The Irish Independent reports that the prospect of a national pay deal dwindled further last night after the key negotiator for employers admitted he did not hold out "great scope" to improve their 2.8pc-a-year offer to workers.

Following an informal meeting with a Government official on the possibility of kickstarting the collapsed talks, IBEC director general Turlough O'Sullivan said a new pay agreement would be extremely difficult.

He attended the meeting at Government Buildings just days after Irish Congress of Trade Unions chief David Begg also had one-to-one talks with Government assistant secretary general Philip Kelly.

When asked if he was prepared to increase the employers' final offer at the talks, he was pessimistic but there was some sign there might be a little room for manoeuvre.

The final ballpark for agreement put forward by the employers was a 21-month deal with a six-month pay pause, followed by a 2.5pc pay rise for six months and another 2.5pc increase for nine months.

This represented an annual pay rise of 2.8pc a year.

The prospect of a deal without major concessions on either side now looks unlikely as the most recent local pay claim lodged since talks collapsed -- by the TEEU -- was for more than double this amount at 6.6pc a year.

However, Mr Begg has suggested the unions might accept a national deal slightly below inflation if there were major advances for the lower paid in the shape of a €30 a week flat rate.

Consensus

"There would not be great scope for us to improve our final ballpark figures,"said Mr O'Sullivan. "We didn't make any offers but we've been trying to explore what ballpark might be able to find agreement.

"We indicated a 21-month agreement was the appropriate duration and a significant pay pause and a pay increase in low single digit figures.

"It's very difficult to see what can be done to secure a deal as the economic situation is deteriorating by the week and I believe the Government needs to get the social partners to a shared consensus of the problems confronting us, and a shared Consensus of the solutions.

"Clearly, economic policy, pay policy and labour market policy are terribly important in the context of our competitiveness and productivity, both of which have suffered.

He also showed no sign of changing his stance on IBEC's call for the strengthening of the 'Inability to Pay Clause', which enables companies in financial difficulty to opt out of their commitments under pay deals.

"Companies need to be able to get change more easily than in the past and need to be able to improve productivity and make cost off-setting measures where necessary," he said.

He dismissed the unions' suggestion that company executives, on up to €2m a year, forego part of their wages in the difficult economic climate.

But he said he was still committed to social partnership. "Partnership has worked very well for the country in difficult and good times and we should give it a very fair window to help us through the current difficulties, which are very serious." He said IBEC does not expect any "serious discussions" until late next week.

The Irish Independent also reports that the Competition Authority is expected to announce today that it has blocked the proposed €165m acquisition of Breeo Foods by Kerry Group.

The decision will be a significant blow for Breeo's parent, Reox Holdings, and will also disappoint Kerry, which had pipped other potential buyers to seal a deal.

The Competition Authority's decision follows a full-scale probe into the acquisition that it initiated last May.

It had concluded after an initial examination that it could not determine whether the acquisition would not substantially lessen competition in the Irish food market.

Kerry Group has already paid a sizeable deposit to Reox Holdings, the company that owns Breeo, whose well-known brands include Dairygold, Galtee, Calvita and Shaws.

Reox was spun off from the Dairygold co-op in 2006. The co-op retains a 26pc stake in the unlisted plc.

Reox and Kerry Group will have 60 days to appeal the Competition Authority's ruling to the High Court. If they do so, the court will then decide whether the watchdog's decision was justified.

The Competition Authority is headed by Bill Prasifka, who was previously the commissioner for aviation regulation.

A spokesman for Reox was uncontactable yesterday evening, while a representative for Kerry Group said it expects a decision today.

The Competition Authority did not return calls seeking comment.

Kerry Group agreed to buy Breeo in March after the unit was put on the block late last year with an expected price tag of around €200m.

A number of parties, including private-equity firm Ion Equity, were interested in acquiring the business.

Bid

Ion is believed to have made an unsolicited bid for the company. The shortlist was eventually whittled down to four potential suitors.

Kerry Group said at the time of the announcement that the proposed acquisition of Breeo "includes an attractive portfolio of leading added-value dairy- and meat-product brands".

Breeo had revenues of €188.5m in 2007 and earnings before interest, taxation, depreciation and amortisation of €15.1m.

Kerry Group's new chief executive Stan McCarthy said earlier this year that he wanted to double the company's annual revenues to €10bn within the next five to six years.

This week the group reported a pre-tax profit of €132.8m for the first six months of the year, with turnover rising 7.3pc in the period to €2.36bn on a like-for-like basis.

It also added that it expects to achieve its annual profit target despite rising input costs.

Dairygold boosted its operating profits by €21.5m last year as turnover climbed 15pc to €625m.

The Irish Times reports that Aer Lingus chief executive Dermot Mannion warned yesterday that the airline could make a loss of about €100 million in 2009 if the price of fuel remains high and consumer demand remains weak.

Mr Mannion said the airline would respond by undertaking a "fundamental root-and-branch review" of all costs at the airline in an attempt to return to profitability.

He declined to specify what cuts would be sought but informed sources suggested Aer Lingus could seek to trim its overheads by up to €100 million a year.

Such a move could result in job cuts among the 4,000-strong workforce and a radical shake-up in work practices and rates of pay.

"Everything is up for review," Mr Mannion said.

It is understood Aer Lingus will put its proposals to staff in late September.

Both Siptu and Impact said they would await the proposals before passing judgment on them.

Commenting on the Aer Lingus result, Siptu branch organiser Teresa Hannick said: "Siptu members have already contributed savings worth €11 million a year to the airline. As we demonstrated earlier this year, making savings and improving competitiveness can be achieved without pay cuts."

Mr Mannion's stark warning followed the publication of half-year results by Aer Lingus yesterday, which showed it made a loss of €20.2 million in the first six months of this year.

The Aer Lingus boss said the airline would, at best, break even in the traditionally busier second half of the year. Stock market analysts warned that Aer Lingus could end up recording losses for the full year of up to €30 million.

Aer Lingus said its total fuel bill for 2008 was likely to be €390 million, an increase of just under €140 million on last year. The airline expects to spend €463 million on fuel in 2009. About 20 per cent of its fuel requirement for next year is hedged at around $117 a barrel.

In a bid to save money, Aer Lingus has decided to suspend its Dublin to Los Angeles flights this winter and to cut three short-haul services within Europe.

Aer Lingus has already agreed €20 million in cost savings with staff and trimmed the same amount from its annual aircraft maintenance bill.

Aer Lingus's results show that it carried 4.86 million passengers in the first six months of this year. This was up 10.5 per cent on the same period of 2007.

Its revenues rose by 10.2 per cent to €632.9 million, although this increase was virtually wiped out by the rise in its fuel bill.

The average fare fell by 2.6 per cent to €110.43 as a result of strong price competition, while the number of seats filled on each aircraft declined five points to 70.2 per cent.

Revenues from baggage fees, in-flight meals, travel insurance and ancillaries rose by 38 per cent to €69.7 million in the period.

The Irish Times also reports that Babcock Brown's stewardship of Eircom is set to end in the coming months after the troubled Australian investment bank said it was reviewing its management arrangement with the listed satellite fund that has direct ownership of Eircom.

The termination of the bank's management arrangement with the Babcock Brown Capital (BCM) fund could lead to a sale of Eircom, according to sources close to the company. However, the financier who orchestrated the Australian takeover of Eircom only two years ago insisted yesterday that the company is not for sale at the moment.

"There are no current proposals under which BCM puts Eircom up for sale. It's not a market to be selling assets in,"said Rob Topfer, a BCM director who is stepping down from his role as head of corporate finance in Babcock Brown.

BCM reiterated its commitment yesterday to maximise shareholder value from a fund that has lost more than 28 per cent of its value in the last year.

It was reported last week that Babcock Brown has sounded out putting Eircom back on the market, but this was denied at the time by bank.

Babcock Brown is closing its corporate finance unit as part of a sweeping reshuffle of its top management that follows a sustained and rapid deterioration in its share price, in light of questions about the viability of its business model.

Mr Topfer, who retains his seat on BCM's board in spite of his departure from the bank, acknowledged yesterday that the fund previously examined the possibility of selling Eircom, but insisted that was not on the agenda at present.

"In the current market you're very unlikely to realise the potential value in Eircom by putting it up for sale."

Mr Topfer said it was for BCM's independent directors to decide whether to terminate the 25-year contract under which Babcock Brown manages the fund and its assets, but indicated in clear terms that this was under active discussion. "Certainly it's possible that Babcock Brown will cease to be the manager of BCM," he said.

The bank would retain its 8 per cent stake in BCM in such a scenario "but won't have an involvement in the management". BCM would in turn be run by its own management if that happened, he added.

In a statement yesterday, BCM said it hoped to conclude discussions on "any internalisation of management" in time for its annual meeting in November.

However, any termination of the arrangement would be subject to BCM and the bank reaching agreement on a compensation package for the loss of management fee income from a contract that has 23 years to run. "Given that they earn substantial management fees, they're unlikely to give it up for free," Mr Topfer said.

BCM paid Aus$34 million (€19.93 million) in management fees to the bank last year, a sum calculated according to the value of the fund's net tangible assets.

The poor performance of the fund's share price, which lost 6.6 per cent yesterday and currently implies a market capitalisation on the business of only Aus$505.43 million (€296.1 million), meant that further share-based fees were not payable.

Eircom, whose debt amounts to some €3.46 billion, yesterday reported an 8 per cent rise to €698 million in earnings before interest tax depreciation amortisation and one-off items.

Mr Topfer said BCM continued to enjoy good relations with the Eircom employee share ownership trust, which owns 35 per cent of the telco, but acknowledged that Babcock Brown's troubles were unhelpful."Are they happy to have the noise that surrounds Babcock Brown, my guess is that the answer to that is no."

The Irish Examiner reports that McInerney Holdings saw its value slump by more than €20 million yesterday following the reporting of substantial first-half losses.

It fell 9 cents or 24% to 29 cents, the sharpest drop since July 2.

McInerney posted operating profits before tax of just more than €22m for the first half of the year, following pre-tax operating profits €9.2m a year earlier.

The homebuilder, which gets about half its revenue in Britain, fell the most in 11 years yesterday.

Managing director, Barry O’Connor said cost saving measures implemented during the year resulted in the loss of 565 jobs, mainly in Britain.

He said the credit crunch has hit the company hard.

The company wrote down the value of its landbank by €27.6m and incurred an exceptional charge of €4m as part of the cost rationalisation programme.

McInerney said the market has put pressure on some of its banking covenants and it has revised loan conditions in Ireland and may do so in Britain.

It also said that activity levels in the Irish housing market remained subdued.

“Our view is that there is a strong underlying demand for housing, the difficulty for consumers is in securing mortgage finance.

“It is not possible to anticipate accurately when this situation will reverse. However, there is little doubt that there continues to be a demand for a significantly higher level of homes in Ireland than current production levels, particularly in our target market of first time buyers of houses as opposed to apartments,” it said.

McInerney completed 423 houses in the six-month period, down 39% from a year earlier, and won’t pay an interim dividend.

It said that in light of the continued stagnant market conditions, it is revising its estimates for housing completions and anticipate completing 350 units in Ireland this year.

Davy analyst, Robert Gardiner said: “In recent weeks, several builders have reported land write-downs and once-off restructuring costs in response to the depressed trading environment.”

Mr Gardiner described the results as “disappointing”.

“It was inevitable that McInerney would have to respond in the same manner,” he added.

The company said trading in the second-half of the year is expected to significantly outperform the first half in line with the group’s normal seasonality.

It also expects to be cash generative to year end and into 2009 due to its limited forward land purchase commitments and stock reduction.

Mr O’Connor said yesterday the company has no plans to expand into new markets in the coming year.

The Financial Times reports that borrowers with subprime mortgages are likely to see their interest rate jump close to 10 per cent once their cheap short-term deal expires, according to new research.

Subprime borrowers would revert to an average rate of 9.43 per cent, almost double the Bank of England base rate, Moneyfacts.co.uk said on Thursday.

The group’s data also showed a sharp drop in the number of subprime mortgages available, indicating that a large proportion of borrowers with these loans will be unable to switch to another cheap deal once their existing one expires.

Almost 85 per cent of the subprime mortgages that were available a year ago have disappeared. “Up until July last year the subprime market was a growing sector offering 8,148 residential mortgage products, compared with just 1,252 today,” said Darren Cook, mortgage expert at Moneyfacts.

The number of lenders offering subprime mortgages has dropped from 36 in July 2007 to 13 today.

The subprime market had become much more accessible in recent years as many small, specialised lenders entered the market offering some very competitive deals to borrowers with impaired credit ratings. A year ago some lenders were offering rates only fractionally higher than standard residential rates. Borrowers who took cheap short-term rates therefore hoped to be able to switch to a new deal at the end of the initial period.

But as new rates have risen sharply and many subprime lenders have withdrawn from the market, borrowers are having to stay with their existing lender. “Many borrowers on a light level of subprime assumed that if they kept on top of their financial affairs once their deal ended they would be able to move to a much cheaper standard residential deal, but due to stricter lending criteria from prime lenders this isn’t necessarily the case,” said Mr Cook.

The FT also reports that Small and medium-sized companies are entering Iran’s market to replace big companies that have scaled down their operation to avoid sanctions, western diplomats say.

Partly as a result of this switch EU exports to Iran during the first four months of this year went up by 17.8 per cent after a three-year decline despite international sanctions over the country’s nuclear programme. Exports by Italy rose by 33 per cent, France by 30 per cent and Germany by 17 per cent, while the UK’s went down by about 8 per cent, according to figures from the EU’s statistics office Eurostat.

There has also been a 24 per cent rise in the value of its total imports during the first four months of this Iranian year (March 20-July 21).

Western diplomats say more companies and banks of smaller and medium sizes without big interests in the US are involved in trade and small investments without breaching any legal ban.

“The rise in trade figures is politically embarrassing and some measures are under way in the EU to crack down on small and medium-sized enterprises,” said one western diplomat. “The new figures encourage more EU sanctions,” said another diplomat.

Three rounds of UN sanctions have largely hit individuals and companies said to be involved in nuclear- and arms-related activities without banning daily trade and non-nuclear investment.

But the US has imposed unilateral restrictions in particular on financial trans- actions and big investments. The EU is also discouraging trade and investment.

“It is a natural trend in any market that when multinational companies withdraw for political reasons, smaller companies which are less capable in economic terms but also less vulnerable in political terms get into the market more easily than before,”said Mehdi Fakheri, vice-president of Iran’s chamber of commerce for international affairs.

The recent rise in trade is mainly in consumer goods and not industrial ones, diplomats and analysts stress. Imports of cars increased by 90 per cent, fridges by 30 per cent and washing machines by 50 per cent.

The biggest recent deal, worth €100m ($147m, £80m), was signed by Germany’s engineering company Steiner Prematechnik Gastec this month to build equipment for three gas conversion plants in Iran. This is at a time when France’s Total, Royal Dutch Shell and Norway’s Statoil have withdrawn from multi-billion-dollar contracts. “We are shifting from big companies to smaller companies, from big countries to smaller countries and from Europe to Asia,” said Mr Fakheri.

Diplomats argue that sanctions have made trade more expensive for Iran, pushing up the value of imports on top of global inflation.

The New York Times reports that the economy expanded at a 3.3 percent rate from April through June, far faster than first thought, the government said on Thursday. But the outlook for the remainder of the year remained grim.

Even as investors celebrated with a rally in the stock market, pushing the Dow up more than 200 points, economists cautioned that consumer spending and foreign demand would probably dry up in the months ahead.

With layoffs on the rise, corporate profits falling, and the housing slump still in full swing, the report was seen by many analysts as something of a last gasp.

“Don’t lull yourself into complacency looking in the rear view mirror,”said Joshua Shapiro, chief United States economist at the research firm MFR. “The view out of the windshield is a lot scarier.”

A surge in export sales, which jumped 13.9 percent in the second quarter, led the economy to its best quarterly performance since the middle of last year. Inventories also stayed higher than originally thought, which implied more production activity at the nation’s businesses. The developments prompted the government to significantly raise its estimate of gross domestic product in the second quarter to 3.3 percent from 1.9 percent.

The jump was more than economists had anticipated. But the report from the Commerce Department also suggested that the health of American businesses has become heavily dependent on customers abroad.

Consumer spending by Americans, which can amount to more than two-thirds of the nation’s economic activity, grew at a 1.7 percent rate in the second quarter, up from the original 1.5 percent increase. That figure is low by historical standards, and it came despite the $100 billion in tax rebates mailed out by the government during the quarter.

Americans are spending more on smaller items and discounted products, putting a pall on sales of durable goods, which are items intended to last three years or more. Purchases of these goods, like dishwashers and automobiles, dropped 2.5 percent from April to June, even as spending on other types of goods grew.

Meanwhile, American corporations suffered through their worst quarter since the 2001 recession, with profits falling 7 percent from a year prior.

“Never has growth looked so good but felt so bad,”Richard Moody, chief economist of the real estate firm Mission Residential, wrote in a note.

And, in an ominous sign for American businesses, export sales are expected to slow over the rest of the year. The dollar has strengthened recently against the euro — good news for the American currency, but bad news for domestic companies that have profited from the increased demand for relatively cheaper American exports.

Several major export buyers in Europe and Asia, particularly Japan, have also started to show signs of a slowdown. The European Central Bank recently warned about slower growth in its member nations.

“The evidence, in terms of the industrialized world, is pretty clear cut right now that growth is slowing quite substantially,”said Mr. Shapiro of MFR. “The whole world is in a slowdown phase.”

Import sales also fell more in the second quarter than the government first estimated. Imports decreased 7.6 percent, compared with an original estimate of a 6.6 percent decline.

While the drop in imports helped push G.D.P. higher for the quarter, slower demand for imports is an indication that Americans are spending less, which could ultimately cause problems for the broader economy.

Indeed, the weak job market and higher energy prices are putting a strain on household budgets. The Labor Department said on Thursday that the number of Americans who have stayed on rolls for unemployment benefits last week was at a five-year high.

The chairman of the Federal Reserve, Ben S. Bernanke, said last week at a conference in Jackson Hole, Wyo., that he expected the economy would remain weak for the rest of the year, and probably not recover to its full growth potential until 2009.

From October to December of 2007, the economy actually contracted. It grew at an anemic 0.9 percent rate from January to March of this year.

“Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust G.D.P. headline for some time,”Nigel Gault, chief domestic economist at Global Insight, wrote in a note.

But investors, who have dealt with an increasingly volatile market of late, appeared to shrug off the caveats placed on the G.D.P. report. On Wall Street, the Dow Jones industrial average picked up 212 points to end the day at 11,715.18, its best session in three weeks. The broader Standard & Poor’s 500-stock index was up 1.5 percent, and the Nasdaq composite index ended the day up 1.2 percent.

The NYT also reports that on Wall Street, the ax keeps falling again and again.

As the financial industry limps from one bleak quarter to the next, bankers and traders who dodged painful layoffs in the past year wonder if their luck is running out.

The issue gained new urgency on Thursday, as Lehman Brothers, Wall Street’s most troubled firm, prepared to lay off up to 1,500 people in its fourth round of cutbacks this year. Those layoffs, which would amount to about 6 percent of Lehman’s work force, are likely to come before the firm reports third-quarter results in mid-September, according to a person briefed on the plan.

The grim news at Lehman underscores not only the precarious state of that once-proud firm but also the pain afflicting the whole of Wall Street. Banks and securities firms have shed more than 101,000 jobs this year, according to Bloomberg News, as the mortgage crisis and struggling economy brought an abrupt end to years of prosperity for the financial industry. Few think the bloodletting will end there.

“We’re not done seeing headcount reductions on Wall Street in this cycle,” said Jeff Harte, a securities industry analyst at Sandler O’Neill.

Lehman has already laid off more than 6,000 workers since June 2007. The expected round of cuts is a stark reminder of a basic truth on Wall Street: in good times, you get rich; in bad times, you get fired.

A Lehman spokesman declined to comment.

Like other Wall Street banks, Lehman focused its initial job cuts on its mortgage origination and securitization businesses. Now, as business remains lethargic, jobs in investment banking and trading are on the line.

Several major firms, including Lehman, close their books for the third quarter on Aug. 31, and analysts have been slashing profit estimates. The continued deterioration of the mortgage market, especially the commercial real estate market and the residential market for borrowers with credit a rung above subprime, bodes ill for banks and brokerages.

Other Wall Street business do not look much better. Over the past year, according to Goldman Sachs, merger advisory volumes fell 36 percent, initial public offerings tumbled 75 percent and debt underwriting sank 45 percent.

With Lehman, investors are anticipating poor results. Analysts say the firm could face write-downs of as much as $4 billion and an estimated loss for the quarter of $3.30 a share. Many analysts are shifting their focus to what steps Lehman will take — or announce it will take — to shed its extensive portfolio of troubled securities. The bank, whose market capitalization has dwindled to about $11 billion, owns about $61 billion in mortgages and asset-backed securities.

“For the franchise (and shares) to turn the corner, we think management needs to announce a significant bulk asset sale or framework for investors to evaluate the structure/pricing of likely asset disposals (and incremental capital, should it be needed),”wrote Patrick Pinschmidt, an analyst at Morgan Stanley. He added that the weak third quarter made this “more urgent (and difficult).”

Lehman executives are examining many options. Among them is the sale of Lehman’s investment management division, which includes Neuberger Berman and could fetch $7 billion to $10 billion. Other options include the sale of about $40 billion of troubled commercial real estate, and the creation of a separate unit that would be owned by Lehman shareholders and house a substantial portion of Lehman’s commercial and residential mortgage assets, freeing the investment bank to try to move forward.

People briefed on Lehman’s plans say an ideal situation would be to put the toxic assets into a separate unit and then recapitalize the investment bank with the proceeds of a sale of part or all of Neuberger and perhaps a capital infusion from abroad.

Lehman’s stock has been rattled by persistent rumors about what the firm’s next move will be. Last week, the stock fell 13 percent and rose 16 percent on two separate days. The shares have lost 73 percent of their value this year, rankling employees and customers.

On Thursday, they rose 7.4 percent to $15.87 amid a broad rally in financial shares. Even so, few think the firm is out of the woods.

Top Lehman executives have been knocking on doors all over the world seeking a capital infusion, courting sovereign wealth funds and investors like the Korean Investment Corporation, Korean Development Bank and Citic of China.

But a white knight has not emerged, and another bad quarter — Lehman lost $2.8 billion in the second quarter and was forced to raise $6 billion in equity — will be difficult to manage in the deteriorating environment.