Inside the world of business
No-mates Nama finds a rare friend in Prof Honohan
THE NATIONAL Asset Management Agency has found itself short of friends recently. The new Government is not a fan and has changes in mind. It wants more transparency, reduced costs and decision making that “does not delay the restoration of the Irish property market”. Above all it has decided not to transfer any more assets into Nama, implying that it believes the underlying policy of crystallising the banks’ land and development losses is flawed.
The so-called Ireland First group – which numbers Nama’s nemesis Michael Somers in its ranks – is even more hostile. Nama has not achieved its fundamental objective and it needs to be overhauled, they have opined.
Enter Patrick Honahan, the Central Bank governor, in a speech last week to the International Centre for Monetary and Banking Studies in Geneva. He addressed the wisdom of going down the the route of crystallising the embedded bank losses immediately, bankrupting the institutions in the process.
“The losses that crystallised in these loan sales – larger, as I have mentioned, than expected by anyone – have sometimes been blamed by critics for destabilising the system, though I am sure that had these losses not been transparently revealed, they would quite soon have been suspected by the market; losses on such a scale could not have been concealed for long, even if that had been desired,” according to Honohan.
It is not quite a ringing endorsement, but one expects Nama will take what comfort it can.
ECB rate rise to hit indebted nations hardest
A CITIGROUP paper on European interest rates has stated that the European Central Bank is likely to go ahead with its flagged interest rate increases, despite the influence of the tragic events unfolding in Japan.
It expects the first increase to be announced after the ECB’s April meeting, and that another one at least may come by year’s end.
It predicts the effect of these moves to be asymmetric in the euro zone. Banks in peripheral countries, including Ireland, are more concerned about credit availability and the rates they are paying depositors than the rates being set in Frankfurt. Nevertheless ECB rate increases will add to the stress such banks are experiencing, the paper says.
In relation to the non-banking economy, the paper argues that the level of private sector debt that still exists in the peripheral countries will also see an asymmetric spread of the shock that will result from the rate increases.
Countries such as Spain, Portugal and Ireland are likely to suffer the largest and quickest hit to private consumption and residential investment, arising from rate increases.
If all that is not bad enough, the English used in the paper is also distressing.
“We think the current highly-differentiated health status of euro area banks will most likely make the asymmetries in the transmission of monetary policy larger than in the past.”
Overall the paper says that the banks that are in the deepest doo-doo, and the people who are most up to their oxters in debt, will least welcome the interest rate increases.
Though it doesn’t put it quite like that.
Profit lines not so busy for telecoms executives
HOW IRISH telecoms executives must yearn for the glory days of the Irish boom when they were banking millions in profits. The latest data on the market, released by ComReg yesterday, confirmed an industry in slow decline with little sign of any change on the horizon. The market hasn’t imploded – even in a recession consumers and businesses still need to communicate – and telecoms firms shared revenues of €3.87 billion, down from €4.04 billion in 2009.
The flight from fixed line to mobile – which was accentuated by the housing bubble, as many new homeowners never bothered installing land lines – has been well documented. Fixed-line operators are now increasing prices to offset falling usage with some success. Despite the volume of calls being down by 3.5 per cent on an annual basis, the revenue from those calls increased by 3.7 per cent to €511 million. This reflects price increases by Eircom, which accounts for 62.6 per cent of all fixed-line revenues and increased charges by an average of 3 per cent last summer.
The move away from fixed lines is not having much impact on the mobile operators’ revenues any more. The ComReg data showed total mobile revenues were up 1.2 per cent over the course of the year. This was despite mobile voice usage increasing 7.5 per cent and mobile broadband surging ahead 27.1 per cent to over 571,000 connections.
Eircom has been trying to increase its share of mobile revenues, launching its emobile brand to go after the more mature market which Meteor fails to reach. ComReg reports both brands as a single unit and despite its best efforts last year Eircom’s share of the mobile market fell from 19 per cent to 18.1 per cent. 3 Ireland enjoyed the strongest growth in 2010, increasing its share from 3.9 to 5.1 per cent.
All of which just ratchets up the pressure on Eircom as it attempts to broker a deal with its lenders. The provider warned staff this month that it may breach its covenants on €3.8 billion of debt by the end of August due to falling revenues and earnings. The latest ComReg figures just confirm the mountain it has to climb.
NEXT WEEK
Taoiseach Enda Kenny heads to a crucial EU economic summit on Thursday, where he will try and convince European leaders to renegotiate the terms of Ireland’s bailout, without having to make a concession on Ireland’s corporation tax rate.
ONLINE
For regular commentary on business and economic issues visit our blog, Current Account, at www.irishtimes.com/ blogs/business
Twitter users can receive links to the latest business news and blog posts by following us at twitter.com/IrishTimesBiz
