The turmoil in global financial markets has claimed its first Irish casualty with the collapse of a Dublin-based financial firm with liabilities of some $350 million (€259.5 million).
Structured Credit Company (SCC), which underwrites credit products for international investment banks, went into provisional liquidation yesterday on foot of High Court action by Japanese banking giant Nomura.
The company is the first Irish operation to go out of business as a direct result of the volatility in global markets and the crisis in the US mortgage market.
There was no comment on SCC's collapse last night from the Irish Financial Services Regulatory Authority, which noted that it did not regulate the company's activities.
The financial regulator declined to say whether it had taken any specific action to monitor the exposure of Irish institutions or funds to the US subprime mortgage problem and related questions over the valuation of financial assets. It also declined to say whether it knew of any liabilities incurred in the crisis by Irish institutions or funds.
"As part of the financial regulator's supervisory process, we take account of market trends and emerging markets. This would form part of our ongoing interaction with financial institutions," it said. In a separate development last night, a Cayman Islands fund sponsored by Goodbody Stockbrokers suspended its operations.
Goodbody did not comment on the matter, but the Avendis Enhanced Income Fund said its portfolio has suffered from liquidity pressure since the beginning of this year and has not been able to pay redemptions when due. "This situation has been exacerbated by the recent subprime related tight credit environment," it said.
Subprime mortgages are loans extended to customers with poor credit histories.
In a mark of increasing international concern about renewed market volatility, the US Federal Reserve yesterday moved to cut the interest rate it charges on loans to banks by half a percentage point.
The surprise intervention, a U-turn on recent Fed policy, was welcomed by European financial markets, which had opened well after a late rally on Wall Street on Thursday, but were plunging into panic by lunchtime yesterday.
In an extremely volatile day on the Irish market, investors rushed to sell their shares and take advantage of the positive mood in case it evaporated. In the 35-minute period immediately after the Fed's intervention, the Iseq index of Irish shares swung from a loss of 2.5 per cent to a gain of 2.5 per cent.
As the boost provided by the Fed's rate cut eventually subsided, the Iseq closed up just half a per cent, recovering only a small portion of its losses on Thursday. In London, the FTSE 100 rebounded strongly, gaining 3.5 per cent in its best one-day performance in more than four years.
Some Irish investors in risky financial products known as contracts for difference (CFDs) had no option but to crystallise their losses because the companies that provide the CFDs have dramatically increased the amount of cash their clients need to put up to trade.
The continuing markets crisis is linked to a practice whereby US mortgage firms sell on their high-risk debt to other banks around the world. It is still not clear exactly which financial institutions are exposed to the losses in the sector. This has created a "credit crunch" in global financial markets, where financial institutions are unwilling to lend money to one another except in the very short term.
Analysts said the Fed's move yesterday addressed this immediate problem, which has forced central banks to pump billions of cash into the money markets to stop them from seizing up.
There is now a "strong likelihood" the European Central Bank will not increase its key interest rate next month, unless there is a sustained period of calm in stock markets, IIB Bank chief economist Austin Hughes said yesterday.