Irish bank hit by credit crisis

Irish bank hit by credit crisis

A specialist Irish bank has suspended trading in its shares due to the international credit crisis.

The Dublin-based International Securities Trading Corporation, founded two years ago, is the first Irish bank to be hit by the "credit crunch".

The niche bank said the financial turmoil forced it to suspend trading in its shares and had prompted a write-off of 70m euro from its own accounts.

It does not deal with private customers but lends to other institutions.

With ISTC claiming a "total capital base in excess of 440m euro", the write-off is a serious blow.

Only those in high finance in Ireland are likely to have heard of International Securities Trading Corporation (ISTC) before Monday, but many more will know about it now for the wrong reasons.

In a statement, ISTC said: "The turmoil experienced in financial markets since July last is unprecedented, and has represented one of the most difficult and challenging market environments experienced by the banking sector over the past 30 years.

Investment

"Against this backdrop, ISTC's high quality bank capital loan portfolio and conservative funding, capital and liquidity policies had put the company in a position to weather the market disruption, albeit with negative consequences, including an ongoing reduction in its liquidity position."

However, a negative assessment by ratings agency Moody Investor Services last week on a $310m investment through "specialist investment vehicles" (SIV) made by ISTC, plunged the bank into its current difficulties.

The SIV's were being "sponsored and managed by leading international banks," the company statement added.

Judgements from Moody's are a trusted barometer for investors, and the negative review has had serious consequences.

In its statement, ISTC said it "will now have difficulty in retaining the existing financing or alternatively obtaining new financing" for its SIV's, which account for around 7% of its loan portfolio.

The downgrading meant the value of the investments the bank was using to raise funding were now worth less, affecting ISTC's ability to provide cash to borrowers and its financial liquidity.

The drop in a key investment asset has also forced the company to make a provision in its accounts, writing off at least 70m euro from its value.

Negative

Annual results due to be posted have been suspended for several weeks while a revaluation of its downgraded investment is carried out, to assess the true financial picture of the company.

Following Moody's negative rating, ISTC itself was downgraded in a separate assessment by another investor analyst, DBRS, bringing more difficulties, and forcing the company to seek to renegotiate its own credit terms.

"Given the uncertainty to ISTC's funding position precipitated by the SIV credit rating action, the company now intends to enter into discussions with its providers of finance with the objective of making appropriate amendments to their respective financing terms," the statement added.

Postponement of the 2007 financial results has prompted a suspension of trading in the company's ordinary shares, and halting of marketing of a drive to raise cash through a bond issue launched only late last month.

While the global credit crunch led to long queues outside the Dublin offices of troubled UK bank, Northern Rock, in September, ISTC's problems are the first to be experienced by a native Irish bank.

Unlike Northern Rock however, queues of small investors will not be snaking around the offices of ISTC, with those worried a much smaller group of much richer people including titans of corporate Ireland.

Among those thought to have invested in the bank are Fermanagh tycoon Sean Qunn, Dublin-born telecoms magnate and tax-exile Denis O'Brien, and Smurfit chief executive Gary McGann.

That such shrewd investors are behind a company now in trouble will heighten the shock in Irish financial circles.

The difficulties affecting ISTC are a far cry from the high hopes for the company founded only two years ago as Ireland's economic boom - the so-called "Celtic Tiger" - was in its prime.

But the past six months has seen a 30% fall in the Irish Stock Exchange index of leading shares, the ISEQ.

With negative sentiment among international investors leading to a flight of capital from Irish stocks, the bank's troubles come at a bad time for corporate Ireland.