Think of Ireland and images of verdant hills and crowded corner pubs come to mind. So do notions of impoverished people and an economy as mournful as a Sean O'Casey play.
Well, the hills are as green as ever, and the pubs are still centerpieces of cultural life. There is, however, one big crack in the stereotype:
Ireland's economy is on a tear.
Thanks in part to favorable tax laws, a country that once seemed eternally forsaken has emerged as a high-tech and financial services haven for international companies.
In the process, a host of financial services companies including Chase Manhattan Corp., Citicorp, and Merrill Lynch & Co. have set up shop here.
Bankers and analysts list rising domestic and foreign investment, surging consumer demand, a property boom, an excellent telecommunications infrastructure, well-educated and available work force, and the government's insistence on the creation of local employment as among the key components of the bold new Irish economic picture.
"Our business has evolved completely out of domestic Irish banking," remarked Patrick Leamy, director for sales and marketing at Chase Manhattan Bank (Ireland) PLC.
Ireland's economy, known with some pride as the "Celtic Tiger," has been growing by at least 7% a year since 1994, surpassing the United Kingdom's. The Irish economy now stands close to the average for the European Union in terms of gross domestic product per capita.
The 1.6% inflation rate is one of the lowest in Europe. And in the past two years unemployment has dropped from 17%, to 11%
The country is now on course to join the European Monetary Union in the first wave of countries that are eligible to qualify.
Unlike the United Kingdom, Ireland is almost sure to go ahead and tie its currency, the punt, to the single currency, the euro.
Amid this economic growth, Ireland is experiencing a boom in financial services.
A favorable tax environment is largely responsible. The corporate income tax rate for financial services companies is only 10%.
Ten years ago the Irish government decided to convert the redundant old site of the Dublin docklands into an International Financial Services Centre.
The plan was ambitious, considering the stock market crash of 1987. But now the site has revitalized the center of the city. Twenty-seven acres beside the central bus station and north of the River Liffey have been developed into 1.2 million feet of office space, residential, and retail units by the state-run Dublin Docklands Development Authority.
To set up in the financial services center, a company must first apply for a license for the 10% corporation tax from the minister for finance.
A license can be approved and a company up and running within two months.
Allied Irish Banks was the first bank to open its capital markets division there, in April 1990. Since then nearly 700 companies, including 80 banks, have moved in.
Many are U.S. financial institutions, such as banks, insurance companies, auditing firms, brokerage firms, and mutual fund managers. Among them: Chase Manhattan Corp.; Citicorp; BankAmerica Corp.; Bank of New York Co.; Bear, Stearns & Co.; Bankers Trust New York Corp.; and Merrill Lynch & Co., which set up an Irish-licensed bank to handle its worldwide derivatives operations.
Chase was one of the first U.S. banks to open shop in the new financial center. The range of businesses U.S. and other foreign banks engage in varies. But most U.S. banks have chosen to use Dublin for back-office processing and funds administration.
Chase, for example, administers around $15 billion in Irish-domiciled and offshore investment funds from Dublin. The three other main activities are corporate finance for U.S. and Irish multinationals, global treasury and payments activities, and corporate trust activities, including securitization programs.
Bankers Trust engages primarily in trust banking and fund management and runs one of its largest operating and processing centers from Dublin, while Citicorp has set up a regional service center for cash management, securities and trade finance processing, and back-office operations. According to market sources, Bankers Trust services around $2 billion in funds from Dublin, and Citicorp around $1 billion.
Two other U.S. banks, State Street Corp. and Bank of New York Co., have entered into strategic alliances with Irish banks. State Street has an arrangement with Bank of Ireland to provide custody, accounting, and administrative services to offshore mutual funds registered or managed in Dublin.
Bank of New York opened its first fund management services in Dublin to offer custody, trustee services, fund accounting, fund administration, and transfer agent services in an alliance with Allied Irish Banks PLC.
"The European Union is breaking down financial services into a single market," said Kevin Hynes, vice president of marketing at IDA Ireland in New York. "Now a U.S. institution with a banking license can sell products throughout Europe."
Merrill Lynch and Citicorp are good examples of businesses that are using Ireland as a gateway to the rest of Europe.
Last fall Citicorp was granted approval to set up a transaction services center in Dublin for payment processing throughout Europe. This center will eventually employ up to 950 people, many of whom are multilingual and provide round-the-clock funds transfer.
Tax concessions have also made Dublin one of the world's fastest growing centers for registering international mutual funds, with some $33 billion in such funds at the latest count.
Bankers like Mr. Leamy see no reason why the growth can't continue.
"We have the youngest work force in Europe; we have the skills and connectivity," Mr. Leamy observed.
As far as banking in Ireland's intensely concentrated market goes, the picture looks equally bright.
Allied Irish Bank and Bank of Ireland control roughly 70% of the Irish banking market, and profits have been strong. London-based Natwest PLC controls an additional 10% through its Irish banking unit, Ulster Bank, while the rest is divided between National Irish Bank (owned by National Australia Bank Group), TSB Bank, and some smaller institutions.
Uncomfortable with their heavy dependence on the Irish market, the two big Irish banks began moving abroad, first to Britain and then to the United States.
Their efforts to establish a presence in the United States have met with varying results. The $43 billion-asset Allied Irish, which took majority control of First Maryland Bancorp in 1989 and recently acquired Dauphin Deposit Corp., has registered an impressive growth in profits.
Bank of Ireland, which bought First NH Banks Inc. at the end of 1988, had less luck. After pumping hundreds of millions of dollars into the Manchester, N.H.-based bank and acquiring a large number of local banks, Bank of Ireland opted last year to turn the whole unit over to R.I.-based Citizens Financial Group Inc., a unit of Bank of Scotland, and retained a 15% stake in the combined equity.
Observers note that the robust economic picture in Ireland is not without some shadows. Even if unemployment has fallen, Ireland is rapidly splitting up into a society of haves and have-nots, with the unskilled, long-term unemployed emerging as a permanent underclass while the rest of the country moves on.
"Tough challenges lie ahead," said Betty J. Starkey, sovereign risk analyst at Thomson Bankwatch Inc., an affiliate of American Banker.
But Bank of Ireland's Padraig Rushe was more optimistic."The only issue that could hijack us now is if there was a major global recession."