Current Account

  • Are you ready for the econaclypse?

    November 28, 2008 @ 12:10 pm | by John Collins

    A truly remarkable year in the world of finance is beginning to draw to a close. Although given the pace of events in the last three months it’s anyone’s guess what might transpire by the time we sing Auld Lang Syne - a merged Bank of Anglo Irish Permanent owned by JC Flowers and Carlyle anyone?

    While 2008 has radically redrawn the banking and financial landscape, it has also introduced new words to the business vocabulary. Toxic debt began to be used by economists and analysts over the summer but by mid-October reports reached us of business people using toxic as an adjective for anything that seemed like a bad idea.

    My personal favourite of recent times however is econaclypse (”economic apocalypse)- a construction created by the writers at the AllThingsD blog fronted by Wall Street Journal tech writer Walt Mossberg. Econaclypse - when recession isn’t strong enough but you can’t face a depression.

    Hat tip to Bernie, who got us thinking about all this after highlighting the Oxford University Press USA’s word of the year - hypermiling. Glad to see we had carried a story about one of the finalist phrases “topless meeting” in the Business Technology pages back in March!

  • Our unique selling point is just the same as theirs

    November 27, 2008 @ 9:34 pm | by Barry O'Halloran

    Barry O’Halloran 

    You’ll have heard or read something like this before. On Thursday, a senior figure from a multi-national, with around 20 billion euro a-year in sales, was in Dublin singing the praises of a country that boasts the twin virtues of EU membership and having a young, well-educated workforce.

    But the speaker was not reciting the usual off-the-shelf stuff about why Ireland is a good place to invest. This time it was Declan Maguire, head of Irish group CRH’s central and eastern European materials division, and he was talking about Poland. He was speaking at a conference in Dublin organised to outline the opportunities available to investors in that country and to boost business between Ireland and Poland.

    Maguire’s comments about Polish workers ran like this, they’re “young, extremely well-educated, hard working, ambitious and entrepreneurial”. Also, there’s 37 million of them.

    The number of times that the words “young, well-educated workforce” trip off Government ministers’ tongues when they’re trying to remind people of the benefits of doing business in Ireland is beyond counting.

    Combine those words with low corporate tax rate and you’ve got the entire script. In fact, it’s short odds that it is a script, one they’ve learnt off by rote so it can be recited at will when the need arises. Even if it’s not, it’s still pretty scary that they have so little else to say when it comes to selling the benefits of doing business here.

    (more…)

  • Getting to know you…

    @ 6:24 pm | by John McManus

    As the chairman and cheif executives of the Irish banks troop into Government buildings tomorrow to discuss their futures with the Minister for Finance,   James Doran in New York and David McNeill in Tokyo will take a look in Business this Week at the track record of JC Flowers  and Carlyle, two of the US private equity groups that, as putative owners of one or more Irish banks, may have a more than passing influence on our lives…..

  • Fortune favours the brave and all that…..

    @ 5:57 pm | by John McManus

    Launching  new magazine and acquiring another one is a bold move in the current economic environment. But fortune favours the brave and, in recent weeks, publisher Michael O’Doherty has launched Stellar, a new women’s monthly, as well as taking over the Dubliner, writes Siobhan O’Connell, our woman in adland, in her weekly Media & Marketing column.

  • Too little too late?

    November 25, 2008 @ 5:54 pm | by John McManus

    Economic issues are finally back on the agenda in Northern Ireland, but after a five month standoff over justice,  Stormont is having to play catch up when it comes to dealing with the recession, writes Francess McDonnell in her weekly Belfast Briefing column.

  • Timothy and friends: the new purse-string pullers

    @ 5:23 pm | by Laura Slattery

    Meet Timothy, Larry, Christina, Melody and Bill. Together, this lot could have more influence over your pocket than Brians Cowen and Lenihan. They’re the famous five who are going to jolt the US economy (and by extension the European economy) back into good health, according to the man who has just appointed them: president-elect Barack Obama.

    Timothy Geithner, who is currently president of the New York Federal Reserve Bank, will become the new Hank Paulson from January i.e. he’s the next US treasury secretary. His appointment led to a 500-point rally on Wall Street on Friday, which kind of beats a Good Luck in Your New Job card. Meanwhile, Larry Summers, a former treasury secretary under Clinton will be an economic adviser to the White House, heading the National Economic Council. University of California professor Christina Romer will head Obama’s Council of Economic Advisers, while Melody Barnes, Obama’s campaign policy director, will head the White House Domestic Policy Council. Finally, Bill Richardson, a former energy secretary and UN ambassador, becomes US commerce secretary.

    Rewind back to early 2007, and a handful of brave analysts were suggesting that the economic maxim “when America sneezes, Europe catches a cold” no longer held true. (Wall Street had suffered a couple of bad days to which European markets remained immune.) Then the credit crunch happened, and the subprime virus swept through the banking system, claiming Northern Rock as its first casualty. Now the economic malaise has gone global. But will Obama’s economic team find a cure or just a band-aid?

  • Dangers of putting banks in hands of private equity

    November 24, 2008 @ 12:51 pm | by John Collins

    In his Business Opinion column this morning John McManus looks at the pros and cons of private equity involvement in our banking sector:

    “…any discussion of merits of private equity investment in the banks probably has to start with a debate as to what sort of role we want banks to play in society and from that we could deduce the optimal ownership structure!

    But few would have the appetite for such navel-gazing and, in any case, nobody has the time. The barbarians are at the gates with their cheque books and time is of the essence.

    It’s really a question of whether a banking system controlled by private equity would be any worse than the one we have at the moment, or one in which the State owned the banks.”

  • Bank of Ireland continues talks with Mallabraca group

    @ 9:46 am | by Simon Carswell

    Bank of Ireland held discussions with Irish representatives of the Mallabraca consortium of US private equity firms last Friday as the bank confirmed that it had received “unsolicited approaches from a number of parties wishing to make an investment in the group”. We are told that the bank and Mallabraca are continuing to hold talks this week, described not as formal due diligence but a type of diligence where the bank’s management would meet representatives of the consortium. It sounds like both parties are weighing each other up.

    (more…)

  • President McAleese tries to buoy struggling small businesses

    November 22, 2008 @ 10:27 am | by Simon Carswell

    President Mary McAleese was guest speaker yesterday at the annual lunch of the Small Firms Assocation, the business representative body which has been highly vocal in recent days criticising the drying up of the flow of credit to small businesses due to the banking crisis and calling for urgent Government action.

    The President cited US investor Warren Buffett, the Sage of Omaha, who said that in business matters the rear-view mirror is always clearer than the wind-shield. She said that the financial turmoil was “a great test” for small businesses and compared the global financial crisis as “a type of bird flu that we are searching for a vaccine to deal with”. She called on firms to use their networking powers now more than ever, telling them to use their “calling card” and “marketing tool” - the Irish abroad.

  • How are things in Maulabracka, sorry, Mallabraca?

    @ 10:18 am | by Simon Carswell

    There have been fascinating developments in the Irish banking sector this past week. The emergence of this grouping of private equity firms, led by Nick Corcoran and Nigel McDermott of Cardinal Asset Management and Bryan Turley of Dublin firm Sorrento Asset Management, with advisory help from New York-based investment bank Sandler O’Neill who are also investing in the consortium, is intriguing. Even more interesting is the consortium’s desire to buy into Bank of Ireland and possibly a merged group comprising that bank and Irish Life & Permanent.

    Corcoran and McDermott (who have both worked with IIU, financer Dermot Desmond’s investment company), have brought in private equity giants JC Flowers (which has a predilection for buying into troubled banks) and The Carlyle Group as well as some two sovereign wealth funds from the Middle East (if they are needed for any major stake-buying in the banks). Curiously, they have chosen to the name the consortium after Mallabraca, a townland near Dunmanway in Co Cork and the birthplace of one Sam Maguire, whose name is emblazoned on the GAA All Ireland football trophy.

    (more…)

  • Life coaching from Goodbody

    November 21, 2008 @ 1:26 pm | by John McManus

    Interesting to see that Goodbody stockbrokers is expanding out of its core business and into other areas such as life style advice. In his contribution to the firm’s morning meeting wrap this morning, banking analyst Eamonn Hughes has the following advice…

    “Over the last few months, weekends have turned out to be as busy as weekdays, with most of grandest plans of mice and men hatched over the weekend – remember Bear Stearns, Tarp, Fortis and the UK banks. So easy on the booze this weekend in case something breaks and get to bed early on Sunday night in case it slips out til Monday morning.”

    What next we wonder…..how to dress for a recapitalisation?

  • AIB’s new mortgage deal challenges claims of credit famine

    @ 9:31 am | by Simon Carswell

    AIB, the State’s largest bank, appears to have responded to claims of a credit freeze by launching a one-year fixed-rate of 3.25 per cent for first-time home buyers. The bank says the rate is more than 25 per cent lower than any other rate on offer in the market and describes it as “exceptional” in the usual marketing hyperbole.

    However, the deal is certainly extraordinary given that the European Central Bank (ECB) base rate stands at 3.25 per cent and the bank’s cost of borrowing its money for three months in euro is slightly over 4 per cent. The bank appears to be charging first-timers home owners below cost - in other words, the bank is losing money on the deal, unless the bank has sourced the money in a spectacular deal in the money markets. This is highly unlikely. At best, the bank must be charging at cost price for the money.

    The bank could well be pricing in a further 0.5 per cent interest rate reduction from the ECB next month and much further falls over the course of its one-year fixed-rate offer. The deal is open to first-time owner-occupiers until the end of March and mortgages can be drawn down by June 30th, 2009, so clearly the bank expects rates to fall lower and remain low until June 2010. “First Time Buyers are essential to the property market but may have been holding back until now,” says AIB.

    The deal will appease the Government which is calling for more loans to be made available for borrowers in the economy and inject a little life into the dormant property market.

  • Radical shake-up of the Irish banking sector on the way

    @ 9:14 am | by Simon Carswell

    Minister for Finance Brian Lenihan has signalled to the State’s six guaranteed banks and building societies what his officials have been assessing privately since the summer - a radical re-shaping of the Irish banking market with mergers. Mr Lenihan spoke of “structural” changes to the banking sector and a major reform of the market during his discussions with the chief executives and chairmen of the four banks and two building societies at Farmleigh in the Phoenix Park yesterday.

    The feeling among participants at these meetings, though nobody is commenting, is believed to be that the Government will re-mould the banking sector into two enlarged banks based on the big two players - AIB and Bank of Ireland. This would mean six institutions being hammered into two - in tandem with private equity and possibly State co-investments.

    This “Farmleigh Framework” is all part of the three-pronged Government’s strategy to fix and strengthen the Irish banking sector. Part one involved the guarantee. Parts two and three are consolidation and recapitalisation, though not necessarily in that order.

    (more…)

  • Low oil prices to put the wind up green energy sector

    November 20, 2008 @ 9:11 pm | by Barry O'Halloran

    Barry O’Halloran

    It’s almost a year since the original backers of Airtricity pocketed large wads of cash after selling the wind farm developer and operator’s assets to two utilities, Eon and Scottish & Southern Energy (SSE).

    They were the biggest deals done by any Irish company last year and this year, and left the group’s founder, Eddie O’Connor, with 50 million euro, and NTR and its shareholders with 800 million.

    Not bad for a business whose operations were largely in the pipeline. Not surprisingly, there are lots of people around Ireland who would like emulate this coup, albeit on a smaller scale. And I mean lots. Ultimately, our electricity system is likely to end up with 5,000 mega watts worth of wind farms. That’s equal to 10 to 12 average-sized conventional power plants, and is roughly the same amount of electricity that is consumed at the very height of peak demand in the Republic. And there are more projects looking for licences than will ever get them.

    (more…)

  • Woolly thinking from Woolies

    @ 1:43 pm | by Laura Slattery

    It would be easy to view Woolworths’ decision to accept calls from distressed company specialists Hilco as further evidence of the economic malaise that’s sweeping the retail sector just in time for Christmas. And it is, to some extent. But it is also a glaring example of what happens when companies fail to innovate and respond to new competition.

    The 800-store strong British retailer, affectionately known (until now) as Woolies, has no direct equivalent in Ireland’s shopping precincts, so if you haven’t graced one, here’s an idea of what they sell: DVDs, toys, baby buggies, hair straighteners and the occasional book. My first Sindy doll hailed from the Torquay branch of Woolworths circa 1985. She wore, as I recall, a monochrome animal print dress with hot pink PVC leather jacket. This is probably about as racy as Woolworths has ever been. Since then, like Sindy herself, the company has been overtaken by fitter and leaner rivals - most obviously when the likes of Tesco discovered they could trouser super-margins by stocking their shelves with non-food items.

    Times, and consumer habits, changed. Woolworths’ fondness for offering cut-price CDs stopped being quite so smart when music sales migrated online, while selling sweets and the kind of tat that can be found for cheaper in pound shops became increasingly anachronistic. Now Woolworths itself, just one year shy of its centenary, may be purchased for £1.

    There is an Irish connection. The key players in any Woolworths sale will be GMAC Commercial Finance and a company called Burdale Financial. The latter is a division of Bank of Ireland. Together they lent Woolworths £385 million last January, which must have seemed like a good idea at the time.

     In what seems like a tragic mistake in hindsight (although the deal may not have been completed in time), Woolworths rejected a bid approach worth £50 million for its stores in August. The approach came from a consortium led by Icelandic investor Baugur, which thanks to the collapse of the Icelandic economy is now in the business of flogging off parts of its retail empire rather than adding to it. Now Burdale and GMAC have appointed Deloitte to represent them in talks with the stricken shops. They may have more success trying to spark a Sindy revival.

  • Top investment tip from Silicon Valley

    November 19, 2008 @ 9:35 pm | by John Collins

    There was an amusing anecdote offered up today at the CEO Forum organised by the Irish Technology Leadership Group, where various Silicon Valley investors and entrepreneurs shared some advice with Irish technology start-ups.

    Richard Moran, a partner in Venrock, the venture capital firm controlled by the Rockefeller family which last year raised a $600 million fund, said he was sitting in his office recently going through his diary with his personal assistant. The eagle-eyed PA happened to look out the window into an adjoining car park and asked “are those guys smoking a joint?”. Moran looked out the window and confirmed that the three black-clad 30-somethings did indeed seem to be sharing a herbal cigarette. “I didn’t know people still did that at 11 o’clock in the morning,” Moran commented before getting back to his work.

    A few minutes later his PA returned with a smile on her face to say Moran’s next appointment had arrived. It turns out that the three dope smokers were the founders of a video game company looking to raise $8 million in investment. Only in California.

    Moran said there were three reasons for telling the story: “Venture capitalists are very observant, venture capitalists have a sense of humour and funding decisions are based on a lot more than just PowerPoint presentations”.

  • TV3 gives it 110 per cent

    November 18, 2008 @ 4:47 pm | by Laura Slattery

    There is probably no one in the business world who combines grumpy charisma with school-of-life common sense quite like Sir Alan Sugar, which is why the success of TV3 / Screentime ShinAwiL’s Irish version of The Apprentice with Renault man Bill Cullen has been so pleasantly surprising – notwithstanding a boring task in last night’s episode.

    RTÉ, as is traditional, has seen off the ratings challenge - in this case by employing the combined might of Bertie and, in earlier weeks, the sex-in-the-toilets restaurant drama RAW. But TV3 must be happy with The Apprentice’s numbers across the nine episodes to date, which have averaged at 269,000 or a 17 per cent share of its time slot. ABC1s watch in even greater droves, while the show is even more popular among women. An average of 25.1 per cent of women aged 15-34 have tuned in – something the producers may want to remind Bill Cullen when he queries whether candidates have “got the liathróidí” for the €100,000 job at stake.

    Pushing the show back to 10 pm in the schedules to make way for I’m A Celebrity… Get Me Out of Here doesn’t appear to have done any harm: last night’s episode averaged at 293,000, with a peak audience of 359,000. It took a 29.2 per cent share of the advertiser-friendly 15-34 year-old age group, the highest of any channel between 10-11 pm.

    Snagging The Apprentice format, which is multi-sponsored by the likes of Permanent TSB, Supermac’s, EA Games and the Dublin Airport Authority, gives TV3 the opportunity to cement its newfound ability to cross-link its schedules across a multi-channel platform following its summer purchase of Channel 6.

    Fired candidates have also been popping up on the Tuesday morning Ireland AM sofa – a nice filler for the TV3 breakfast show to depend upon and one that mirrors reality television guest-booking practices over on BBC Breakfast and GMTV. Let’s hope the 2009 sponsorship budgets aren’t totally decimated by recession, because frankly TV3 and Irish audiences could do a lot worse than The Apprentice Series 2.

  • Arlene Foster playing down North’s woes

    @ 2:08 pm | by John Collins

    In her Belfast Briefing today, Francess McDonnell asks if Northern Ireland’s economy minister, Arlene Foster, is in denial about the state of the North’s economy, which many believe is already in recession.

    “Foster is one of Northern Ireland’s most capable Ministers. She is articulate and intelligent but in recent weeks appears to have developed a worrying trend towards underplaying the severity of the economic downturn in the North.

    No one expects the Economy Minister to talk the North’s economy down - she is its first official champion. But what you might expect of an economy minister and a key economic government agency is a degree of awareness of the current situation.

    Foster claims she is “well aware of what the official statistics are indicating” but she also believes it is important not to “exaggerate our condition”.” 

    Hopefully with today’s news of a DUP/Sinn Fein deal the executive can get back to the task of shoring up the North’s economy.

  • Dealmakers sniff around the banks

    @ 1:24 pm | by Simon Carswell

    Dublin has been awash with rumours in recent weeks of private equity firms and cash-rich US and Middle Eastern investors expressing an interest in taking stakes in the Irish banks. These parties would need to work closely with the Government and know the mindset of Minister for Finance Brian Lenihan before seriously progressing towards a deal, given the €440 billion bank guarantee that is in place.

    One Irish bank was tentatively approached in recent days to see if they would be interested in taking a share of between €4 billion and €5 billion that could become available from the Middle East. The bank said no.

    It would appear that there are a number of dealmakers sniffing around the Irish banking market, looking for distressed assets to make money for flush investors. The Irish banks fit the bill. US Treasury Secretary’s scrapping of the purchase of troubled assets from the US banks, which could have created a pool of juicy, discounted assets for these investors, means that they are now turning their focus overseas, so Ireland could well become an attractive target.

    AIB has said it can raise capital on its own and the posturing from the bank indicates that its 24 per cent stake in US bank M&T is all but on the block. The stake would raise about €1 billion in fresh capital. However, in these distressed times, it could be a while before it sells.

  • Are capital needs really curbing bank lending?

    @ 1:10 pm | by Simon Carswell

    The debate on whether the banks need a fresh injection of cash onto their balance sheets continues with Fine Gael’s finance spokesman Richard Bruton calling on the Government to inject public money into the banks immediately amid fears that further delay could damage Irish business. This is despite assurances from the banks that they have enough capital and they can raise their capital levels from within their businesses, using a variety of sources.

    One senior banker told us, however, that there is some confusion in the recapitalisation debate and a belief that adding fresh capital will allow the banks to lend more.

    He said the real reason banks were cutting down on their lending was not in the first instance to shore up capital but to reduce their reliance on the wholesale funding markets.

    Bank of Ireland said last week that it had reduced its loan-to-deposit ratio from 174 per cent - in other words €1.74 in loans for every €1 in deposit - at September 2007 to 140 per cent last Wednesday, or €1.40 in loans for every €1 on deposit. So this means the bank is still having to raise 40 cent of the €1.40 in loans from the wholesale markets.

    Given how topsy-turvey these markets are, it’s no surprise that the banks want to reduce their reliance and stick to the bread-and-butter of banking - only lend what you take in on deposit. That could be a few years away. In the meantime, businesses seeking fresh credit lines to tide them over during the recession will find borrowing more and more difficult.

  • Satnavs, survival guides and subprime suburbs: business on TV

    @ 12:26 pm | by Laura Slattery

    What do Cosimo de Medici and collateralised debt obligations (CDOs) have in common? Anyone who tuned into the first episode of economic historian Niall Ferguson’s six-part Channel 4 series The Ascent of Money last night will know the answer: not much.

    The economic historian was genuinely incredulous as he swept through a subprime suburb of Memphis, Tennessee – the bankruptcy capital of America - with its plethora of neon Quik Lend and Payday Advance signs and pawn shops the size of department stores. Then there was a frankly scary place called ZLB Plasma, where if you’re really broke you can sell your own blood for $25 a pop. “Talk about being bled dry.”

    For Ferguson, this was evidence of a whole sector of the economy “built on people who are broke” and a far cry from the heyday of Renaissance financiers the Medici family, who were not only fond of the odd painting, but were also very good at keeping track of their credits and debts. But if Memphis was another world from Florence’s domes and galleries, it was also radically different from the Glasgow of Ferguson’s youth, where getting into bed with loan sharks was both shameful and unpleasant. In 19th century Memphis, however, there were no debtors’ prisons as there were in Britain and thus no legacy of social stigma. Today it is all so easy, Ferguson observed: join the fast-track bankruptcy queues, get the right stamp on your form and you’re done. (more…)

  • What is Independent’s strategy down under?

    November 17, 2008 @ 12:46 pm | by John Collins

    In his Business Opinion column today, business editor John McManus looks at the true significance of Independent News & Media putting its 39.1 per cent stake in Australia’s APN News & Media up for sale.

    “This analysis casts the disposal of the group’s stake in APN as a class of a fire sale - the objective being to rapidly deleverage the business, which is facing serious problems on various fronts.

    The INM version of what is going on is somewhat more prosaic - their jumping-off point being that rather than being active sellers they are responding to unsolicited approaches for the APN stake.

    A disposal is also not out of tune with the medium-term group strategy, which included a failed leveraged buyout of APN a year ago.

    Deleveraging and the release of cash were significant attractions for INM in that deal, and remain attractive.”

    O’Brien looms as O’Reilly opts to cut ties Down Under

  • The price is right

    November 14, 2008 @ 2:26 pm | by Laura Slattery

    Aren’t prices coming down supposed to be a good thing? Yes, if you’re looking for a cut-price Christmas. And yes, if you hold the reasonable (if not always realised) expectation that retailers will adjust their price tags down when sterling weakens and petrol stations will pass on the full value of, say, a halving in the cost of crude oil.

    But what if the global forces of recession mean prices just keep on falling? Figures from the Central Statistics Office (CSO) today show that retail sales continued to decline in September at a rate that’s close to August’s 24-year low, with very little pick up in shopping activity after a washout summer that did not exactly send the tills buzzing. The result is that half-price tins of biscuits are likely to be in long supply this Christmas.

    Those of us who like a good bargain will appreciate the odd short-term bout of desperation on the part of (with apologies for the jargon) consumer-facing businesses – you know the kind of thing: discounts on discounts, 32 inches of flatscreen glory for the price of 26, seat sales. But if these mutate into a sustained period of deflation, it could create a very different kind of headache for cash-strapped, indebted households. Rather than suffer the pain of seeing their spending power eroded by inflation, in a deflationary era, they could see the real value of their debt increase.

    Ominously, a debt-deflation spiral was the defining feature of the Great Depression.

    In Ireland, we’re some way off hitting even a temporary period of deflation - yesterday’s CSO consumer price index shows that while prices are falling fast, inflation is still running at the rather high annual rate of 4 per cent. This rate won’t drop into negative territory until next May, one economist predicted yesterday. Even then, the dip into deflation mode will be largely the result of interest rate cuts and an unwinding of 2008’s spike in energy and food prices.

    So it would seem that there’s plenty of time for policymakers to step in, slash interest rates further and stop consumer demand from going into total freefall. Still, it’s entirely possible that this time next year, rather than complaining about “rip-off Ireland”, we will actually be praying for prices to start going up.

  • Lenihan plays wait-and-see game on bank capital

    @ 1:48 pm | by Simon Carswell

    Thursday, November 20th is the deadline the Financial Regulator has given the six guaranteed Irish-owned banks and building societies to submit their revised business plans showing how they intend to reduce their risks under the two-year term of the guarantee.

    At an Institute of Bankers dinner last night, Minister for Finance Brian Lenihan kicked to touch on the issue of the recapitalisation of the banks, saying it was for each institution “to take appropriate steps to ensure that its level of capital is aligned with its needs”.

    He said the guarantee “provides explicitly” that guaranteed institutions be “required to adjust their capital ratios if that is required for the maintenance of financial stability”.

    It seems that some of the banks have already submitted their plans as Lenihan said in his speech last night that the regulator was reviewing business plans from the banks and the overall financial strength of the covered institutions. “I expect to see the results of this over the next few weeks and I will be considering the conclusions carefully,” he said.

    For the time being, it’s a wait-and-see game on whether the banks need a State hand-out.

  • Time to buy BOI?

    @ 12:17 pm | by Fiona

    Bank of Ireland has become the second Irish bank to be removed from the DJ Stoxx and Euro Stoxx Select Dividend 30 indices, following its announcement yesterday that it would scrap its dividend to shareholders. Irish Life & Permanent got the chop earlier this week.

    This, combined with its poor results, led to heavy selling pressure in BOI yesterday, causing it to drop back to €1.21.

    Nevertheless, Goodbody Stockbrokers has upgraded the stock from “add” to “buy”, citing the fact that the stock has collapsed nearly 50 per cent in the past fortnight and is down 75 per cent from its October 1st level.

    However, with recapitalisation still an issue – Goodbody estimates that the bank needs to raise €1.5-€1.75 billion to reach its core equity target – the broker has cut its price target to €1.90 and says that BOI is likely to stay within a €1.20-€2.50 trading range for the next few quarters.

    Over at NCB Stockbrokers, analysts are less bullish and have kept the stock on “hold”. The broker has also cut its price target to €1.30 from €2.30.

  • Banks prepare to go to funding markets

    @ 11:19 am | by Simon Carswell

    The banks have been busy putting together prospectus-based documents, approved by the Financial Regulator, that they will use to borrow money from banks and investors in the term funding markets to finance their own existing committments.

    The State guarantee has not yet been tested in the funding markets and the use of the Irish sovereign guarantee will undoubtedly help banks raise longer-term funding through the sale of bonds, commercial paper and term notes - all essentially IOUs to other big banks and investors that will bring in money. These markets have been largely frozen since the collapse of US investment bank Lehman Brothers in September, but the Irish banks will be hoping to raise some much-needed longer-term money.

    Bank of Ireland said at its half-year results presentation yesterday that it would soon launch a term funding debt issuance inside the guarantee scheme. Head of the bank’s capital markets division, Denis O’Donovan, told reporters that “orderly issuances from the Irish institutions” could be expected, similar to what has happened in the UK under their guarantee scheme. This confirms our own story on yesterday’s front page which said the banks try and raise money in a planned sequence, starting with AIB.

    Richie Boucher, head of Bank of Ireland’s operations in the Republic, said the bank had been in “a closed period” up until yesterday and hinted that the bank could now start talking to investors.

    Expect the banks to start raising loans in the very near future.

  • BoI pours cold water on possible bank mergers

    @ 1:08 am | by Simon Carswell

    Bank of Ireland chief executive Brian Goggin was quick to dismiss the possibility of mergers and acquisitions in the Irish banking market as a means of the strengthing the system further against the kind of external shocks felt in September.

    At the half-year results yesterday, Goggin said the bank had “enough problems” without taking on someone else’s as well. “I don’t see mergers and acquisitions as being on the agenda,” he said.

    Goggin pointed out that the bank would be paying a €60 million charge in the second half of its financial year, to March 31st, 2009, under the bank guarantee scheme, which is in line with the €115 million charge reported by The Irish Times last month.

    The Bank of Ireland chief also told reporters he didn’t believe this week’s offer by rival Permanent TSB to pay staff to take career breaks in a bid to reduce costs was all that novel an idea, despite union officials giving it the thumbs up as a clever approach.

    Richie Boucher, head of Bank of Ireland in the Republic, said the bank had reduced staff numbers by about 600 by not replacing staff who have left since June 2007. The bank reduced costs by 3 per cent in the six months to September 30th.

    Given the pressure some senior bankers are under, a paid career break must be very tempting at this time.

  • Mortgage borrowers hold up well at BoI and IL&P

    @ 12:50 am | by Simon Carswell

    Bank of Ireland’s mounting bad debt exposure on its €13 billion development and construction loan book drew the most attention at the bank’s half-year results yesterday. However, the bank was keen to point out that it had a low-risk residential mortgage book of €60 billion, or 44 per cent of the bank’s overall €145 billion loan book at the end of September.

    The bank, which has a 19 per cent share of the Irish mortgage market, said it had only three repossessions on its 194,000 mortgages in the Republic of Ireland in the ten months to the end of October.

    The bank said that with house prices down 14 per cent from their peak in February 2007, the bank had mortgages of €190 million in negative equity - where a borrower owes more than the property is worth - with €100 million relating to first-time buyers with 100 per cent mortgages.

    The previous day, Irish Life & Permanent, the State’s largest mortgage lender with a 20 per cent share, said some deterioration was appearing at the edges of its Irish mortgage book. Impaired mortgages of more than a month in arrears had increased to 6,600 at the end of September from a low of 5,700 in December 2007 out of a total portfolio of more than 195,000 cases.

    Irish Life & Permanent said that about 9 per cent of the company’s mortgages had a loan-to-value ratio of more than 90 per cent. The company is expecting a “low single digit basis points” bad debt charge this year on its mortgages, meaning between 0.02 per cent and 0.04 per cent of the loan book.

    Bank of Ireland expects a bad debt charge of 8 basis points on its mortgages, or 0.08 per cent of the book, in the year to the end of March 2009.

    So it would appear that mortgage borrowers are holding up okay in the early stages of the recession. It’s a shame the same can’t be said for the country’s developers.

  • Reduce the term of your mortgage this Christmas

    November 13, 2008 @ 12:00 pm | by Fiona

    With Christmas fast approaching, homeowners may be rejoicing over the latest interest rate cut from the European Central Bank, which has reduced the cost of servicing a variable rate or tracker mortgage by 1 per cent, or about €120 per month, over the past few weeks.

    However, borrowers who can afford to shouldn’t rush to spend this money in other ways. By using this extra money to pay down the principal element of your loan each month, you could cut the term of your mortgage by a couple of years, while also saving thousands in reduced interest payments.

    Take for example someone with a €200,000 mortgage over 20 years, on a tracker mortgage interest rate of 4.55 per cent.

    Instead of simply adding the €120 saved by interest rate cuts to the monthly shopping bill, by over-paying the mortgage by this amount the borrower could save themselves over €15,000 in interest payments, and knock two and a half years off the life of their mortgage – surely more appetising than a couple of extra bottles of champagne this Christmas?

  • Who dares to speak of banking?

    November 12, 2008 @ 9:14 pm | by John McManus

    The efforts of the two self appointed guardians of the Scottish banking industry, George Mathewson and Peter Burt  to derail the merger of Lloyds TSB and HBOS  has been dismissed by some as “little more than a hostile job application” reports Fiona Walsh, our woman in the City in her weekly London Briefing column. 

    But their antics do rather raise the question as to what our former senior bank executives make of what is going on at the Irish banks. One suspects that whaever they might think, they are keeping the head down in case they get asked to be a “public interest director” by the Government.

  • Mind the gap

    @ 5:06 pm | by Laura Slattery

    Ireland is closing the gender gap, according to the World Economic Forum (WEF), which has ranked the Irish in eighth spot in its Global Gender Gap Index for 2008. But don’t make an emergency call for the smelling salts just yet - this doesn’t make Ireland a land of equals.

     It just means that we are catching up with other western economies on some measures of equality such as economic participation and political empowerment. The term you are looking for is “coming from a low base”.

    According to the WEF, which sandwiches Ireland’s gender progress between that of Denmark and the Netherlands, we have improved our standing for the third consecutive year – after coming ninth in the 2007 index and tenth in 2006 – largely because of a rise in the percentage of women among the nation’s legislators, senior officials and managers. This has increased from 29 per cent in 2007 to – hang on to your hats – a whopping 31 per cent this year. The continued term of Mary McAleese as President also drives up our political empowerment stats, which feels like cheating somehow.

    Despite Ireland’s equality baby steps, we’re still lagging our closest geographical neighbour, the UK, in the “economic participation and opportunity” category, with female labour force participation, estimated income and proportion of legislators, senior officials and managers all distinctively more modest. We do, however, have more female “professional and technical” workers than male ones. But on average, in Ireland a woman who does similar work to a man takes home just 71 per cent of his salary, according to the WEF. The other 29 per cent is for free.

    As Ireland’s recession status solidifies, what happens next is anybody’s guess. On the one hand, female employment has held up better than male employment so far, as most of the recession’s job casualties have been in the male-dominated construction sector. On the other hand, it is part-time and casual service sector workers (who tend to be female) that could be first in line to get their P45s when business goes bad.

    For its part, the WEF stressed today that it is vital that women’s economic participation does not shrink in the current crisis, saying its index tracks a “strong correlation between the gender gap and national competitiveness”. But ominously, with a smaller gap to close than Ireland, the UK’s progress has stalled, pushing it back two spots to 13th in the WEF’s rankings. And as the WEF notes, no country in the world has actually achieved gender equality.

  • Regulator rolls up its sleeves

    @ 12:05 pm | by Simon Carswell

    Several Irish banks were surprised last Thursday morning (November 6th) to receive calls from the Financial Regulator asking whether they would be passing on interest rate cut from the European Central Bank (ECB).

    So what’s the big deal, you’re probably thinking. Well, the calls were a little odd because they were made before the ECB had announced its 0.5 percentage point rate reduction.

    The calls certainly raised a few eyebrows. A spokeswoman for the regulator described the contacts as “an information gathering exercise” to see whether the banks had passed on ECB’s October half-point reduction to their customers and whether they intended to pass on the “widely-signalled” rate cut that was expected later that day.

    The regulator seems to be getting much more proactive in these times of crisis, though the spokeswoman said the calls did not represent a new departure for the regulator.

  • Time running out for North’s politicians to rescue economy

    November 11, 2008 @ 6:44 pm | by John McManus

    The Northern Irish economy continues to slow, with activity contracting for eleven straight months according to the Ulster Bank Northern Ireland Purchasing Manager’s Index. As Francess McDonnell, our woman in Belfast, points out in Belfast Briefing there are few businesses and companies in Northern Ireland that have been lucky enough to escape the slowdown in the economy, which serves to underscore the call from Arlene Foster, the economy minister, for her fellow politicians to put aside their differences and get to work on a plan to help rescue the local economy.

  • Recapitalising the banks

    November 10, 2008 @ 12:04 pm | by John McManus

    In Business Opinion this morning the case for recapitalising the Irish banks is discussed. In our view the wider economic climate makes it a long shot at best that any of the banks will be able to avoid going down this road.  NCB note this morning that the decision by Banco Santander to shore up its capital base through a rights issue puts pressure on the Irish banks to sort out their issues. Goodbody and Davy make similar observations.  All eyes on Bank of Ireland’s interims on Thursday and Irish Life & Permanent’s interim management statement on Wednesday.

  • Obama and Ireland

    November 7, 2008 @ 12:48 pm | by John McManus

    In a front page story in Business This Week  today Arthur Beesley lifts the lid on just how profitable a place Ireland is for US multinationals, reporting for the first time on US Bureau of Economic Analysis figures showing that US firms made profits of $48 billion here in 2005.   It puts President elect Barack Obama’s plans to broaden the US tax base and clamp down on the use of overseas shelters in perspective.

  • The people you meet on Twitter

    November 6, 2008 @ 4:51 pm | by John Collins

    Simultaneously with the launch of our blog the Irish Times business desk opened an account on Twitter (@IrishTimesBiz) to keep people up to date with our activities. For those of you not familiar with Twitter read this bluffer’s guide.

    Anyway imagine our surprise when we arrived into the office to find that Olympic boxer Kenny Egan (@KennyEgan) was now following our updates on Twitter. Hi Kenny - never realised you were on Twitter or had such in interest in business and enterpreneurship.

  • Advertising Dentists

    @ 12:11 pm | by John McManus

    In her Media & Marketing column this morning Siobhan O’Connell wonders whether the Dental Council has really embraced the Competition Authorities’ call for denists to foster competition through advertising. Here is a taster:

     ”…the Dental Council has produced a new code of practice on public relations and communications for dentists. If the code is supposed to represent a new era of free market glasnost, one wonders what the old prohibitions were like…The new code appears to make a mockery of what the Competition Authority set out to achieve.”

    Dentists can post their comments here, but please no breeches of the code on public relations and communications!!

  • Every three minutes…

    November 5, 2008 @ 7:53 pm | by Laura Slattery

    Every three minutes, another person loses a job, says Fine Gael’s Leo Varadkar today in response to ominous new figures from the CSO. Has Bono been clicking his fingers again?

    The Irish Times has checked the maths and found that the FG spokesman on employment speaks the truth - well, kind of. Technically, every three minutes someone signs on i.e. joins the (seasonally adjusted) live register of jobseekers’ claimants (which means that some of them may be part-time or casual workers). But then that doesn’t look quite so catchy on the press release.

    But there are other curious numbers in economists’ analysis of the live register gloom. It is estimated that it costs the economy €11 million a year in increased welfare payments and lost tax revenue for every 1,000 people on the live register, notes economist Alan McQuaid. On that basis, the seasonally unadjusted addition of 11,800 people to the dole queue last month alone will cost the exchequer almost €130 million.

    If, for no particular good purpose, we combine Varadkar’s “one every three minutes” rule and the lost jobs cost estimates, the economy will have seen another €11 million disappear into a black hole by Friday evening.

    And in 12.7 years, the entire workforce will have been handed their P45s…

  • Will the Bank of England Step Up?

    @ 2:03 pm | by John McManus

    In her London Briefing column this morning our woman in London, Fiona Walsh  asks how bold the Bank of England will be when it starts its two day meeting today. 

    “Will the eight men and one woman charged with setting interest rates throw their previous caution to the wind and heed the growing calls for radical action?

    In other words, will they slash rates by a full percentage point or will they continue to fret about inflation and opt for a “safe” half-point cut?”

    Her view is that a cut of one percent would be unprecedented and its impact tempered by the British bank’s indication that they will not pass on the full amount of the reduction, whatever it may be, thus risking the ire of Peter Mandelson.

  • Democrats are good for the US economy

    @ 1:39 pm | by John Collins

    Wall Street had its strongest election day rally in 24 years yesterday, while the dollar has climbed and Asian markets hit a three week high on the back of Obama’s election overnight. Which all flies in the face of the conventional wisdom that the markets and business in general like Republicans and fear Democrats.

    That particular urban myth got a good thrashing recently when Prof Stéphane Garelli from Switzerland’s Institute of Management Development (IMD) addressed a conference in Dublin. In his highly entertaining presentation on the competitive outlook for 2008 and beyond (who would have thought Swiss econmics professors could be so amusing) Prof Garelli showed a slide which plotted different US presidents against the budget deficit they oversaw. It showed clearly that the Democrats tend to oversee surpluses while the supposedly market-friendly Republicans run up massive deficits. Link to the full slide below.

    US Budget Deficits

  • Despite dubious stats Doonesbury calls it for Obama

    November 4, 2008 @ 3:22 pm | by John Collins

    Amusing post over on the Freakonomics blog at the New York Times about Garry Trudeau calling the US presidential election for Obama by drawing a strip for Wednesday that features a victory for the Democrat. Some US papers are a little nervy about running it (Dewey Defeats Truman anyone?). Stephen Dubner, in true Freakonomics style, takes issue not with Trudeau’s political leanings, which were never really a secret, but the flaw in the statistical defence of his decision.

  • Mini Budget on the cards

    @ 1:40 pm | by John McManus

    The Minister for Finance seems to have all but conceded that there will be a mini-budget next spring in his comments last night to Jamie Smyth, our man in Brussels , and reported on this morning’s front page.

    The current Budget, which is less than a month old is quietly being recast as more of a national wake up call than a statement of fiscal policy. And it’s not surprising given that a real handle on the out turn for 2008, and thus the basis for 2009, will not be obtained until we get the November exchequer returns next month.

    We will have full coverage in tommorrow’s paper of this afternoon’s Exchequer numbers for October. They will no doubt be shocking but are less significant than next month’s as November is a big month for corporation tax payments and VAT. If the November figures are bad, further spending cuts and tax hikes become imperative if the Exchequer is to be stabilised.

    One possible tactic might be to use the Excessive Deficit Procedure triggered by the European Commission yesterday as cover for another assault on the taxpayer. Under the ECD the Government must submit proposals to reduce the deficit to Europe. The time line for this - as pointed out by Goodbody’s Dermot O’Leary in his morning note today - is six months.

    Dressing a mini-budget next spring up as a response to the Excessive Deficit Procedure would be politically tempting for the Government. Firstly the pain can be blamed on Brussels rather than domestic incompetance and secondly it diverts attention away from the reality that a mini-budget would in effect be an admission that the current Budget is a failure and bringing it forward by two months was pointless.

  • It’s official - the whole island is in recession

    @ 11:31 am | by John Collins

    To date Denmark and the Republic have been the only two EU nations to meet the technical requirements of being in recession (two consecutive quarters of negative economic growth) although the European Commission has been predicting that Britain, Germany and Spain will follow suit this year. Yesterday it downgraded its forecast further and said “the economy is expected to come to a virtual stand-still in both the EU and the euro area in 2009″.

    New data released today by Ulster Bank in its NI Quarterly Economic Update suggests that Northern Ireland is now in recession as well.

    As columnist Francess McDonnell points out in her Belfast Briefing today “Northern Ireland has shot past the rest of the UK when it comes to the recession timetable” and business leaders are increasingly frustrated by the lack of leadership from the Executive which hasn’t sat since June.

    “Business leaders in the North have been urging politicians to put aside party loyalties and act in the best interests of “Northern Ireland plc”. But their appeals have met with little sympathy.”

    Read the full column here.

  • When the going gets tough…….the tough get hungry

    November 3, 2008 @ 7:32 pm | by Fiona

    With the global recession biting, most firms are suffering from declining sales but one Irish firm is bucking the trend.

    Rib World, a Clonmel based pork processing operation which focuses on producing pre packaged pork ribs, has just recorded one of its best months ever, selling ribs worth over €750,000 in October. The firm sells its products across Europe in a range of stores including Lidl and Aldi.

    The firm has also attracted investment from The Envit Group, a US a financial holding company, which has just completed the acquisition of a 5 per cent ownership in Rib World for an undisclosed sum.

    Citing the “amazing” growth of Rib World over the past 24 months and the “limitless potential” of the company, The Envit Group also entered into an agreement to acquire an additional percentage of Rib World at some point in the future.

    As consumers shy away from more expensive food products, Rib World’s pre-prepared barbecue ribs seem to be hitting the spot.

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