RSA and Newbridge send us back to the future
Not too long ago, Ireland was described by a German as the Wild West of the financial world; some of the Irish in Brussels had become legendary for not bothering to turn up at important EU meetings; our international competitiveness was allowed disappear; and we became arrogant and complacent about what we thought we had achieved as a nation.
Nowhere was this more evident than in the behaviour of some of our more notorious developers who developed a swagger and a ‘big swinging dick, master of the universe’ mentality that Gordon Gekko would have been proud of.
Most damaging, of course, was the fact that three years ago the international markets refused to lend us any more money and we had to go cap in hand to the beloved troika.
That was then, but today things have definitely improved. Ireland is now generally regarded as having taken a lot of pain and addressed a lot of its problems over the past five years or so. Externally the country is once again viewed as a functioning economic model and the markets are now telling us that they will be prepared to lend to us again once we exit the bailout deal on Dec 15.
Unfortunately, a few events over the past week have reminded us that the past is not yet a distant land. Developments in relation to Royal Sun Alliance and Newbridge Credit Union have come as a bit of a shock and are a setback on our road to rehabilitation, giving us a real sense of ‘back to the future’.
On Tuesday, the Financial Times ran a headline stating “RSA’s aggressive Irish expansion runs out of luck”.
It described the manner in which the Irish business had booked large losses, and suggested that it had under- provisioned, which had the effect of flattering the short- term performance at the expense of reserves it should have set aside. The Irish business recorded earned income as opposed to premiums merely written. Three of the most senior executives in the Irish operation have been suspended. This has echoes of the Quinn Insurance Group, the main difference being that the Irish taxpayer had to pick up the tab in that case, whereas shareholders will pay the price for the RSA debacle.
This whole saga asks further questions about the role of the regulator and the behaviour of the Irish management. Whatever the truth turns out to be, it is not good to have these sorts of headlines attaching to a nation that is striving valiantly to re-establish its reputation. The Newbridge Credit Union saga has been running for some time and, unfortunately, the State was forced to step in at the weekend to prevent the institution from collapsing. I am struggling to understand the reaction of some locals to this in the last few days.
The reality, insofar as we understand it, is that the institution breached prudential regulations in relation to the size and duration of loans. It does appear that if it had been allowed collapse, it would have ended up costing the taxpayer even more than it will under the current arrangements. Central Bank figures have shown the magnitude of the financial outflows from the institution in recent months and if the State had not stepped in last weekend, the institution would not have survived the week.
Perhaps I am missing something, but I cannot get my head around the sense of victimisation and grievance displayed by some members of the credit union, no more than I can understand how a credit union of that size could justify the palatial office it occupied. Until it is proven otherwise to me, I will remain incredulous, and as a taxpayer who has been asked to fork out again, I will continue to nurse my deep sense of grievance.
