked in the City of London all the real bankers there used to laugh at the IFSC, banks could get fully trained accountants to work as "fund monkeys" for €30k a year, after a few years at that, the poor lads are stuck in the business. FF went around spinning that the IFSC was some kind of financial centre, but people who know what they are talking about think its more of a kinder garden.
Your ignorant anti-Paddyism shines through as ever

A significant number of people in investment bank front offices tend to sneer at the middle & back offices, that says more about them than anything else.

The rates of pay for fund administration here have gone up by quite some amount over the years -

The Panel Salary Survey 2009 (i.e. FY 2008)
Code:
Graduate/Administration                     €24K €28K
Administrator 1-2 years                      €25K €33K
Senior Administrator 2-3 years            €30K €38K
Supervisor                                         €35K €45K
Assistant Manager                             €45K €60K
Manager                                            €55K €75K
Group Manager/Senior Manager           €70K €90K
Head of Trustee/Compliance/Custody   €95K €140K
Also that above suvrey leaves out client relationship management, and I know plenty there with limited responsibilities on €150k+. Furthermore certain legal people are on €300k+. That said the typical "fund accountant" has a pretty unexciting role.

And if you're really so concerned companies such as Susquehanna have substantial front office presence here and in Dublin their employment spans traders, algorithmic trading coders etc.

cYp
 

cyberianpan

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The Lichtenstein on the Liffey comment was made by a treasury spokesperson and therefore, must be taken as a political statement and is not analysis. The "unsrupulous" British companies he describes includes some of Britain's largest PLC's.

.
Indeed ... and if this whole case goes to court, thus exposing Ireland's shoddy regulation... it is political pressure we'll be under

The Germans in particular don't like the IFSC (they have a peculiarly co-operative relationship between their banks & regulator(s) )

With Ireland needing bailouts.... with EMU faltering.... with the events in Depfa Dublin having caused global ripples ... we'll come under great pressure to homogenize (i.e. better regulation and they may take a pop at corporation tax)

cYp
 

stonethrower

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Agreed with previous comments that there is a lot of good financial services in the IFSC, however there is some dodgy stuff as well.

Interesting piece in Fintan O'Toole's book about Depfa, he suggests that we were very lucky that Depfa was taken over in Sept 2007 by Hypo Real Estate, because if they hadn't Depfa would have been an Irish regulated entity and it would have been Ireland.....(well could we have afforded it) that would have had to come up with the €100bn to clean up the mess created and not the Germans. I don't know the ins and outs of this, as they were here solely for tax purposes probably unlikely that Irish Govt would have done so, (even if we had this money) was still effectively a German bank so the Germans would still have had to come to the rescue. What do others think?

Obviously the type and nature of regulation of what happens in IFSC is very different from domestic banks, but it would appear to me that regulation down there will have to be enhanced. Yes we may lose business as a result, but the reputational risk for Ireland and other entities down there and of course the potential costs of cleaning up a mess created by rogues there makes it virtually inevitable.

Well the 13 Directors in Depfa paid themselves well....€34m in 2004, obviously most of this went to the executive directors, but the non-execs must have been on six figures sums. Directors of Depfa bank get €34m pay package - The Irish Times - Mon, Oct 10, 2005
Corporate Governance in Ireland is very poor, that will have to be enhanced as well, most as has been said here before were only on the board to meet eu rules on residency.
 

DCon

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well, they outsouce to exixting service providers who have lots of employees -- eg if I want to start a small finco why not pay AIB 100k a year to run it etc
I worked on behalf of several of these finco's (through a bank) and the Director gene pool was very limited and not at all involved outside of a token 1 hour board meetng once a year.
 

McDave

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Depfa in the IFSC was a very peculiar bank. It was only here for tax dodge & low regulation - it;s business remained in Germany. The German authorities were never happy about it. Our Financial Regulator... well dodged regulating it.
We're being held up to scrutiny on so any fronts now, and we're failing on almost all counts. Our generally lax approach to regulation and enforcement is costing us dear. We should face up to the fact that unless we turn around our cultural attitude to turning a blind eye, we won't come anywhere close to being a "smart" or a "knowledge" or whatever economy.

As for DEPFA, I don't know what sanctions can be imposed on the Irish directors, but it smacks uncomfortably of similar scenarios where our malfeasances were exposed and/or punished through actions/initiatives in other countries. I think of Patrick Gallagher being done by the Northern Ireland authorities, and the uncovering of the beef scandal by Susan O'Keeffe through Granada TV's World in Action which sparked the Beef Tribunal.
 

FlyOver

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Ah come on now...we just sold 1.5 billion in bonds at 4.426 per cent...life is grand!!!

Just kidding. With it being St. Paddies Day, I have put my brain away for the day!!


Seriously, does it make much difference? The rest of the world doesn't seem to be misled or delusional about the IFSC and Irish regulations, just the average pub paddy.
 

joel

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Ah come on now...we just sold 1.5 billion in bonds at 4.426 per cent...life is grand!!!

Just kidding. With it being St. Paddies Day, I have put my brain away for the day!!


Seriously, does it make much difference? The rest of the world doesn't seem to be misled or delusional about the IFSC and Irish regulations, just the average pub paddy.

The Orangeman? - Still in Dublin? Why the lies?
 

MsAnneThrope

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*bump*

CENTRAL BANK OF IRELAND
CENTRAL BANK ACT 1971

Pursuant to its powers under Section 11(1)(a) of the above Act, as amended by Section 34 of the Central Bank Act 1989, and further amended by the Central Bank and Financial Services Authority of Ireland Act 2003, the Central Bank of Ireland has revoked the licence granted under the terms of Section 9 of the Central Bank Act 1971, to the under-mentioned Bank with effect from 2 February, 2011.

Depfa Bank Europe plc

The Revocation was granted at the request of the Bank concerned.
CENTRAL BANK OF IRELAND
Iris Oifigiul 11th Feb 2011

Was Depfa's license revocation expected?
 

nuj

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Yes. It was being wound up here, with the assets (and liabilities) transferred over to Germany, and HRE (or SofFin) last November.

Just routine. For once, with Depfa.
 


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