Cantillon

Tue, May 29, 2012, 01:00

Inside the world of business

Spain's Bankia looking more and more like Anglo

Hearts must have sunk on Merrion St on hearing the news the Spanish government is considering using its own debt instruments to recapitalise its banks, starting with a €19 billion injection into Bankia.

Ireland, of course, went down this route with Anglo Irish Bank and Irish Nationwide, injecting €24 billion of capital into these two disasters via promissory notes, which are just another form of Government debt. If the Spanish were to go down this route, it would confirm Bankia as some sort of Iberian twin of the failed Irish bank.

But far more pertinent is that the focus of Irish efforts to win some sort of advantage in the current bout of Euro turmoil has been to get its lenders – and above all the European Central Bank – to allow the promissory notes be replaced with a cheaper and more long-term source of funding. Doing so would dramatically change Irish debt dynamics and make a return to the debt markets by 2013 a realistic possibility, according to commentators.

The preferred vehicle to refinance the promissory notes is seen as the ESM and the hope – until yesterday – was that the Spanish would be allowed to tap the new fund for their banks and thus avoid a full scale bailout along the lines of the Irish one. The Irish plan – such as it was – is to then seek a similar retrospective arrangement for the Irish banks, and promissory notes in particular.

The main opponent of the idea is Germany and if the news from Spain is anything to go by it has stuck its heels in once again.

However the game is not yet up. The Spanish don’t plan to make up their minds until the autumn, leaving the ECB to mull the fact it will ultimately be refinancing any debt issued by the Spanish to their banks – as it did the promissory note.

It is not something that appeals to Frankfurt and it will certainly let Berlin know.

Intel plant would be a shot in the arm for the construction industry

Given the scale of the application Intel has submitted to Kildare County Council seeking permission to build a new manufacturing facility in Leixlip, it will be one of the biggest construction projects seen in the Republic for some time.

The multinational wants to build a 162,000sq m, 36m high facility with a range of ancillary buildings, including utilities, water treatment and power. It is also looking for a multistorey car park with the capacity to hold more than 2,000 vehicles.

It is difficult to estimate just how many construction jobs this will create, but it has been suggested it would require up to 1,000 people on site alone.

This would be a shot in the arm for an industry that is a shadow of its former self. Last month, a report by DKM Economic Consultants calculated that employment in the industry has fallen below 150,000 this year from a peak of 380,000 in 2007, a drop of 60 per cent.

The value of the industry has fallen to €7.5 billion this year from €39 billion over the same five-year period. In light of those figures, the prospect of even one multibillion euro investment that will employ at least 1,000 people looks like the answer to a lot of prayers.

It could also be seen as a vote of confidence. Intel will want the plant built and ready to roll quickly. Not only that, it will involved a lot of high-end mechanical and electrical engineering work.

When it comes to choosing a site on which to manufacture its latest generation of microprocessors, at least one of the deciding factors is whether the local construction industry can get the facility up and running on time.

Presumably, Paul Otellini and his colleagues think that the Irish construction and engineering sector can do this, and do it for the right price. After the last five years, it’s fair to assume that a lot of players in the industry will be keen to prove them right.

Final decision on Battersea due

The glamour fixture between Champions League winner Chelsea Football Club and the National Asset Management Agency select XI appears to be off. Chelsea will almost certainly fail in their bid to move their stadium to the landmark Battersea Powerstation site in London, a source close to the sale process has told Reuters.

The crumbling riverside edifice, which is Europes largest brick structure, and its quartet of art-deco white chimneys have been a recognisable silhouette on the London skyline for 80 years. Chelsea said earlier this month the power station had “the potential to become one of the most iconic football stadiums in the world”.

The site came on to the market after a £5.5 billion plan by Treasury Holdings for homes, shops and offices collapsed in December. It had a price tag of about £300 to £400 million.

It was placed into administration by Lloyds Banking Group and Irelands National Asset Management Agency, or bad bank, which are reportedly owed about £400 million between them.

Malaysian real estate company SP Setia and veteran British developer Godfrey Bradman are leading the chase to buy the site with one other bidder also in the frame, the source said, describing the Chelsea bid as “way off the pace”. A final decision could come as early as this week, the source told the news agency.

About 15 bidders including Chelsea, who are owned by Russian billionaire Roman Abramovich, submitted plans earlier this month to buy the protected 15-hectare site on the south bank of the River Thames. It has been the subject of repeated failed redevelopment attempts in the three decades since it shut.

Quote of the day

It’s like watching the ‘Usual Suspects’. You didn’t see this ending coming. – a Bloxham employee reacting to yesterday’s events

Today

Bank of Portugal is due to release its financial stability report on the state of its banking system


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