Cantillon

Inside the world of business

Pulses racing ahead of key end-of-month stress tests

THE CONTENTIOUS issue of just how many more loans must be carved out of the Irish banking system won’t be clarified until the end of this month following the next round of Central Bank stress tests.

Dublin fixed-income firm Glas Securities put an estimate on it yesterday, suggesting that as much as €64 billion could be warehoused in a special purpose vehicle funded by the ECB. This is in addition to the €71 billion in loans gone to Nama from five financial institutions.

Given that the ECB has already provided €126 billion in funding into the Irish banks and has signed off a further €51 billion in emergency lending through the Irish Central Bank, creating a special loan facility makes sense.

Central Bank governor Patrick Honohan has been at pains to say the EU and the IMF have agreed not to force fire-sales of excess bank assets in an attempt to knock them into a size at which they can survive on their own.

Glas said the only entity that could fund assets at close to break-even rates is the ECB and that the entity may need about €8 billion to minimise haircuts that Frankfurt applied to collateral.

The Central Bank’s liquidity stress test, or prudential liquidity assessment review, will determine how much in loans each of the four remaining banks must put in storage in non-core divisions.

The aim is to bring the ratios of their loans to deposits down to less than 125 per cent (€1.25 in loans for every €1 on deposit) from about 175 per cent. They’ll have until 2013 to achieve this.

Under the review, the banks will also have to show how they can boost their retail deposits and long-term funding so they are not as exposed to the kind of run experienced by the banking system over the last two years.

As well as gauging stress at the banks for yet higher mortgage losses – possibly up to 8 per cent of these loans, up from 5 per cent last year – the extra stress on liquidity could see the banks dip well into the EU-IMF €25 billion bank contingency fund, beyond the initial €10 billion recapitalisation, depending on the pace of asset disposals.

Auld Sod bond idea a grower?

KINGSLEY AIKINS, the international fundraiser and former head of the American Ireland Fund who by his own admission has “dined for Ireland”, was a late addition to the speaker line-up at the Dublin Web Summit this week.

The silver-haired former Leinster rugby player was there to tell the sell-out assembly of techies about the power of networking. Web entrepreneurs know a thing or two about networking but more in the virtual sphere rather than in the corridors of power with which Aikins is more familiar.

Aikins is now a consultant to the Ireland Funds where he worked for 21 years, during which time a quarter of a billion dollars was raised for charitable projects back in the auld sod. At the beginning of this year, he established Networking Matters, a consultancy that helps organisations and individuals maximise the power of their networks.

He is also spreading the gospel of “diaspora direct investment” rather than foreign direct investment. Aikins said he had already briefed IDA Ireland, a former employer, on his plan which would leverage senior Irish and Irish American figures to attract jobs to Ireland. The strategy has worked in the past – Aikins said the reason credit card issuer MBNA established a call centre in Carrick-on-Shannon in 2001 was that one of its senior executives, Shane Flynn, was a Leitrim man.

Aikins will no doubt have been taken with Greek plans to raise $3 billion by selling government bonds to its diaspora in the US, which were announced on the same day he addressed the web summit. However, the NTMA, the National Treasury Management Agency, says it has no plans to introduce a similar “diaspora bond” which would be marketed to Irish-Americans.

Given his track record of tapping up wealthy Irish Americans for charitable donations, the NTMA could have done a lot worse than getting Aikins to lead the charge on that particular initiative.

Dream over for Greencore

WHILE IT was a good day for new Cabinet Minister Simon Coveney yesterday, things weren’t so great for elder brother Patrick, as Greencore’s dreams of merging with British rival Northern Foods came to an end.

Although few expected Greencore, where Patrick is in charge, to come back with an offer to rival Ranjit Boparan’s cash offer for Northern, it seems that Greencore and its private equity partner were in serious discussions with Northern Foods right up to this week, with the deal eventually vetoed by the pension trustees.

While Coveney cannot be blamed for the emergence of Boparan as a counter-bidder, the saga is sure to trigger some serious soul-searching by the chief executive as to the long-term strategy for the company.

In the meantime Greencore should perhaps take some solace from fellow food company Glanbia. Last year, it set its sights on a radical restructuring of its business, but the effort also ended in disarray. However, one year on, any serious talk of a shake-up has all but disappeared and top man John Moloney is firmly in situ as profits and dividends rise.

Shareholders and investors have short memories it seems.

TODAY

The CSO is due to release inflation data for February and results are expected from Origin Enterprises.

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