Cantillon

Tue, May 8, 2012, 01:00

Inside the world of business

'Spanish Anglo' could open doors for Irish bank bailout

The slow motion car crash that is the Spanish bank rescue is more than a little reminiscent of the events leading up to the establishment of Nama and ultimately the arrival of the Troika. As the size of the problem grows the market starts to doubt the capacity of the state to foot the bill.

The current estimate for the size of the Spanish banks’ toxic property assets stands at €184 billion, of which €31.7 billion belong to BFA-Bankia, which seems to be turning into some sort of Spanish version of Anglo Irish Bank.

The Spanish government is getting ready to pump €10 billion into the bank, whose chairman, Rodrigo Rato, stepped down yesterday. The money will be injected via contingent convertible bonds that will soften the blow in terms of the national accounts.

It will be the fourth attempt to sort out the Spanish banking system and the chances of drawing a line under the problem at this stage look slim.

It is not a good place to be, with euro zone anxiety levels expected to scale new peaks in the wake of the French and Greek elections.

It is not altogether surprising then that the Spanish prime minister Mariano Rajoy intimated public funds will be available to rescue the other banks if necessary. The Bankia rescue will be part of a wider plan to strip the Spanish banks of their toxic property loans and the National Asset Management Agency is one the models being studied. How closely the eventual Spanish model resembles Nama will be telling in terms of how fit for purpose the Irish agency is judged to be by objective outsiders.

But where Spain will get the money for its banks is the question of most interest to Ireland. If it tries to tap the European Financial Stability Funds or its successors, this opens the door for Ireland to seek funds to refinance its own bank bailout.

Watch this space for Amarin's $1 billion blockbuster fish oil

Biopharma group Amarin may not be centre stage on the business pages just now, but it is attracting considerable attention in the investor market. The Irish business developed a highly purified form of omega-3 fish oil that has proven effective in reducing dangerous blood fats in patients in clinical trials.

With few alternative treatments on the market and a more positive profile on side effects than the main drug currently in that space, news of those trial results pushed what had been close to a penny stock to the giddy heights of $20 this time last year.

Uncertainty over patent protection and market concern over the company’s strategy saw it come back off those heady levels but shares in the group, which announces quarterly figures today, have doubled over the past six months and are now trading at just above $12.

Several factors have boosted its position. First, after initial doubts, Amarin secured certain patent protection for its AMR-101 drug. It continues to pursue more long-term protection. In addition, a rival therapy under development failed to shine in its most recent clinical results, leaving the way clear for Amarin once it can secure regulatory approval from the Food and Drug Administration.

Finally, in the past month, both Citigroup and JPMorgan have initiated coverage of the company with, respectively, “buy” and “overweight” ratings and price targets in the range of $20-$22. That is predicated on both the perceived strength of the drug, which is seen as a $1 billion blockbuster in a fast-growing market for cholesterol treatments, and on the prospect of a takeover.

Amarin chief executive Joe Zakrzewski initially made bold play of going it alone with AMR-101 but has more recently indicated he is open to approaches – at the right price.Apart from anything in today’s figures, investors will focus closely on Zakrzewski’s update.