Inside the world of business
IBRC after all might ease problems of other banks
WHY WASTE a crisis? This refrain has been heard regularly over recent years as attempts have been made to reshape and repair broken banking systems. It makes a lot of sense to try to fix the Irish banks once and for all in this, the fourth year of the crisis.
The Government and the troika lenders are working in the background on a restructuring that will push out the €31 billion cost of Anglo Irish Bank and Irish Nationwide over a much longer period. This will ease the pressure on the public finances as it will mean less to borrow.
Why stop there though? This is why the State and EU-IMF authorities are looking to take advantage of this latest surgery to fix the two other zombie banks.
Let’s assume Bank of Ireland (despite its own problems) is the State’s only good bank as it has escaped the clutches of Government control and attracted private investment.
The State’s other banking “pillar”, AIB, and Permanent TSB, which requires major remediation, are virtually State-owned. Yet they are being suffocated by loss-making tracker mortgages – €18 billion at AIB (and its subsidiary) and €16 billion at Permanent TSB.
These loans are doing nothing for their income lines but they are still worth something. Removing them makes those banks more attractive as investment and funding propositions.
IBRC has heavy emergency loans from the Irish Central Bank, which the European Central Bank doesn’t like and wants reduced.
Parking trackers in another State-owned bank like IBRC, which has no viable future, takes them out of the good banks and improves the balance sheet of the bad bank, injecting it with collateral that it can use to swap emergency loans for regular ECB loans.
This all requires EU approval, but the concept isn’t bad – executing it is the challenge. What was once the biggest problem bank in Ireland could be the one to solve other problems.
Problems with end of milk quota
DESPITE ALL the chatter about the potential of Ireland’s agri-food sector, particularly dairy, as a driver of economic growth, it is worth remembering that milk production is still a very tightly controlled business, at least until 2015 when milk quotas will be abolished.
A worrying statistic has emerged which shows that Ireland is in danger of exceeding its quotas for the year.
With Ireland just two weeks away from the March 31st cut-off point for calculating annual milk quotas, latest IFA figures show that by the end of January, Ireland was fractionally under its full-year quota – by 0.03 per cent. A super-levy of almost 30 cents a litre is imposed by Brussels if quotas are breached.
The complex dynamics of supply and production in the farming sector means that the threat of a super-levy is common. Ireland has paid the super-levy four times over the last 11 years. This year though the issue has renewed relevance, in light of the broader context of the need for Ireland to prepare for an expansion in milk production after 2015.
The abolition of milk quotas offers a major opportunity for Irish farmers to increase milk production. Ireland’s grass-based method of production gives it a natural competitive advantage once the market opens up.
However, there is a conundrum at the heart of efforts to ensure that Ireland is sufficiently prepared for the change – how to prepare for a major increase in production when producers are prevented from gradually increasing production in the interim. The Irish preference for a gradual change to the quota system is garnering little support at EU level, meaning the onus is on farmers and processors to ensure a smooth transition.
The IFA estimates that farmers need to invest €1.5 billion in preparation for 2015, excluding any investment at a processing level. With the change to the quota regime only 33 months away, time is of the essence.
Energy exploration group hits the headlines for all the right reasons
IT SAYS something about the expectations surrounding exploration group Tullow Oil that when it announces a sixfold increase in profit, the main focus of interest is the fact that it has doubled its dividend payout to investors.
Not that this is entirely insignificant. Tullow notes that its share register has a higher ratio of smaller investors than most of its FTSE-100 peers and they will no doubt be delighted with the increased payout at the end of a stellar year for the Irish explorer.
However, the bigger deal for Tullow is delivering record results and completing the farm-out arrangement on its Jubilee field in Uganda. It expects much of the focus this year to remain on Uganda and Ghana where it also has exploration interests.
It is something of a boom for Irish exploration investors these days. After almost 40 years of frustration, a number of companies are hitting the headlines for all the right reasons.
Tullow aside, John Craven’s Cove Energy is about to deliver a significant return for investors after being part of a consortium that made one of the world’s largest gas discoveries in a decade off the coast of Mozambique.
Only this week, Cove’s partner Andarko announced it was raising the estimate for the amount of gas recoverable from the site. Several players are bidding upwards of $1.75 billion for Cove after it put itself on the block, a figure that will deliver a 1,000 per cent return for some shareholders.
Even closer to home, the higher oil prices and technological advances mean there is more activity offshore Ireland than previously. Shares in Providence Resources jumped by a quarter last month after it announced it had found oil at its Barryroe bloc off the coast of Cork.
An initial assessment of flow rates from the discovery is expected imminently as the Dublin-listed group works to determines the commercial viability of the project.
Quote of the day
You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room, hearing about “muppets,” “ripping eyeballs out” and “getting paid”, doesn’t exactly turn into a model citizen. – departing Goldman Sachs executive Greg Smith
TODAY:Bankrupt businessman Seán Quinn is expected at the High Court to argue his right to defend himself in his family's case against the former Anglo Irish Bank.
You can get the latest news each business day at
[ irishtimes.com/businessOpens in new window ]
or by following us on Twitter at
[ twitter.com/IrishTimesBizOpens in new window ]
.
We also have a Facebook page at facebook.com/IrishTimesBizwhere you can read the latest business headlines, blog posts and reader polls.
