Inside the world of business
Putting off the evil day always comes at a price
DESPITE ASSERTIONS that another bailout is not required, the restructuring of the Anglo/Irish Nationwide promissory notes – if it involves drawing on the EU bailout fund – could rightly be interpreted as a kind of second bailout.
The plan is designed to push out the term on some bank debt lumped on the State.
It’s nowhere near a Greek-style second bailout where losses are being imposed on sovereign bondholders, but it will nonetheless mark a return to the European bailout well should the Government tap the EU fund.
A short-term deal, which is said to be imminent, is being worked on to avoid a net cash payout by the State to cover the next €3.06 billion instalment on the notes.
This, on the face of it, appears different to the longer-term solution being examined.
Central Bank governor Patrick Honohan told the Oireachtas finance committee that an existing Government bond would be used to settle the payment and avoid a cash payout.
Honohan was constrained from deviating too far from his prepared script given the fact that negotiations were ongoing.
During questions, committee members allowed the governor fill the silences to see if he would reveal more detail on the deal.
If, as Honohan said, an existing bond is used to avoid the €3.06 billion cash payout and the existing Government bond maturing in 2025 is tapped, as expected, then the debt due on the bond will rise by a higher amount.
This is because the bond trades at 88 cent in the euro and it would have to be tapped at today’s values, meaning a higher sum to be repaid when the bond falls due in March 2025.
If the deal is done at this price, then the Government would have add a further €3.47 billion onto the bond, increasing the amount outstanding on the IOU to €11.8 billion.
This exercise will avoid the immediate pain of a cash payout this weekend but putting off the evil repayment day comes at a cost.
Ireland learns to look east
ASIA HAS traditionally not been high on the radar of either Irish business and our enterprise agencies, not that you would have guessed from the effusive praise and earnest commitments made during this week’s visit by Taoiseach Enda Kenny and an impressively big and high-powered trade delegation.
Exports to China accounted for under 2.7 per cent of all Irish goods exports last year – and that was down on 2010. On the services side, the 2010 figures show exports to China accounting for just 2.4 per cent of our trade.
The relationship with the world’s second largest economy, and one of its fastest growing, was hardly helped by the delayed arrival last time around of Kenny’s predecessor Brian Cowen – with Ireland’s unruly pensioners, in revolt over efforts to remove automatic access to medical cards, being deemed a higher priority.
Clearly there is plenty of room for growth in the relationship.
In that regard, the signing of a series of memorandums of understanding – between the NTMA and a subsidiary of China’s sovereign wealth fund, IDA Ireland and the leasing arm of the world biggest bank, the ICBC, and Enterprise Ireland and its Chinese counterpart – is a positive development.
While the last two will hopefully facilitate business links in the future, the NTMA deal promising to “work together in exploring investment opportunities in Ireland” offers possibly the most significant short-term prospects.
With resources of over $400 billion, CIC International could be a welcome investor across a range of Government initiatives – such as NewEra – even if not as a direct investor in sovereign bonds.
Asian glow may fade for Kenny if consumers remain sceptical
AS TAOISEACH Enda Kenny basks in the glory of a successful China visit and the steady murmur of reassurance from international observers about a nascent economic recovery, data published yesterday made clear that the Irish shopper has yet to buy into the story.
Retail sales figures from the Central Statistics Office confirm that the growth in consumer spending towards the end of 2011 has come to a sudden halt. The 0.3 per cent decline in sales last month over January comes on top of a 4.1 per cent monthly fall in January. Volume of retail sales has now fallen by 4.3 per cent in the first two months of the year .
On an annual basis, sales by volume are now 1.9 per cent lower than they were in February 2011, a worsening of a 1.1 per cent annualised decline in January.
Even the few bright spots highlighted by the CSO offer little by way of relief. Department stores reported the largest increase in sales by volume last month, increasing 8.5 per cent. Electrical goods and “other retail sales” were also stronger with one-month advances of 6.3 per cent and 5.3 per cent respectively.
However, on an annual basis, department store sales are down 5.6 per cent by volume and other retail sales comparisons are even more stark – 8.8 per cent weaker.
In fact, on an annualised basis, only electrical goods (up 7.7 per cent) and pharmaceutical, medical and cosmetic articles (up 2.7 per cent) show any substantive growth.
It all seems a long way from the 0.5 per cent growth in fourth quarter retail sales highlighted only last week in the national accounts.
That fourth quarter figure now looks increasingly illusory, with several analysts arguing that it was distorted by shoppers’ determination to avoid the impending rise in the top rate of VAT to 23 per cent from 21 per cent in January.
Retail Ireland, the Ibec body for the sector, put down a marker yesterday, calling for a higher VAT rate to be rescinded if next week’s first quarter exchequer returns confirm that the measure has not delivered in terms of meeting the Government target for VAT revenue since the increase was implemented.
The Asian glow could fade quickly for the Taoiseach and his Government if consumers cannot be persuaded to buy into the recovery story by opening their wallets in the coming months.
"You stuck an allegation in your witness statement that there was no basis for at all. You just put it in there to add some colour"
Philip Marshall QC for Paddy McKillen, challenging Barclay brothers’ executive Richard Faber in court on his allegation that McKillen or his respresentatives had Derek Quinlan’s wife in tears
Irish Bank Resolution Corporation reports its first full set of full-year figures since taking on the rump of both Anglo Irish Bank and Irish Nationwide Building Society
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