Cantillon

Inside the world of business

Timing a return to the markets

MINISTER FOR Finance Michael Noonan ruled out any mini-budget when he spoke at the end of the troika’s sixth review this week, even though his department revised downwards its optimistic growth forecasts.

He also remained bullish about the country’s prospects of borrowing on its own account again. This would happen in the summer, he said, despite the growing financial volatility again in Europe.

Two research notes were released this week, from Danish bank Danske (a primary dealer in Irish government bonds) and the stockbroking firm Dolmen, which both mulled the Government’s chances of issuing major bonds and the timing of a market return. Danske’s analysts John Hydeskov and Owen Callan said the auction of treasury bills, short-term borrowings, in June or July – if there is a Yes vote in the fiscal treaty referendum – will give a good indication of whether investors are ready for bond issuances.

They expect the National Treasury Management Agency to start issuing bonds through a syndicated auction (sold through banks) that have a maturity of five years or even 10 years either by the end of this year or the beginning of next.

“In 2013, the Irish Government bond market should normalise further, with a broader investor base and narrower yield spreads to European peers,” they said, despite the fact they don’t think the nine-month rally in Irish bonds is likely to be repeated.

Meanwhile, analyst Ryan McGrath of Dolmen said in his note that Ireland will be in a strong position to re-enter the bond markets in 2013 once it hits the 8.6 per cent debt-to-GDP ratio target by the end of this year.

If Ireland can get a deferral of the longer-term promissory note payments to the former Anglo Irish Bank, then the 2014 “funding cliff” will be reduced to a more manageable €8.3 billion, he said.

Before that funding cliff is the voting cliff and the referendum – it will be wait and see until then.

Elan feels bullish over anchor product

FIRST-QUARTER results produced by Ireland’s largest indigenous biotech business, Elan, on Thursday were universally welcomed as strong.

Tysabri, the blockbuster therapy for multiple sclerosis that remains its anchor product, is firmly building on its original promise. Revenue growth in the quarter came to 14 per cent, and the company was uncharacteristically bullish in asserting that the drug is now on course to drive group-wide revenue growth of 15 per cent per year over the next three to five years.

Elan reported that there had been a patchy initial reaction to the news of its assay test – which gives considerable comfort to those testing negative for the JC virus in avoiding the drug’s most dangerous side effect – as medical practitioners and patients digested its import.

However, sales, especially in America, appear to have accelerated through the quarter, and Elan said these were now running at an annualised level of $1.6 billion.

More than 7,500 patients were added during the quarter, and Elan has already reported that every 10,000 equates with $100 million on its bottom line.

Data presented to the American Academy of Neurology annual meeting, also on Thursday, supports the earlier findings on the JC virus test and also show the drug is even better than previously expected over a longer time frame (four years) in reducing relapses.

Elan was the outperformer of the Irish stock market index last year. More news along these lines – especially positive feedback from the all-important Phase III trials on the bapineuzumab Alzheimer’s therapy it is developing with Johnson Johnson and Pfizer – will be the drivers of further revenue growth and shareholder return.

Tysabri Permanent TSB's 'Bobby moment'

ONE WAG said Permanent TSB’s reinvention as a good bank is kind of like the scene in the 1980s US television soap Dallas where Pam wakes up to find Bobby Ewing (below) alive and in the shower after a nightmare in which he had died.

If Permanent TSB can indeed arise as a viable bank – or even as a future “third national bank” as the Minister for Finance Michael Noonan put it – then its nightmare will have been far longer.

The virtually nationalised bank said that its plan, approved this week by the troika, to carve out a good bank and park €12.5 billion of troubled loans in an internal bad bank, envisages leaving €14.2 billion in a “good” Permanent TSB.

The last time the bank had €14 billion of loans was in 2002, when Permanent TSB was created from the merger of Irish Permanent and TSB. It had deposits of €10 billion in 2002, so a loans-to-deposits ratio of 140 per cent even back then wasn’t close to the target 122.5 per cent the bank must reach now under the EU-IMF targets.

While Pam’s dream/nightmare lasted a season in TV land, Permo’s dream/nightmare lasted a decade, with Irish mortgage lending soaring from 2002 to 2008 when the book went from €10 billion to almost €28 billion.

Permanent TSB’s new boss, Jeremy Masding, has secured approval for his plan where Mike Aynsley and his team at Anglo Irish Bank (now Irish Bank Resolution Corporation) could not.

This has more to do with the type of banks they are. Permanent TSB had a national reach providing mortgages, personal loans and current accounts through branches. Anglo was a boutique lender to property developers and builders, servicing a select few.

The plan is that Permanent TSB will rise again, much like the new series of Dallas (out later this year), though the regulator will hope there are no JR Ewings in future Irish banking plotlines.

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