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Last week the maestro lost his marbles

Posted on: July 21st, 2008 1 Comment

SEAN Quinn belongs in the pantheon of Ireland’s business heroes.

He tackled the white-collar thugs in the insurance industry. He pumped capital into Conor O’Kelly’s dynamic NCB stockbrokers, enabling them to challenge the mighty Davys. He bought health insurer Bupa, ensuring the survival of at least one player to confront the VHI monster.

Sean is a humble billionaire who prefers playing poker for a few quid in Cavan to swanning around the beaches of Barbados. His ordinary lifestyle guarantees that the richest man in Ireland doubles as an icon of the underdog.

Last week, Sean lost his marbles.

Every gossip in the stock market knew that Sean had been punting. And punting big. His favoured share was a maverick bank. The quarryman from the border counties seemed to harbour a weakness for business buccaneers, the guys who went the extra mile. Anglo Irish Bank are the buccaneers of our financial world. Anglo’s extra mile is high-octane property-lending. Sadly for Sean, banking is not for buccaneers. And property is a basket case.

Sean was rumoured to have bought millions of shares in Anglo. He did not take the normal route. He heard about the cool, modern dealing method: Contracts for Difference (CFDs).

CFDs are a mad means of betting big without putting up the money. CFD punters typically deposit a 10th of the cost of the shares, borrow the balance, throw the dice and take their chances. They can easily double their money. Or just as easily, they can lose the lot. Sean lost. Big time.

Sean seems to have been captivated by the cult of the CFD. The anonymity, accompanying the danger, appealed to such a private man. Sean was never the registered owner of the Anglo shares, so no one knew how deep into the stock he had sunk. Best guesses are that he lost about €500m punting in them. He probably entered his love affair with Anglo at a share price of around €14. On Friday night they closed at €5.40.

Week after week, he took a bath as the bank — derisively dubbed the ‘building society on crack’ — saw its shares tank. Last Monday, Sean switched vehicles. He abandoned CFDs and decided to buy 15 per cent of the same buccaneers’ outfit outright. He paid about €500m for the stake.

So Sean, a billionaire three times over, has probably committed a billion into Anglo. Half of it is gone, lost on CFDs.

The result: Sean is Anglo’s biggest shareholder. As news broke that the dynamic entrepreneur had backed Anglo with a billion euro, market experts predicted that the move would instantly stop the rot. Nasty rumours had been rife about Anglo. Sean’s firepower was expected to lift the shares on Tuesday morning.

It did — for about 20 minutes.

And then they tumbled, losing six per cent on the day. Sean probably dropped another €20m on Tuesday alone. The market reaction must have been particularly disappointing, as Sean had issued a well manicured but unconvincing statement about his purchase.

Dripping with PR handlers’ syrupy stuff, it declared “the family regards these shareholdings in Anglo Irish Bank as long-term holdings with significant opportunity for capital growth over such a period”.

Sean had not only been captured by the CFD mania. He had also succumbed to the the spinners. Mention of the “family” was too touchy-feely for a hard-nosed businessman; it was a spinner’s contrived distraction from a darker message: not only had the maestro lost a mint, he had lost the plot.

A simultaneous insistence from Sean that the Anglo shares were “long-term holdings” is familiar PR spiv speak signifying emergency cover. Failed fund managers and stale bulls invariably hide behind the well-worn “long-term” investment line of defence when their short-term decisions are under water.

Regardless of the rally later in the week, Sean is now a chronically stale bull of Anglo. Not a happy place to be.

Initially, his timing was woeful. Even as Sean was finalising his decision to bet the bank on little Anglo, far bigger fish were tottering on the brink of collapse. The two US mortgage banks (or government sponsored enterprises, as they are apologetically known) were being rescued by the US government. Shares in Fannie Mae and Freddie Mac reflected the market’s scepticism at the package — even though it came from the mighty United States Treasury. Far from rallying, shares in the two state-backed banks went into freefall after the rescue plan was revealed.

Sean ploughed on.

Dutch courage or pure madness? Perhaps even a touch of vanity? His pride might have been shattered if he had simply cut and run from Anglo with a €500m loss. Hence the “long-term” strategy and “family” rhubarb in the statement.

If Sean is seeking long- term safety for his “family”, Anglo is hardly the safest haven. No share on the Irish market is less suitable for widows and orphans. Professionals around the globe have targeted Anglo for bear attacks. Hedge funds have fingered it as being vastly overvalued. Questions have been asked about its Tier 1 ratio. Sean was oblivious to the dangers.

He has undoubtedly been boosting the coffers of punters on the other side of his suicidal CFD adventures. Bears of Anglo wiped his eye and pocketed his chips.

Equally ominously, more of Anglo’s stock is out on loan than any other in Ireland. Its exposure to property is high at a time when house prices are tanking. The market has been worried. Sean is not. He should be.

Anglo Irish Bank has some colourful clients on its books. The biggest names in the property development game speak highly of it. And well they might! It has provided the most sympathetic ear in the lending business. Today, property is paralysed. The market is spooked about Anglo’s activities.

Sean’s consistent pluck has paid rich dividends in the past. But in recent times few have followed him into the Anglo abyss. Except Bank of Ireland, AIB and Irish Life.

On Tuesday they all bombed. On Wednesday they see-sawed and on Thursday they rocketed in response to good figures from the US.

The aptly named Wells Fargo bank rode to the rescue of the financial world. Wells Fargo is a name for a bank that Anglo and Sean would appreciate.

The recovery was dramatic. By the end of the week apologists for the Cavan man were asking: Was not Sean, the contrarian, riding a market rally? Surely, like him, we should all be brave and buy the banks?

For months now the dogs in the street have been barking about buying Bank of Ireland and Allied Irish Banks.

“They will go no lower”, is the common assertion as they lose yet another euro or two. After last week’s rally they were beaming prematurely.

Such unanimity from armchair amateurs is normally a signal to take to the lifeboats. Remember Joeseph Kennedy’s shoeshine boy.

Sean Quinn is no shoeshine boy. But he has exposed his Achilles’ heel. He is besotted by Anglo.