[*IFSC banks rebuffed * (https://www.tribune.ie/article/2008/nov/23/ifsc-banks-rebuffed/)
Jon Ihle
Citibank, Depfa and LBBW were turned down in September’s state guarantee scheme
Citibank, Depfa Bank and German state bank LBBW all sought entry into the bank guarantee scheme in September, but were turned away because the government could not safeguard the hundreds of billions in liabilities on their balance sheets, according to industry sources.
The banks, which all have significant operations in the International Financial Services Centre (IFSC) in Dublin, wanted the opportunity to come under the state umbrella for deposits and other debts since they conducted significant business in Ireland.
However, the government refused on the basis that this business was transacted largely outside the state rather than with Irish retail customers, as with the other banks permitted to apply for the scheme.
Since the scheme was introduced on 29 September, a liquidity crisis at Depfa has forced the German government to rescue its parent, HRE, from collapse. Meanwhile, Citigroup was under tremendous pressure only last week as its share price was cut in half in just four days, forcing the board to consider splitting up and selling off the business. LBBW is the current owner of Sachsen Bank, the first victim of the credit crunch, whose Irish subsidiary needed a €17bn emergency credit line from a consortium of German savings banks to keep from going under in August 2007.
The decision to keep these entities out of the guarantee has caused divisions within the normally unified banking sector in Ireland, with the local managers of the excluded banks upset at being treated separately despite contributing taxes and employment to the local economy.
The three banks together employ close to 3,000 people – more than 10% of workers in the IFSC – and turn over billions through their lending, corporate banking and capital markets activities.
But one Irish industry source said that although Ireland was a leader in the global integration of financial services, the credit crisis had shown solutions could only be found at the national level.
This economic nationalism, however, has provoked jaded reactions from executives at banks which did qualify for the scheme, but chose to stay out – such as UK-owned banks Ulster Bank and Halifax Bank of Scotland, as well as National Irish Bank, ACC Bank and KBC.
One executive said his bank had stayed out of the guarantee specifically to avoid being forced to participate in a state rescue of the industry, such as appears to be taking place in negotiations over the future of Bank of Ireland.
