Cantillon

Inside the world of business

Global banking decision on funding may bolster Ireland

THE MOVE by the US Federal Reserve and the world’s five other top central banks to offer cheap access to US dollar funding is aimed at preventing a second credit crunch in banking rather than solving the euro debt crisis.

What has been happening in the euro zone banking system is a replication of the bank run in the Irish system from 2008 to 2010.

Irish banks are likely to benefit from the improvement in market conditions, possibly with better access to funding in currencies other than euro and maybe lower pricing for their own borrowings. But that is assuming that international banks are still willing to trade with Irish banks when it comes to taking on the risk as a counterparty to a junk-rated bank.

Bank of Ireland and Irish Life and Permanent have managed to raise term funding using loans as collateral over recent months.

The three main Irish banks have asked for dispensation from the Government not to guarantee big-ticket corporate deposits, primarily to avoid the costs involved. These are positive developments. Cutting the cost of emergency US dollar funding by half a percentage point will provide further support to struggling international banks, but this raises the spectre of currency risk.

The other key issue is whether banks have acceptable collateral to draw down funding.

The Central Bank said yesterday bank borrowing from the European Central Bank rose €585 million in October and Irish banks had €17.6 billion of “own-use” bonds issued to raise funding. These are bonds the banks issue to themselves to draw down borrowings from the ECB when they have run out of other eligible collateral.

The significance of yesterday’s central bank moves for Ireland is less about how it will improve funding for banks and more about international recognition that big co-ordinated steps must be taken to address the growing debt crisis. It’s an important step but it is still only a first step.

Drug could prove boon for Amarin

IRISH DRUG development company Amarin is on course for a 2012 launch of its innovative heart drug. But it still has to persuade the market on the levels of patent protection it can secure – a factor that will ultimately determine the company’s value.

Amarin’s purified form of Omega-3 fish oil has proved very effective in trials at lowering high levels of triglycerides – blood fats that can trigger heart disease – in patients. Even better, it does so without raising levels of “bad” LDL cholesterol, a problem for rival therapies.

Now the company has secured acceptance for its “new drug application” from the regulator, the US Food and Drug Administration, which is expected to decide whether to approve it before the end of July. It’s a market worth chasing. The one drug currently on the market – GlaxoSmithKline’s Lovaza – reported sales of $820 million last year and faces patent expiry in 2012. Some analysts suggest annual sales of Amarin’s drug could exceed $2 billion by 2021.

But that’s only if it secures patent protection. Without it, the drug could be open to challenge from rivals by that time, dramatically reducing its potential lifetime sales.

The US Patent Office has issued a “final rejection” of a key patent application in relation to the drug, which would have extended its current patent protection from 2021 to 2030. The company has said it will appeal.

Along with Amarin’s indication to date that it intends to go it alone in manufacturing and marketing the drug, the patent issue has weighed on market sentiment, with the stock trading around the $7 mark, well below the highs of $19-plus in the summer after the trial data was released.

Gallagher company loan exceeded 10%

THERE WAS a lot of interest during the recent presidential election campaign about a director’s loan that candidate Seán Gallagher had from his own company, Beach House Training and Consulting Ltd, at the end of its 2009 financial year.

The €82,829 loan was equal to more than 70 per cent of the company’s assets. Company law restricts such loans to less than 10 per cent of a company’s relevant assets.

The accounts for 2010 have now been filed and show that, during the year, Gallagher lodged €87,179 to the company’s account, thereby repaying the loan and ending up due some money from the company. They also show that he resigned as a director in July 2011 and, at the same time, transferred his shares to his wife, Trish O’Connor, presumably in preparation for his presidential bid.

There is nothing in the accounts to explain how the “loan” could have arisen, as Gallagher said during his campaign, when a bookkeeper lodged a cheque for €87,179 to the wrong account, apparently because the name on the cheque was that of another of his companies with a very similar name.

Efforts to contact Gallagher recently have met with no success. He is thought to be abroad. The accounts also show that a sum of €49,957, recorded in the earlier accounts as due from Surf Seeds International Ltd, a company Gallagher chose for investment as part of his Dragon’s Den activities, was capitalised, making Beach House a shareholder in Surf Seeds. However a filing for Surf Seeds to the Companies Office last week records Mr Gallagher, and not Beach House, as having been issued with the new shares.

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