International
Tuesday Newspaper Review - Irish Business and International stories
By Finfacts Team
Mar 8, 2005, 06:25

The Irish Independent reports that crude oil futures prices fell yesterday, but remained above $53 a barrel, after the president of Opec said over the weekend that the market is "well supplied".

Light, sweet crude for April delivery fell 68¢ to $53.10 a barrel by early afternoon on the New York Mercantile Exchange.

In London, Brent crude futures fell 79¢ to $51.01 on the International Petroleum Exchange.

The Irish Independent also reports that Ireland's third largest financial services group IL&P indicated that Irish Permanent is planning to use the new switching rules to win over between 60,000 and 70,000 new current account customers, on top of the 35,000 attracted last year.

The bank abolished most current account transaction charges in 2004.

David Went, chief executive of the bank's parent, Irish Life & Permanent (IL&P), said yesterday that the group believes the new switching facility, recently introduced by the banking industry, "offered huge opportunities for us".

IL&P sees the current account as a key basic product platform on which to build long-term customer relationships and cross-sell other group products, from mortgages through finance to life assurance and pensions. Customer account balances rose by 19pc at Irish Permanent last year.

IL&P yesterday reported 2004 results ahead of stock market expectations. The headline performance was one of good sales growth, strong loan demand and good control of costs and asset quality.

The life and pensions business (Irish Life) had a strong sales year and grew its market share in retail and corporate markets. It chipped in a profit contribution of €215m, up 13pc.

The banking arm (Irish Permanent) also enjoyed very strong demand and boosted its net lending in Ireland by 18pc, or €2.6bn. However, its profit contribution at €120m was down 4pc - but if the €26m securities' gains in 2003 are ignored, underlying profits were up 19pc.

In addition to these solid underlying core trends, the 2004 results also received an unexpectedly strong uplift from the group's 30pc shareholding in general insurance company Allianz Ireland. Its contribution to IL&P results amounted to €63m, up 38pc over the 2003 number.

The Irish Times reports that the new chief executive of British Airways could be announced this week with former Aer Lingus chief Willie Walsh now a leading contender.

While Mr Walsh faces competition from two internal candidates, the indications are that the former Aer Lingus boss may now be in the strongest position in the race to succeed Rod Eddington, the current chief executive.

British media reports suggest that Mr Eddington will step down this summer.

It is understood BA chairman Martin Broughton has been speaking to several candidates in recent weeks.

The company is holding an investors' day this Thursday and speculation is mounting that an announcement about Mr Eddington's replacement will be made then.

Apart from Mr Walsh, the other candidates are believed to include chief financial officer at American Airlines, James Beer, and two internal candidates John Rishton, chief financial officer, and Martin George, commercial director.

Since leaving Aer Lingus Mr Walsh has been considering several job offers and also examining the idea of a low-cost trans-atlantic airline operating out of Dublin.

He has been working closely with two other Aer Lingus managers, Mr Brian Dunne, chief financial officer, and Mr Seamus Kearney, chief operations officer.

However, sources close to Mr Walsh speculate that he is interested in the BA position.

The Irish Times also reports that Belgian authorities are to sue Ryanair in the Irish courts for the return of €2.5 million in state aid that the European Commission has declared illegal.

The regional government of Wallonia, the French-speaking part of the country, has engaged an Irish firm of solicitors to pursue the action.

The European Commission ruled last year that part of the Walloon government's subsidy to Ryanair for using Charleroi airport, near Brussels, contravened EU rules on state aid.

The EU ordered the Belgian government to recover some of the subsidies already paid to the airline.

The Irish Examiner reports that consumer sentiment dropped unexpectedly in February from a four-year high in January and eroded retailers hopes of a spending boom until SSIAs (Special Savings Investment Accounts) begin to mature next year.

The overall IIB Bank/ESRI Consumer Sentiment Index fell to 99.5 in February, down from 106.8 in January of this year.

IIB Bank chief economist Austin Hughes said despite the fall in sentiment in February he thinks the underlying trend in both consumer sentiment and the broader Irish economy is improving. However, he believes the February data suggest we may still be some distance from a spending boom.

“It may be the case that Irish consumers have not seen their personal financial circumstances improve to the extent suggested in bullish economic forecasts. A ‘show me the money’ attitude could mean sentiment might remain vulnerable to occasional setbacks until household spending power picks up sharply. That might not be until SSIA’s begin to mature.” The ESRI’s David Duffy said that some decline in consumer sentiment was anticipated at the time of the sharp improvement in consumers’ perceptions of the current environment in January.

The Irish Examiner also reports that Quinn-Direct Insurance pushed sales up by 33% to €473m last year despite cutting premium prices by 10% to record pre-tax profits of €153m, up 19%.

The general manager of Quinn-direct, Kevin Lunney said they are extremely pleased with the strong growth and profit being generated by each segment of their business. Mr Lunney said there has been evidence that recent Government initiatives here have lowered the cost of claims on the roads and in the workplace, adding:

“We adopt a very proactive approach to claims management, which helps reduce our exposure to legal and related costs,” he said.

The company is owned by Sean Quinn, the richest Irishman in Britain, according to the 2004 Sunday Times ‘Rich List’, which estimated his and wife Patricia’s family fortune at €1,118m. He was ahead of Prince Charles and Harry Potter author JK Rowling and the Harrods Boss Mohamed Al Fayed in the list.

The Financial Times reports that European finance ministers were on Monday night split over plans to weaken the EU's fiscal rules, with some claiming they were designed to help Germany escape punishment for its persistently high deficit.

The new "final" draft of a revamped stability pact contains a clause allowing Berlin to cite the costs of German reunification after 1989 to avoid sanctions under the pact.

The Luxembourg EU presidency also proposed a raft of other measures to help countries avoid penalties when they breach the pact's budget deficit ceiling of 3 per cent of gross domestic product.

Mitigating factors could include higher research spending, higher general investment spending, pensions and health reform and lower-than-expected growth.

Jean-Claude Juncker, Luxembourg's premier and finance minister, hoped the draft would provide the basis for a deal on a remodelled pact at the EU economic summit in Brussels on March 22-23.

But at a meeting of the 12 eurozone finance ministers on Monday night it became clear that wide differences remained. "There is a very long way to go," said one minister.

Mr Juncker was on Monday night expected to announce a special finance ministers' meeting on March 20 to break the deadlock, but the final say lies with heads of government.

A Luxembourg presidency official said Gerhard Schröder, German chancellor, Jacques Chirac, French president, and Silvio Berlusconi, Italian prime minister, wanted to put their imprint on the deal.

Mr Juncker is concerned that the leaders of the three biggest eurozone economies all want to go further in relaxing the pact than their finance ministers.

The most contentious part of the package is the list of relevant factors that countries could invoke to plead for clemency.

In an FT article, Professor Francis Fukuyama writes:

One of the great ironies of George W. Bush's second term as president is that the two American political parties have flipped positions completely on the question of how extensively to interpret US interests in the world. The Republicans have in effect endorsed humanitarian intervention and open-ended democracy promotion, while the Democrats have become the party of pragmatic caution and focus on national security, narrowly defined. How this reversal occurred is a matter of accident, and the question for the future will be whether their new positions will persist once the nation is past its preoccupation with Iraq.

During the 1990s, many Republicans groused that the Clinton administration used force only in situations where vital US national security interests were not involved. Bill Clinton began his term by expanding the goals of the Somali intervention from disaster relief to nation-building prior to the incident in which 18 army rangers were killed and the US withdrew; he sent US troops to Haiti; and he used US airpower and diplomacy to broker the Dayton accord in Bosnia, and led a Nato coalition to protect the Kosovars from Serb aggression. In response, Condoleezza Rice, while still advising Mr Bush as a candidate in the 2000 presidential campaign, complained that "US forces should not be used to protect schoolchildren", as they were in the Balkans. Mr Bush himself famously remarked: "I don't think our troops ought to be used for what's called nation-building. I think our troops ought to be used to fight and win war."

If we fast-forward to early 2005, we find Republicans justifying the war in Iraq as an idealistic effort to promote democracy in the Middle East, something that looks more plausible in the light of recent events in Lebanon and Egypt. The rhetoric of Mr Bush's second inaugural speech asserts, in Wilsonian vein, that America has "the ultimate goal of ending tyranny in our world", and that foreign policy is inevitably drawn to the support of democracy abroad because the survival of democracy at home depends on it.

The Democrats, by contrast, were reduced, both during the campaign and in their reactions to such events as the January 30 election in Iraq, to sounding like book-keepers, complaining about the mounting costs of the war in money and lives. It is not surprising that the Democrats have ended up looking small-minded by comparison with the president, and that their proposals have gone nowhere.

How we got to this point is no great mystery. The need to dethrone Saddam Hussein on human rights grounds was always part of the Bush administration's justification for war, in addition to Mr Hussein's programmes of weapons of mass destruction and his connection to terrorism. But it was the third of three reasons and was added officially to the list only in a speech given in February 2003, a little more than a year before the war began. The WMD rationale disappeared with the Iraq Survey Group's inability to find weapons after the invasion, and the putative link between Mr Hussein and al-Qaeda has been heavily questioned. Given the extraordinary sacrifices being made by US soldiers in the field and by their families back home, it is not surprising that the administration has focused heavily on the uplifting and noble enterprise of liberating Iraq. The Democrats, for their part, have discovered that they get no particular credit for simply supporting the president's position and have just as opportunistically taken the opposite position.

There is, of course, something disingenuous about both of these positions. The Republicans know that if they had gone to Congress in the autumn of 2002 asking for war powers by saying that they wanted to expend several hundred billion dollars and several thousand American lives in order to bring democracy to a nation of 24m called Iraq, they would have been laughed out of court. And the Democrats ought to know that, having invaded Iraq, the US has created a terrorist threat there, whose victory would have very negative consequences. A timetable for US withdrawal will simply give the insurgents a planning framework for future activities.

The New York Times reports that the chief executive of the Boeing Company, Harry C. Stonecipher, who was brought out of retirement 15 months ago to clean up the company's tarnished image and restore its credibility, was forced to resign yesterday after admitting an affair with a female Boeing executive.

The resignation of Mr. Stonecipher, 68, came as a shock to both Wall Street investors and officials in Washington, who had been closely watching the company's ethical travails. The company, the world's second-largest aerospace company and the Pentagon's No. 2 supplier, is struggling to recover from its role in an Air Force procurement scandal, the loss of important government contracts and the jailing of two former top executives.

Mr. Stonecipher, married and with grown children, was forced out for having violated an internal code of conduct that he had imposed on all Boeing employees as he tried to improve the company's actions and image. His predecessor, Philip M. Condit, was forced to resign in 2003 because of ethical lapses, including affairs with employees, and poor business prospects that Mr. Stonecipher was hired to remedy.

The resignation was requested by Boeing's board after an investigation by internal and external lawyers. Lewis E. Platt, the chairman of the company, said he had ordered the investigation after receiving an anonymous tip 10 days ago, and said Mr. Stonecipher's resignation was requested "because of actions inconsistent with Boeing's code of conduct, which reflected poorly on his judgment and would impair his ability to lead going forward."

In a telephone conference call with stock analysts and reporters, Mr. Platt said that the code of conduct did not explicitly prohibit affairs between employees, but that "when we looked into it, if certain details were disclosed, it would cause embarrassment to the company." Boeing's code, which the company's 160,000 employees must sign, states that employees "will not engage in conduct or activity" that could embarrass the company or raise questions about its honesty, impartiality and reputation.

Another person close to the board deliberations, but who asked not to be identified, said: "The company had a serious problem with its major customer, the government, on ethics. How can he get up in front of employees and say ethics is Job 1? Here you have a chief executive who couldn't really play this role."

Mr. Platt said that when confronted with evidence of the affair by the board at a meeting last weekend, Mr. Stonecipher readily admitted to it. Mr. Stonecipher had no comment yesterday.

The female executive was not identified, although Mr. Platt said that she did not directly report to Mr. Stonecipher. The woman is still with the company; Mr. Platt declined to say whether she would remain. Mr. Platt added that the woman's relationship with Mr. Stonecipher did not affect her career or salary.

News of Mr. Stonecipher's departure first sent Boeing's stock down in early morning trading, although it recovered by day's end. In the interim, James A. Bell, the company's chief financial officer, will fill in for Mr. Stonecipher as the company begins to search for a new chief executive. Mr. Platt said that both current Boeing employees and those outside the company would be considered. When he returned to Boeing, Mr. Stonecipher was to be a temporary chief executive and had planned to retire in May 2006.

The hiring of Mr. Stonecipher - an executive so decisive that he had earned the nickname "Hatchet Harry" - was aimed at bringing about a turnaround in a company whose fortunes had been hurt by stiff competition in the commercial aviation business from archrival Airbus as well as a series of scandals and missteps as the company tried to gain even more business from the Pentagon.

Under Mr. Stonecipher's tenure, the company's stock had risen by more than 50 percent. His pension will not be affected by his firing. In 2004, he received a base pay of $1.5 million and incentives of around $1.8 million. It is unclear what his compensation will be for 2005. He is also one of Boeing's largest individual shareholders, after having negotiated a merger between Boeing and the McDonnell Douglas Corporation, where he was once the chief executive.

The NYT also has a feature on the rebounding US economy. It writes:  Nearly five years after the last economic boom sputtered out, executives and investors are again talking about a rebirth of the Goldilocks economy.

The Goldilocks economy - not too hot, not too cold - was never a perfect metaphor even at the height of the 1990's. For all the strong growth and low inflation of the 1990's, the economy and the stock market were both overheated by the time the stock bubble collapsed in March 2000.

But a wide variety of indicators now suggest that the economy is in a sweet spot: business investment is soaring; inflation appears more moderate than a few months ago; employment is climbing, even if real wages are not.

Many economists have raised their growth forecasts for the year, from about 3.5 percent to 4 percent or higher.

In some ways, the pattern resembles the handoff from consumer-led growth to business-led growth that many Federal Reserve officials hoped would occur.

The most encouraging trend is business investment: spending on equipment and software rose 13.5 percent last year and at an annual pace of 18 percent in the fourth quarter of 2004.

Analysts say much of the investment last year was to replace and repair equipment. This year, much of the spending is likely to be for expanding production capacity.

Dell is spending nearly $1 billion to add a factory in North Carolina. Makers of telecommunications equipment, which have been battered since the dot-com bubble burst, are again adding capacity to meet demand for networking equipment, cellphones and cellular infrastructure equipment.

But for all the good news, many economic forecasters remain worried about the broader global imbalances. The United States' large trade deficit, which exceeded $600 billion last year, is expected to widen in 2005 and increase the country's enormous foreign indebtedness.

Exports are unlikely to redress that balance this year, most analysts predict, because Europe and Japan are growing at anemic rates in comparison with the United States.

That means American demand for imports is likely to expand much more rapidly than European and Japanese demand for American exports. And with American imports almost twice as great as exports, America's exports must grow far more rapidly to even begin a reduction in the trade deficit.

"The world is still too dependent on U.S. spending," said Nigel Gault, an economist at Global Insight, a forecasting firm, in Lexington, Mass. "We're still increasing imbalances in the global economy, so the U.S. is still increasingly dependent on the inflow of foreign capital."