Inside the world of business
Change of tack at ECB a push for reluctant banks
The quarter point cut by the European Central Bank in the top line refi, or refinancing, rate took all the headlines and not surprisingly. Tens of thousands of hard-pressed Irish homeowners have mortgage rates that are linked to the rate set by the ECB and are looking for any relief available.
On the other side of the equation, trackers have long become a loss-maker for lending institutions and the move will only have increased the headache for Irish banks as they look to return to profit. Banks were also dealt another blow as the central bankers gathered in Frankfurt decided also to cut the deposit rate – to zero.
The thinking behind this move by Mario Draghi and his colleagues is to try to get the banking system back on a more normal track. Despite the moderate easing of pressure in recent months, banks across the euro zone continue to lodge in the region of €800 billion every night with the ECB rather than take a chance of lodging it with others in the sector. With the rate at zero, banks choosing to continue doing so will effectively be paying money for the privilege and the ECB clearly hopes it can wean them off what has, for many, effectively become a security blanket.
While the deposit rate cut was not a shock, it was not widely expected and is an indication of the degree to which the ECB is concerned about the failure of banks to get them lending to each other.
“If you can kick-start the money market you go a long way to addressing some of the funding problems that banks face,” ” said James Nixon, chief European economist at SocGen in London. “That may free banks to lend to the economy.”
The worry for the ECB is, what if it doesn’t.
State may appeal Durkan ruling
AS OF yesterday, it appeared that the State was considering appealing this week’s High Court ruling ordering that it pay €31.2 million, plus damages and interest to building company, Durkan New Homes, to compensate it for a property deal that went wrong.
To recap, in 2006, Durkan sold 215 houses through the State’s Affordable Homes Partnership at discounts totalling €31.2 million. In return, the State was to transfer ownership of Harcourt Terrace Garda station, which was due to be vacated.
From the State’s point of view, it was a good deal. Durkan was effectively paying it €31.2 million for a property which was then – in 2006 – valued at €17 million.
The building company wanted the premises as it already owned an adjoining site: it was willing to go way over the odds as it believed it could add considerable value to the enlarged site. Delays in the completion of a new station at Kevin Street led to a series of complications that ultimately prevented the transfer of the Harcourt Terrace property to the builder.
Durkan New Homes sued and the High Court found in its favour this month. The company is not really getting anything out of the case that it it did not already have. Its end of the 2006 deal cost it €31.2 million. It got nothing in return, the State got the benefit of the €31.2 million but failed to uphold its side of the bargain. All Mr Justice Peter Charleton did when he made his order this week was restore the building company to its original position.