The backers of collapsed finance firm Structured Credit Holdings (SCC) were making efforts to raise fresh funding for the credit risk business before Japanese banking giant Nomura went to the High Court yesterday to seek its liquidation. Arthur Beesley, Senior Business Correspondent, reports.
Nomura's action brought an end to the short life of SCC, a Dublin-based firm which raised $207.8 million (€154.2 million) in capital only a year ago and which was able to draw business from top flight global institutions such as Citigroup, UBS, Barclays, Deutsche Bank and Merrill Lynch.
But just as some of the largest international groups have proved vulnerable to shockwaves from the crisis in the US subprime mortgage market, the ripple effect has taken down smaller players too.
SCC is the first Irish casualty. The company was in the wholesale financial business, taking on the risk of credit defaults on securities held by its counterparties. Its 2006 financial report said the firm had underwritten more than $1.8 billion in notional credit risk transfer, putting it in line for aggregate revenues of $37.1 million over the life of its contracts.
The business would be stable for as long as risks in the securities remained low. But with high US subprime defaults increasing the risk implicit in all asset-backed securities, the firm's counterparties demanded increased collateral from SCC in light of the higher level of risk.
That led to a rapid call on the firm's money, with disastrous consequences.
The firm's managing director is Edward Bowers, who previously held positions in financial groups Radian and Winterthur. Its chairman is Geoffrey Kalish of private equity fund Aquiline Capital. Its finance director is Keith Dignam, formerly of Bank of Ireland and EuroConex. Non-executive directors include Paul D'Alton, formerly of Waterford Wedgwood and Bank of Ireland.
Aquiline is a shareholder in SCC. The other shareholders are: Québec group la Caisse; private equity firm Pacific Corporate; the investment banking arm of Crédit Agricole; and US mortgage lender Triad Guaranty.
Some of these are big players indeed but their presence on the share register matters little in the context of the crunch endured by SCC in recent days. Amid extreme volatility in international markets, the High Court heard yesterday that the firm's total collateral liabilities grew to $350 million from only $5 million a number of weeks ago.
Having provided collateral of $175 million, SCC was left in the unfortunate position of having only $15 million at its disposal to meet new collateral liabilities of $175 million. SCC sources said the firm moved to develop a rescue plan as its position worsened in recent weeks. While SCC was seeking support from its counterparties, Nomura brought matters to a head with its court action yesterday.
SCC has already provided $20 million in collateral to Nomura but the group wanted another $28 million.
