BUSINESS OPINION:Can the blame for the massive insurance claim be laid entirely at Seán Quinn's feet?

NOTHING THAT has surfaced over the last year has done anything to undermine the case for calling time on Seán Quinn’s buccaneering stewardship of Quinn Insurance. The opposite, really.

But that is not the same thing as saying that what happened subsequently was perfect and the outcome that emerged last Thursday was the optimal one.

Anything that results in a claim of €700 million on the Insurance Compensation Fund is a disaster, even in a country more used to counting the costs of its financial failures in billions rather than millions. It’s even more of a disaster when the administrators running the company were telling the High Court last October that no such claim would be made.

Several questions remain unanswered. One is whether the blame for the need to claim now on the fund can be laid directly and entirely at the feet of Seán Quinn. His risk-taking may have put the company on the road to perdition, but did the actions of the administrators once they took over exacerbate things? Quinn himself has queried their provisioning policy. Further light may be shed on this when the company’s full 2009 accounts are published.

Quinn has also raised the issue of whether the claim on the fund arises in part as a result of the horse-trading that took place in order to secure a wider restructuring of Quinn Group, which owes €2.3 billion to Anglo Irish Bank and €1.3 billion to various other banks and bond holders. He was ousted in the process.

Bear in mind here that a levy on other insurance companies – which will be passed on to their customers – does not constitute State aid in the narrow sense.

What is clear is that the bond holders were the king-makers in the Quinn Group restructuring. They have emerged from the mess without having to take any sort of a write-down on their debts.

They also appear to have got improved security over the other Quinn Group assets, and some cash.

The reason they had the whip hand is that they held guarantees over Quinn Insurance’s subsidiaries and the individual manufacturing business. Unless they were prepared to give up these guarantees, then the Government and Anglo Irish Bank’s complicated plan to take control of the business and break it up would be pretty unworkable. Anglo’s hold over the Quinn Group was far weaker than the bond holders’ as it only held the family’s shares in the ultimate parent as security.

The price of the bond holders’ releasing the guarantees was a €200 million payment, some of which will be recycled back into the group.

About €80 million will be made available to the manufacturing group by the banks as a working capital facility, but the remaining €120 million will be directly into the bank and bond holders’ pockets.

The money came from Quinn Insurance in a bit of intragroup financial engineering that Seán Quinn himself would have been proud of.

But the key point is that the assets of the insurance company are reduced by €200 million to the benefit of the bond holders and thus not available to meet its losses. As a result, the claim on the fund will be €200 million greater than it otherwise needs to be, and the whole thing can be seen as an indirect subsidy by other insurers and policy-holders.

One suspects that when the penny drops in this regard with the other insurance companies, who will be levied to meet the demands on the fund – current value €30 million – there may be some unhappiness.

The planned transaction presumably has the approval of the Financial Regulator, who oversees the fund, and again one has to presume he has taken the wider, long-term view. Anglo is also his problem.

It’s worth noting that nobody is calling it a good deal. “It is the best outcome for the Irish economy,” is all the joint administrators could manage.

They claim the compensation fund could have been hit for €1 billion if no sale had been achieved and the fund would have had to meet all the company’s liabilities.

They were also at pains to point out that the jobs of 1,570 people – and the €100 million plus what the company’s activities are worth to the regions in which it operates – have been safeguarded.

The other “win” for the taxpayer is that the wider deal gives Anglo Irish Bank a direct economic interest in the Quinn Group, owning 75 per cent of the remaining business and 43 per cent of the new insurance business. The income from these assets – and their sale – over time may cover the €2.8 billion that Seán Quinn and his family owe the bank, most of which has been written off.

Like most things involving Ireland and its financial institutions, one is left wishing – to paraphrase Bill Clinton’s adviser James Carville – one could be born again as a bond holder.