Sat, Feb 16, 2013, 00:00

Inside the world of business

Frankfurt fuming over revelations

Memo to Dublin: don’t expect favours any time soon from the Bundesbank. Behind Bundesbank president Jens Weidmann’s carefully phrased concerns yesterday on the promissory note deal, the Frankfurt central bank is fuming.

Officials were not amused by Irish politicians’ post-deal revelations last week: of Weidmann’s reticence to an agreement, of European Central Bank president Mario Draghi’s reported long-time approval, and of a final push by ECB executive board member Jörg Asmussen.

An even greater sin than these indiscretions, the Bundesbank complains, is Dublin’s cheering about the cost savings. Repeating the €20 billion figure, Frankfurt worries, will be a red rag to those convinced the ECB is already engaged in monetary financing.

To exorcise the monetary financing poltergeist, expect Weidmann to push hard for Central Bank governor Patrick Honohan to sell off his Central Bank bonds soon.

While the ECB governing council “unanimously took note” of last week’s Dublin deal, the Bundesbank indicated yesterday it was not convinced the new arrangement was any more legal than the arrangement it replaced.

After flying his kite yesterday, the Bundesbank president can now lean back and see what happens next.

It took a week to digest the technical details, but the Frankfurter Allgemeine daily warned yesterday that Ireland’s promissory note deal “left an insipid taste”: “If Ireland can only be a success if the monetary financing ban is broken by Ireland’s Central Bank supporting the exchequer, it raises the question whether the poster-boy country is a success at all.”

Combined with Weidmann’s remarks, that warning has put Ireland’s promissory note deal firmly on the radar of Germany’s most persistent bailout critics.

Take constitutional lawyer Prof Dr Dietrich Murswiek, a regular face in the constitutional court in Karlsruhe and currently challenging the European Stability Mechanism bailout fund and ECB bond-buying programme. Murswiek told Cantillon yesterday he found the Irish arrangement “very interesting”.

Why? Because, he said, it might allow him to demonstrate to the court that his claims on ECB monetary financing are a practical, not theoretical concern.

A year ago, Irish officials secured a one-off promissory note deal by urging European partners to play it down as a technical matter.

As far as the Bundesbank is concerned, it would have been better for all concerned if, last week, the Irish officials stuck to that game plan.

Will liquidators ever cement Quinn deal?

The failure of the Quinn and Lagan cement manufacturers to agree a deal could leave Irish Bank Resolution Corporation’s special liquidators, Kieran Wallace and Eamonn Richardson, with a bit of a headache down the road.

IBRC owns 24.9 per cent of the Quinn business. The rest is controlled by a group of other banks and hedge funds, which held various bits of the original group’s debt. It is they, and not the State-owned shareholder, who call the shots.

When Quinn and Lagan began talks on a possible joint venture last December, it was in reality a merger of some sort that was on the cards. This raised the prospect that the bank would be able to dispose of its stake in the business.

That prospect has now disappeared as Quinn and Lagan were unable to come to an agreement.

One of the results is that IBRC will have its 24.9 per cent holding in the company for the foreseeable future.

It is unlikely to be top of the special liquidators’ list, but it will have to be dealt with in some shape or form.

When they get around to it, Wallace will at least have some insight. Anglo Irish Bank appointed him as its share receiver to the Quinn Group two years ago.

For now, the cement business will just sit on the balance sheet as an asset.If that is the case, what is it worth? The answer to that is simple: whatever somebody wants to pay for it. The really hard question is: what would someone want to pay for it?

If someone were to buy IBRC’s stake in Quinn Building Products , as it is now known, they would end up with a quarter of a cement manufacturer whose home market has been decimated over the past six years, leaving more supply than demand. As a result it has to look overseas for new sales, only to find that the next nearest market has many of the same problems.

The buyer’s partner in this enterprise will be a group of banks and hedge funds, which are only there because they loaned the Quinn Group a lot of money.

The lack of foresight they displayed in either doing this, or acquiring the debt, combined with a likely ignorance of cement manufacture, hardly makes them ideal bedfellows.

The situation is a difficult one and it is hard to see now who would want to buy 24.9 per cent of Quinn Building Products. Not to mention buying it all.

Permanent TSB's discreet capital raising

Attention may have focused recently on AIB and Bank of Ireland’s successful bond issues, but Permanent TSB has been no slouch in this area either it turns out.

Keen students of the Department of Finance numbers on bank funding – January edition out this week – would have spotted that Irish banks’ drawings from the ECB declined by €700 million in January “primarily as a result of AIB and PTSB raising €1.1 billion in new funding from capital markets”.

PTSB sources says this is only half the story as it actually raised €600 million in a private deal with a “major international bank” on “terms that compared favourably to prevailing market transactions”. The bond was backed by the PTSB’s UK mortgage book.

And why was the PTSB so publicity shy around this particular Irish banking good news story, which answers concerns about its ability to meet various redemptions due in January?

The answer is apparently that the counter-party doesn’t want it acknowledged just how competitive the rate was!

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