The Irish Independent reports that Bank of Ireland is set to confirm this week that it does not plan to tap shareholders for equity until next year, as the group posts an almost €1bn pre-tax loss for the six months to September.
In a note to clients, NCB Stockbrokers said the group should report a €942m underlying pre-tax loss for the six months, compared to a profit of €650m for the same period last year -- as bad loan losses continue to spiral.
"We forecast an interim impairment charge of €1.7bn, which is in line with management guidance," said NCB analyst Ciaran Callaghan.
Discount
The result excludes a once-off gain of €1bn the bank generated over the summer by buying back some of its riskier bonds at a discount in the market.
The market will be particularly keen to learn if the bank is sticking to its forecast that loan losses total almost €7bn for the three years to the end of March.
BoI raised its estimate from €6bn at the end of September, having said last February that this was its 'worst case' scenario. However, the fear is that any improvement in the mortgage portfolio could be offset by a deterioration in the bank's business banking portfolios.
Market observers expect BoI will wait until after Brussels has responded to the group's restructuring plan before attempting to raise equity. The group filed a restructuring plan, necessitated by its €3.5bn State recapitalisation, to the European Commission in September.
The Irish Independent also reports that staff at Anglo Irish Bank who take up this week's offer of a redundancy package will be vetted to ascertain whether they have applied to work at the National Asset Management Agency (NAMA).
The Government is anxious that the taxpayer does not end up paying a redundancy package to a member of staff who would then move on to work at the state agency.
"While it's unlikely that any Anglo staff member will end up working at NAMA, any possibility will be ruled out before a redundancy package is awarded," one source said.
Later this week, Anglo Irish Bank will unveil a massive redundancy plan targeting "surplus capacity" following the collapse of its business model.
Inside speculation points to between 200 and 500 jobs being lost of its 1,700-strong workforce. A second, smaller wave of redundancies is expected early next year, once the NAMA loans have been transferred.
Details
Anglo Irish chief executive Mike Aynsley has been finalising details of a voluntary redundancy package but it has yet to be signed off on by Finance Minister Brian Lenihan.
Sources say the terms will be in line with the norm for a state-owned entity, which is in the region of five weeks' salary per year for the first two years of service and statutory redundancy or two weeks' salary for every year after that.
They have also suggested that Anglo will force through compulsory redundancies if the target is not met.
It is expected that Mr Lenihan will sign off on the programme this week.
The bank has been receiving emergency funds from the European Central Bank (ECB) though Mr Lenihan has said its dependence on ECB help had been falling of late.
The bank is planning to submit a restructuring plan by the end of the month, but the European Commission is unlikely to respond until early next year.
Dispute
Meanwhile, the Irish Bank Officials' Association (IBOA) finance union has asked Mr Lenihan to intervene in the Ulster Bank dispute. IBOA general secretary Larry Broderick said the bank wrote to staff last week giving them two weeks to enter into new contracts.
"The bank's approach smacks of the type of 'mis-selling' of products that got the banks, their customers and the economy into such a mess.
"We believe that Ulster Bank's action is immoral and also probably illegal," he said.
Yesterday, a spokesperson for Ulster Bank said it had no comment on the dispute.
The Irish Times reports that pay cuts of up to 15 per cent for senior civil servants are recommended in the latest report of the Review Body on Higher Remuneration in the Public Sector.
The report was delivered to the Department of Finance a number of weeks ago but has not yet been sent to the Department of the Taoiseach, nor has it come before the Cabinet for its consideration.
Senior political sources confirmed last night that cuts ranging from 8 per cent to 15 per cent were recommended in the document.
Due to the intense Dáil debate on the National Asset Management Agency (Nama) legislation, Minister for Finance Brian Lenihan has not yet had an opportunity to study the report in detail, prior to presenting it to his ministerial colleagues.
Mr Lenihan has previously suggested that senior civil service posts may be “overpriced”, adding that “we have to reduce our expenditure and the example for that has to come from the top”.
The Review Body on Higher Remuneration is a standing body, set up in 1969, whose primary function is to advise the Government on the general levels of remuneration appropriate to higher public servants, members of the judiciary and of the Oireachtas.
It is understood that the latest report also deals with the salaries of judges and political office-holders.
The group was instructed for the first time to draw comparisons between the pay of Irish public servants and the salaries of their peers in other European Union member states of similar size.
The Department of Finance, in a strong submission, said pay developments at senior public service level could have knock-on effects on pay at lower grades.
Although the review body’s recommendations are currently said to be “under lock and key” in the Department of Finance, reports of its content are likely to influence the outcome of social partnership talks.
Department officials are to meet representatives of the public sector unions tomorrow to discuss the Government’s plans to cut €1.3 billion from the public sector pay bill.
The Department of Finance refused to comment last night on suggestions that the Government was making private and informal approaches to the unions about the possibility of temporary cuts in allowances and overtime for the year 2010, followed by reductions in staff numbers in subsequent years.
For their part, the unions have formally requested the Government to set out its vision for the size and scale of the public service by 2013.
The Irish Congress of Trade Unions (Ictu) is to launch its 10-point Plan for National Recovery in Dublin this afternoon. The plan is understood to call for an extension of the period of economic recovery to 2016-2017. Ictu has designated next Friday as a national day of protest with demonstrations planned for eight cities and towns.
The Irish Times also says that the Quinn Group’s ability to service debts to Anglo Irish Bank has significance for the public purse.
The Quinn Group is a great Irish business success story and a seriously large issue for the Irish taxpayer. Hopefully, as the coming years unfold, it will become even more of the former and less of the latter.
In relation to the latter aspect of its status, the most impressive part of the story is the size of the figures. Seán Quinn, his family and their businesses are understood to be the single largest customers of nationalised Anglo Irish Bank. The amount involved is not known, but must be in excess of €2 billion, given the scale of the debt to that bank owed by some of its property development customers.
The success of the Quinn Group and of the family’s various investments outside the group are therefore of direct and significant interest to the taxpayer and the exchequer.
As is well known, Quinn and his family built up a stake in Anglo of at least 25 per cent, and perhaps up to 28 per cent, using contracts for difference (CFDs), legal entities that do not involve direct ownership of shares.
As the bank’s share price plummeted last year, Quinn’s bet on the bank turned spectacularly sour, and it appears he used further bank finance to shore up his position. He eventually bailed out, again apparently using bank money, and bought a direct 15 per cent shareholding. That investment has now also gone south.
In the group’s latest accounts it is stated that the family’s “property portfolio outside of the group continues to progress well and some of these investments will rank amongst the best we have ever made, and will go a long way towards recovering the very substantial losses incurred in the stock market over the past few years”.
However, some of these investments are held by way of Quinn Finance Holdings, an unlimited company that does not publish its accounts, and Quinn Property Investments Ltd, the latest accounts for which are for 2007 and show a group loss of €33 million. The Anglo adventure involved write-offs totalling €888 million in relation to loans to these companies.
The Quinn Group accounts show that at the end of 2008 shareholders’ funds in the group were €753 million. Leaving aside exceptionals, the pre-tax profit figure was €466 million, an impressive performance for a company largely operating in an economy in turmoil.
The Quinn Group has already, over the 2007 and 2008 years, written off up to €888 million arising from the family’s disastrous Anglo engagement. We don’t know, but it would be fair to suspect, that a large part of the €200 million taken from the group by the family last year in dividends went towards financing the family’s bank debt.
The whole Anglo/Quinn affair is the focus of a number of inquiries, including ones by the Financial Regulator, the Office of the Director of Corporate Enforcement and the UK Serious Fraud Office.
Included in the inquiries is the operation mounted by senior Anglo figures, and seemingly approved by the then Anglo board, whereby that part of Quinn’s CFD position not being taken up by him was taken up by 10 Anglo customers who were requested by the bank to do so, and were given money by the bank to do so.
Astonishingly, the security against these loans was for the majority part limited to the shares purchased. The taxpayer looks set to carry a loss of in the region of €300 million arising from this debacle alone.
Quinn deserves huge credit for the €3.8 billion business he has built up, with its dizzying range of activities and 8,000 employees around the world, 5,500 of whom are based in Ireland. The group expects to pay about €140 million in corporation tax this year and is dealing with the downturn both by investing and by stepping up its exports.
A company that can more or less be relied upon to throw off underlying profits of almost €500 million each year, even during a recession, deserves credit at any point in the economic cycle. It also, of course, provides for a substantial ability to service, and pay off, debt, even if it is debt of the order believed to be the case in the Quinn family scenario.
The Quinn Group has restructured in the period since the Anglo collapse and has put in place a format more akin to a plc than a family-run business.
The introduction to the Quinn accounts says the story of the group is “a story of success, service and strength for the past 35 years”. For now, the family faces difficult trading conditions while also trying to deal with the fallout from their disastrous Anglo adventure.
The Irish Examiner reports that the number of unemployed people being left in financial despair as they wait for welfare payments has spiralled to 58,000 – pushing the real jobless total to almost half a million.
Claims are taking up to three months to be processed, with Cork, Galway and Dublin showing the most worrying increases in the backlog.
Pending applications for jobseeker’s benefit or allowance in Cork total 3,303, with 2,223 outstanding in Limerick, 3,324 in Galway and more than 14,000 in Dublin.
Small towns are also showing a significant build-up with 235 people waiting for support in Clonakilty and 162 in Bantry, according to figures released to Fine Gael by the Social and Family Affairs Department showing that 58,282 claims are pending nationally.
Fine Gael frontbench spokesman Simon Coveney said the delays were unacceptable and causing immense hardship for families.
"It is hard not to be cynical about all this, but mainly I think it is down to incompetence. Delays like this could have been expected a year ago when demand started to increase rapidly, but we have had a year to adjust to that, so this is certainly no longer acceptable.
"I find it extraordinary that there are almost 60,000 people waiting for jobseeker’s welfare across the country and it is proof that the published unemployment figures significantly understate the true number.
"We have feared the prospect of 500,000 unemployed for some time, but the truth is that grim spectre has already arrived.
"Cork and Galway have particularly high numbers of pending claims with both cities having over 3,000 waiting. Limerick city has over 2,000 and these numbers rise when local offices throughout the county are included. The Dublin waiting list is over 14,000 when pending claims from all local offices are added together.
"In parts of Co Cork the waiting time for a decision on welfare is 12 weeks. This is ridiculous and it’s hard not to draw the conclusion that welfare decisions are being delayed to keep the welfare bill down," said Mr Coveney.
The shadow cabinet member added the system was discouraging people, particularly in the building trade, from taking on short-term work because they fear they will have to wait 10-12 weeks for welfare claims to be processed again when the job ends.
The Financial Times reports that Germany’s main industry lobby group has sounded the alarm over the tax cutting plans of chancellor Angela Merkel’s new government, warning that priority should be given instead to bringing the country’s spiralling deficit back under control.
The comments on Sunday by the president of the BDI business association highlight growing concern that the centre-right coalition in Berlin will jeopardise Germany’s reputation for fiscal prudence by pushing ahead with sweeping tax cuts.
They followed veiled warnings from the European Central Bank and Germany’s Bundesbank that excessively expansionary policies could backfire and that European Union fiscal rules be upheld. Central bankers fear breaches of fiscal rules would send a disastrous signal to other eurozone countries.
Ms Merkel last week began her second term as chancellor after agreeing with the Free Democratic party, her junior coalition partner, to press for income and corporate tax cuts worth €24bn ($35.3bn) a year – despite Germany’s public sector deficit expected next year to exceed by a wide margin the 3 per cent of gross domestic product threshold set as an EU limit.
The chancellor argues that government savings would be wrong in the midst of a global economic crisis. However, Hans-Peter Keitel, BDI president, told Germany’s Focus magazine that “ever more billions in borrowings also mean higher interest payments, and the financial room for manoeuvre for politicians becomes ever narrower. For that reason our priority is: budget consolidation. That is more important than comprehensive tax cuts.”
Berlin’s tax-cutting ambitions also face opposition from state governments. Mr Keitel agreed the government should act flexibly but believed future savings could be possible, for instance, in the country’s generous welfare system.
On Sunday Guido Westerwelle, the FDP leader, urged Ms Merkel’s Christian Democratic Union to stick to the agreed programme. But Wolfgang Schäuble, new finance minister – and ally of Ms Merkel – struck a more conciliatory tone in weekend media interviews. Germany recognised its “particular responsibility” in setting an example for other European countries, he told Saturday’s Frankfurter Allgemeine Zeitung.
Last week, Axel Weber, Bundesbank president, said Berlin should aim to bring the public sector deficit back below the 3 per cent threshold in 2012. Mr Schäuble said that would require “exceptionally ambitious efforts, but we’re absolutely determined to achieve that. That is my job.”
Jean-Claude Trichet, ECB president, last monthwarned of an “increasingly pressing” need for “ambitious and realistic fiscal exit and consolidation strategies” by eurozone governments. The ECB is set to leave its main interest rate unchanged at 1 per cent.
The FT also reports that Ryanair chief executive Michael O’Leary has given the strongest indication yet that the airline may stop growing after 2012, when it is due to hit its target of flying 90m passengers a year.
Speaking to the Financial Times ahead of Monday’s interim results, he said Ryanair did not need to secure a deal with Boeing for more aircraft – and could instead shift to a strategy of rationalising routes, building up cash and paying dividends to shareholders.
Mr O’Leary is in discussions with Boeing to order up to 200 aircraft.
Some analysts think that he may be ready to announce a deal with Boeing at Monday’s results presentation.
However, others point out that recession-hit airlines around the world have been deferring aircraft deliveries – Lufthansa and AirAsia being the latest examples, last week.
Boeing’s reluctance to finalise a deal with Ryanair for new single-aisle 737s has prompted Mr O’Leary to describe it as a “big bloody supertanker” that takes too long to make decisions – sending Ryanair into a “twilight zone” of stalled negotiations.
He has now issued Boeing with a deadline of the end of the year.
“If Boeing don’t come up with the right deal for us then fine, we have divorce,” Mr O’Leary said, adding that he is willing to start talking to Boeing’s European rivals at Airbus.
But Mr O’Leary also claims that the low-cost airline may not need any new aircraft to achieve its target of 90m passengers in three years’ time – up from this year’s target of 66m.
“If we order no more aircraft the fleet will be at 300 aircraft by 2012,” Mr O’Leary added. “We may not grow at all after 2012.”
A strategy of standing still would be good for Ryanair, he claimed. “It would allow us to weed out some of the poorer routes, some of the poorer aircraft bases, and switch those aircraft to new opportunities, while building up cash and distributing some money to shareholders.”
Nevertheless, shareholders and analysts have expressed concern about the company changing from being an out-and-out growth stock into an income stock.
Joe Gill, director of equity research at Bloxham stockbrokers in Dublin, warned that shareholders would consider such a move premature.
“They are investors in the business as a growth model,” he said.
“They hadn’t built into their expectations that he would stop growing in 2012.”
Ryanair has grown rapidly in the past 24 years.
Having started up as a small, lossmaking carrier with one 15-seat aircraft – which was so small that its cabin crew had to be less than 5ft 2in tall – it has since become one of the world’s most profitable airlines.
The New York Times reports that as the CIT Group sought desperately to avoid bankruptcy this summer, it argued that being forced into Chapter 11 protection would spell disaster for its customers: a wide swath of the nation’s small and midsize businesses who rely on the 101-year-old company for financing.
On Sunday, CIT entered what it called a different kind of bankruptcy, one that will let it reemerge from court protection by the end of the year under the ownership of its creditors, who widely supported the reorganization plan.
The filing marks the culmination of months of bargaining among CIT, its creditors and the federal government over the company’s fate. Bank regulators concluded over the summer that even though CIT was vital to many small businesses that needed financing, the company’s problems did not pose the type of systemic risk that led to the aggressive rescues of Citigroup and Bank of America.
Even so, the bankruptcy filing means taxpayers will lose the $2.3 billion investment they made in CIT as part of the government’s sweeping financial rescue last fall, marking the first such loss of the bailout program.
Even though the government has been repaid with interest for its investments in companies like Goldman Sachs and Morgan Stanley, it will probably see more losses in companies like the American International Group and Chrysler.
By filing a so-called prepackaged bankruptcy plan, CIT is aiming to limit the damage inflicted on the scores of retailers and other companies that depend on the specialized financing it provides. It is the dominant provider of factoring, in which a company sells the debt it is owed to a company like CIT at a discount.
Many companies that provide factoring have been hit hard by the faltering economy and have closed their doors, leaving more businesses dependent on the likes of CIT, according to Michael C. Appel, the head of the retail and consumer practice at Quest Turnaround Advisors, a consulting firm.
“In the long run it will be good for CIT,” said Emanuel Weintraub, chief executive of Emanuel Weintraub and Associates, a management consultancy. “In the short term it will not be good for thinly financed companies that may not be immediately taken in by other lenders.”
When CIT disclosed its troubles in July, many retailers were preparing their orders for the holiday season and were terrified by the prospects of a sudden and uncontrolled Chapter 11 filing, said Ellen Davis, vice president of the National Retail Federation.
CIT’s filing will test whether a financial company can survive the Chapter 11 process. Bankruptcy has long been considered a death knell for lenders, whose very existence depends on the confidence of its creditors and customers. The company’s struggles have been watched with interest and trepidation by analysts and its clients.
“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” Jeffrey M. Peek, CIT’s chairman and chief executive, said in a written statement.
It also means the end of CIT’s efforts to transcend its roots as a sleepy financier of retailers, restaurants and manufacturers. Under Mr. Peek, a former high-ranking Merrill Lynch executive, the company branched out into student lending and investment advisory services. Befitting its ambitions, it moved from an office park in Livingston, N.J., to a flashy tower in Midtown Manhattan.
But the company was laid low by the turmoil in the credit markets, which sapped its ability to finance its daily operations. Even after receiving the initial $2.3 billion in government aid, it went to its regulators for additional help, only to be told it needed to find a solution in the private markets. It subsequently bargained with its creditors over a restructuring plan that would keep it operating and cut $10 billion in unsecured debt.
While CIT had hoped to stay out of bankruptcy court through a bond exchange offer, that plan failed to win enough support from bondholders, the company said in a statement.
With $71 billion in assets and nearly $65 billion in liabilities, CIT’s bankruptcy ranks among the largest in corporate history, though it is dwarfed by the bankruptcies of Lehman Brothers and Washington Mutual. CIT said in its bankruptcy petition that $800 million of its bonds would mature from Sunday through Tuesday.
CIT said that only its holding company was filing for bankruptcy, and that most of its important operating subsidiaries, including its Utah bank, would continue to operate normally. As part of an effort to revamp its business model, the company plans to move more of its operations into its bank instead of relying on the more volatile capital markets.
Bondholders will receive about 70 cents for each dollar owed them through the prepackaged bankruptcy. CIT said investors would have received as little as 6 cents on the dollar in the alternative, a free-fall bankruptcy that lacked a pre-approved reorganization plan.
CIT said in a statement that holders of about 85 percent of its $30 billion in bond debt participated in the voting. Those investors voted almost unanimously to support the prepackaged bankruptcy plan.
Last week, the company got a $4.5 billion loan from several investors. It also reached an accord with Goldman Sachs that would preserve a $2.13 billion loan.
