Business Week: Brexit budget unveiled as Irish exporters brace themselves

Also in the news: banks under investigation and AIB and Ardagh prepare for IPOs

Preparations for Britain’s EU exit have gathered steam on both sides of the Irish Sea, as chancellor of the exchequer Philip Hammond unveiled his budget and Irish exporters assessed plans to mitigate the Brexit fallout.

Hammond said the UK economy will grow more quickly than expected this year but will slow down in subsequent years. Borrowing will be significantly lower than previously predicted.

The chancellor also announced more funding for social care, relief on business rates, and more money to open new grammar schools. Spending increases will be offset by tax hikes.

The Stormont Executive will receive £120 million (€138 million) from London once a new administration is up and running. Hammond also introduced measures that will see thousands of self-employed people in the North face a tax rise next year.

In the Republic, worried exporters are looking at ways to contain the Brexit fallout nd consequent currency fluctuations. Enterprise Ireland unveiled plans for its 2017 trade mission programme, which will focus on building links with other markets ahead of the start of Brexit negotiations.

The Irish Farmers' Association warned of a "virtual wipe out" in food exports to the UK in the event of a hard Brexit and a reversion to World Trade Organisation rules. Chief economist Rowena Dwyer said such a scenario could effectively render the trade uneconomic.

Having been criticised from a number of quarters over its preparations for Brexit, the Government announced a new strategy on Wednesday aimed at readying the Republic for “one of the most dynamic and challenging external environments in many decades”.

The plan, “Ireland Connected: Trading and Investing in a Dynamic World”, sets ambitious targets for Ireland’s exports, foreign direct investment, tourism and international education.

The 60-page report sets out a number of “actions” that State departments and agencies will take to achieve these goals. These include providing intensified trade and investment supports for enterprise through the IDA and Enterprise Ireland.

Relocating from Brexit

One of the main tasks for Ireland is to attract those financial institutions intending to take flight from London. There was a setback in that regard this week, when global insurance giant AIG indicated it will relocate to Luxembourg.

It is understood that Dublin was runner-up from a shortlist of European locations considered by the American insurer. The Government will be disappointed, as both it and the IDA had made strong overtures to the company.

Minister of State for Financial Services Eoghan Murphy professed not to worry, saying a number of international financial services firms have told the Government they plan to relocate activities here.

“There’s going to be an ebb and flow to this,” he said. “Some companies are going to come to Ireland, but not all of them. We have been very clear about that.”

Mr Murphy said there has been “significant” engagement between companies and the Government in the first quarter of 2017. “We are confident that a number of positive decisions will be announced throughout the year.”

There was better news as Legg Mason, a global investment firm with more than $710 billion (€670 billion) of assets under management, said it would set up a fund management company in Dublin to maintain access to investors in the EU after Brexit.

The Central Bank, for its part, has received five insurance authorisation applications in the past four months, while a further five companies have signalled a “firm intention” to apply to be regulated in the Republic. Another 20 or so insurance entities have been in touch to discuss authorisation.

Hope floats for AIB

Momentum is gathering behind the Government's plan to float AIB on the stock exchange in the coming months, and this week the Minister for Finance briefed Cabinet on the situation.

Michael Noonan outlined plans to sell shares in AIB to small investors as well as institutions as part of its initial public offering, which could happen as early as May or June of this year. A retail offering would require a minimum investment of €10,000. It is likely they would be sold through various designated intermediaries or brokers.

Separately, it emerged that Fidelity Investments, which was among the group of North American investors that took part in a €1.1 billion rescue investment in Bank of Ireland in 2011, has since sold more than 40 per cent of its stake in the bank.

The world’s fourth-largest mutual funds manager, which bought 2.79 billion shares, or a 9.3 per cent stake, in the bank almost six years ago, has since cut its holding to 1.59 billion shares, or a 4.9 per cent stake.

Indeed, things are looking up for both AIB and Bank of Ireland. International ratings agency Fitch said it could upgrade them if their asset quality and capitalisation continues to improve.

Fitch said asset quality was the main rating weakness for both banks, but that this metric was “improving” as they manage down their stock of impaired loans, helped by property price growth, investor demand and a low inflow of new impaired loans.

However the banks are still under pressure to cut costs. AIB plans to combine its units in Northern Ireland and Britain into one operational platform this year.

First Trust Bank in Northern Ireland and its business banking unit in Britain currently operate on separate platforms. AIB now plans to bring them together as part of a project called “One UK”. The move will involve job cuts of 180-200 as well as a reduction in direct costs of 15 to 20 per cent.

Over at Ulster Bank, plans are in train to close up to 30 branches in its network in the Republic as part of a major restructuring.

In more bad news for the banks, The Irish Times revealed that a number of the State's best-known financial institutions are being investigated for advertising incorrect interest rates on credit card accounts between 2010 and 2013.

The Central Bank of Ireland is looking into AIB, Bank of Ireland, KBC Bank Ireland and Permanent TSB as part of a review of the practice. At issue is how annual percentage rates that apply to credit cards were advertised by the lenders. The rates published were slightly lower than those actually being charged.

Rich in initial public offerings

You can't move for an IPO these days, with Ardagh, the glass and metal containers giant built up by Dublin financier Paul Coulson, the latest to get the ball rolling.

The company intends to raise as much as $372.6 million (€352 million) by selling 16.2 million shares at $17-$20 each. Analysts estimate the flotation, expected to be completed by the end of this month could give Ardagh a market value of the dollar equivalent of more than €5 billion.

Coulson's stake in the company is worth as much as €1.57 billion (€1.48 billion) based on the IPO. This would place the Dublin financier comfortably on top of the pile in terms of an Irish executive's personal stake in a publicly quoted company – well over double the €705 million value of Michael O'Leary's 4.1 per cent stake in Ryanair.

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