A Dublin-based investment fund with debts of €17.3 billion that brought a German state bank close to collapse is unregulated in the Republic.
A group of German banks had to step in over the weekend after the state bank of Saxony, Sachsen LB, was unable to meet the debts of Ormond Quay, an investment fund managed by its Dublin operation.
Ormond Quay made long-term investments funded by short-term borrowings. Its difficulties arose when it was unable to raise fresh short-term borrowings due to the ongoing turmoil in the global markets.
Sachsen LB was unable to provide the necessary funds, prompting the German savings banks association to provide an emergency loan with the support of the government of Saxony.
The rescue package also covered two other Dublin-based funds managed by Sachsen's Irish subsidiary.
The Central Bank said yesterday that the Irish Financial Services Regulatory Authority did not supervise the type of business carried on by the three funds. It refused to say if it knew how much of this type of unregulated investment was carried out in Dublin's International Financial Services Centre or whether it was aware on any other firms facing similar difficulties.
"We are maintaining ongoing dialogue with regulated firms, and with other regulators," said a spokeswoman. The Department of Finance declined to comment, referring queries to the Central Bank.
Ormond is the latest Irish casualty of the ongoing global credit squeeze triggered by concerns over the US mortgage market. Last Friday Dublin-based Structured Credit Company went into receivership with liabilities of $438 million (€325 million).
Yesterday the High Court threw the company a lifeline after it had raised $125 million in fresh capital from its backers in a last ditch effort to rescue it. The court placed the firm in interim examinership and revoked the appointment of a provisional liquidator.
Also on Friday, a Cayman Island fund sponsored by Goodbody Stockbrokers was frozen because of liquidity issues.
An air of caution continued to pervade financial markets yesterday as the initial euphoria that followed Friday's market-calming moves by the Federal Reserve showed signs of fading.
US stocks made little progress although their European and Asian counterparts put in more positive performances.
