Funds servicing brings change to Irish finance
The business of servicing is set to fill the vacuum left by Ireland’s domestic banking and asset management industry, dramatically altering the country’s financial landscape.
The business of servicing is set to fill the vacuum left by Ireland’s domestic banking and asset management industry, dramatically altering the country’s financial landscape.
The tide of international opinion has begun to turn back in Ireland's favour. The country is putting its Taoiseach (or prime minister), Enda Kenny, at the frontline of its battle to keep existing business and win a new share in the business of finance.
The UK's Queen Elizabeth II has visited and President Obama paid his respects. Now, global asset managers who see how importantly Dublin regards its financial industry, say they will be there, too.
They are domiciling funds and building fund-servicing operations there, despite having options elsewhere and the near-implosion of Ireland's major banks.
But the good PR masks an underlying insecurity about the financial industry's future. Rival domiciles, from Luxembourg to Malta, stand ready to steal market share - and see an opportunity with Ireland's gloomy economy - but the Republic is still reaching out to the international funds community to put its case.
Its fund industry association, the IFIA, recently opened representative offices in the US and the UK, giving its representatives the ability to meet managers in New York, Boston, Chicago, Atlanta and London. More offices will follow in Europe by the end of the year.
Dublin understands the importance of such offices - the government's inward investment agency, the IDA, was directly involved in a joint venture with the IFIA in opening the outlets.
Additionally, Kenny spoke at the IFIA's recent conference - the first time he appeared before the financial services industry since coming to office in late February.
The fact that the Taoiseach chose to speak before the funds community is an important signal.
A change in direction
It also indicates a shift in focus for Ireland's financial industry overall. The business of servicing funds is becoming its main feature, rather than banking and asset management, which seem set to shrink domestically as banks deleverage.
Ireland's main banks have started selling off their overseas assets in a bid to recoup some of the additional €24bn in funding the five main ones need, in aggregate, to survive. Most recently, Allied Irish Banks sold its entire 50% stake in Bulgarian-American Credit Bank to CSIF for an undisclosed sum. It also sold a 70% stake in Poland's Bank Zachodni WBK and a 50% interest in that bank's asset management business.
So far, only overseas holdings have been sold, and Irish banks have maintained their positions at home. But practitioners say it a question of when, not if, the domestic industry shrinks as well.
They do, however, add that this does not matter because cash-rich international firms will fill the vacuum left by Ireland's banking industry, including the loss of asset management units.
Some have moved already. State Street seemed undeterred by risks around Ireland's economic stability when it decided to purchase Bank of Ireland's asset management operation in October 2010 - a month before Dublin gave in and accepted the EU bailout.
It is little wonder then that Kenny decided to be present for his fund servicing community. A sigh of relief followed the Taoiseach's words: "I want to demonstrate and prove that Ireland will continue to be seen as the best small country in the world in which to do business."
