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Markets News Monday: G7 to canvass support for global banking levy; Aer Lingus traffic rose in January; German manufacturing turnover fell in December
By Finfacts Team
Feb 8, 2010 - 9:09:40 AM
A wrapped up Fed chairman, Ben Bernanke, arrives in Iqaluit for the G7 meeting. US treasury secretary, Tim Geithner, is on the left of the picture.
Finance ministers from the G7 countries - - Canada, US, Japan, Germany UK, France and Italy -- the world's most advanced nations, agreed at the weekend, in Iqaluit, northern Canada, just south of Arctic Circle, that the idea of imposing levies on banks to help insure the global economy against future financial crises, should be explored.
The ministers will seek support for such a levy - - which could be either a transaction tax or a fee on deposits held - - among the members of the Group of Twenty (G20) before the leaders of the leading advanced and emerging economies next meet.
“We discussed in the longer term whether or not it would be appropriate to have a levy on the banking industry to reflect the costs that have been imposed as a result of what has happened. It's early days but...we agreed to work together on this,” UK chancellor Alistair Darling told reporters after the meeting. “We were very clear that we needed to continue to work together on this -- regulatory reform. Of course different countries have different systems. But... the one thing that really came up again and again was that all of these problems require global solutions,”he added.
US Treasury secretary Tim Geithner said that all the G7 ministers had agreed to work towards implementing a new set of capital requirements for large global institutions by the end of this year.
“The United States is very committed to making sure we again put in place a strong multilateral level playing field across these global institutions and across these global markets,” Geithner told a press conference after the meeting.
“We're going to design this framework with great care and... we're going to do so in ways that don't undermine prospects for recovery,"he said.
Jean-Claude Trichet, president of the European Central Bank, said he was confident that Greece had its budget deficit crisis under control.
"Let me reiterate the position of the ECB: the governing council approves of the medium-term goal that has been fixed by the Greek government to get the public deficit to less than 3% of GDP in 2012," Trichet told reporters on the sidelines of the G7 meeting.
"We expect and we are confident that the Greek government will take all the decisions that will permit it to reach that goal that I reiterated,"he said.
French Finance Minister Christine Lagarde said the minister “have confirmed the substance and significance” of Greece’s plan to reduce its shortfall without outside assistance.
Iqaluit, host venue of the February meeting of G7 finance ministers and central bank governors, is the capital of Nunavut, Canada’s largest, newest and most northerly federal territory. Covering one-fifth of the country, Nunavut, which is about the size of Western Europe, stretches through three time zones across the top of North America. Nunavut includes the community of Alert, the northernmost permanently inhabited place in the world, which is only 817 kilometers (508 miles) from the North Pole.
The mainland portion of the territory is an almost untouched wilderness, where the stark northern tundra changes into cliffs and plateaus along the Northwest Passage. To the north and east, the Arctic Islands are surrounded by pack ice for most of the year and the region extends to the glaciers, jagged mountains and fjords of the eastern shores of Baffin and Ellesmere Islands.
Nunavut, which means “our land” in Inuktitut, the regional Inuit language, was born April 1, 1999, as the new eastern Arctic territory was partitioned off from the old Northwest Territories. It marked the conclusion of more than two decades of efforts on the part of the Inuit people of the eastern and central Arctic to take control of their own lives and destiny.
Under the 1993 Nunavut Land Claims Agreement, Inuit gained control of about 356,000 square kilometers of land (about one-fifth of the territory). The Nunavut Land Claims Agreement also gave Inuit the right to self-government and self-determination.
It has a population is 41,464 people (2006 census) and the largest native group is the Inuit (singular: Inuk), which means “the pre-eminent people” in Inuktitut.
German manufacturing turnover
The German federal statistics office reported today that the manufacturing sector saw turnover fall in real terms by a working-day adjusted 6.0% in December 2009 compared with December 2008 (following a revised –9.6% in November 2009). Domestic turnover dipped by 6.6% in the relevant period and revenue from business with foreign customers dropped by 5.2%. Sales to Eurozone countries were 5.7% below the previous year’s level, while sales to other countries went down by 4.8%.
Compared with the preceding month, real turnover in manufacturing showed a total drop of 2.0% in December 2009 after having been adjusted for seasonal fluctuations and working-day variations . Decreases were observed in domestic sales (–3.3%); turnover from business with foreign customers declined by 0.2%. Among foreign transactions, sales to Eurozone countries increased 0.5%, while a turnover decreased of 0.7% was recorded for other foreign countries.
For the year of 2009 the (working-day adjusted) turnover in manufacturing was 17.0% below the level of the same period of the previous year; domestic turnover declined 13.9% and foreign turnover by a total of 20.5%.
Aer Lingus travel statistics
Aer Lingus’ total passenger numbers in January 2010 were 665,000 an increase of 0.6% compared to January 2009. Short haul passengers were 608,000, a 3.6% increase on January 2009 and long haul passengers were 57,000, a 23.0% decrease on January 2009.
Aer Lingus’ overall load factor in the month was 67.4%, an increase of 3.1 points compared to January 2009, with capacity decreasing by 10.7%. Short haul load factor was 67.6%, an increase of 3.0 points on 2009, with capacity increasing by 2.3%. Long haul load factor was 67.0%, an increase of 3.2 points on 2009, with capacity decreasing by 29.4%.
Aer Lingus’ monthly traffic statistics are based on passengers who booked on a flight that was scheduled to fly in that month. Aer Lingus presents its traffic statistics in this manner because in certain circumstances Aer Lingus is entitled to retain the fares paid by passengers who have booked on a flight but choose not to fly on it. In January 2010, in common with many other carriers, Aer Lingus experienced poor weather conditions leading to flight cancellations. This resulted in a greater than normal difference between Aer Lingus’ booked passenger numbers and flown passenger numbers.
Aer Lingus’ total load factor for January 2010 based on flown passenger numbers was 64.1%.
Irish construction sees chink of light
Davy chief economist, Rossa White, comments: "There is a sense of déjà vu with the present hysteria about Greece (and euro sustainability in general). Ireland felt it exactly one year ago. Worries about fiscal sustainability will take longer to pass in Greece (compared with Ireland for example, its starting debt position is higher, it has lost credibility, its dependency ratio is worse and its productivity performance pathetic), but the wider impact on risk markets is probably now overblown. Today sees some timely figures for Ireland after the somewhat disappointing (although weather-affected) data last week. The latest update on construction actually provided a chink of light this morning.
Irish construction has been in recession for almost three years. We can time it by using the PMI, which dipped below 50— signalling month-on-month decline — for the first time in June 2007. Housing, of course, started its slide more than six months before the rest of the sector. But volumes (not prices) in that part of the sector may be closer to bottom. The latest reading for housing was 35.3, the best since May 2007. Although the index continues to record lower activity levels sequentially, scheme housing starts cannot go much lower. For most of 2009, they were running at an annualised rate of around 2,000. That compares with the peak above 60,000! One-off and government built housing may have further to fall in the short term, but housing starts will likely level off soon at around 8,000 in total.
For the total construction sector, new business is actually consolidating. New orders fell at their slowest pace since late 2007. It may have been enough to boost managers' optimism, which jumped to a 31-month high. Construction will remain in recession overall until well into 2011, but most of the adjustment has passed. Employment is the sector is down to about 135,000 from a peak of nearly 275,000. It will slip to 125,000 on our estimates by the bottom in the middle of next year.
Meanwhile, we will find out about Christmas shopping this morning when Irish retail sales for December are released. Tax revenue hints that sales were sluggish."
President Barack Obama discusses job creation, the economy and small business initiatives:
Malignant cancer remains the most common cause of life assurance claims – Irish Life Claims Survey
Irish Life paid out €250million in life assurance claims to 5,000 families in 2009 new figures reveal. The company has also confirmed that statistically 1 in 4 people will suffer a serious illness with 1 in 10 people dying before reaching retirement age. 95% of all claims received by Irish Life were paid in 2009.
The figures also reveal that for the fourth year in a row, malignant cancer remains the biggest cause of both specified illness and death benefit claims for both men and women.
In the case of malignant cancer women account for 78% of the total specified illness claims paid. This is largely due to the high level of female-specific malignant cancers such as malignant breast cancer which accounted for half of the total number of cancer-related claims.
The figures also show that men have five times the level of heart-related specified illness claims that women do. Overall malignant cancer and heart-related disease account for 80% of the claims settled by Irish Life in 2009.
An analysis of death claims paid by Irish Life sees that trend maintained, with malignant cancer accounting for almost half (47%) of the total of 1,284 claims paid in 2009, with heart-related conditions accounting for more then 16% of the total.
Over a quarter of all accidental death claims were as a result of road traffic accidents. A significant factor is the prevalence of alcohol in accidental or sudden deaths (16%).
Commenting on the findings Martin Duffy, head of claims at Irish Life said, “In the current economic environment, it is more important than ever that people continue to make payments into their protection plans. Unfortunately 1 in 10 of us will not live to see our retirement so it’s crucially important that we have adequate financial support in place for ourselves and our families should the unexpected arise. In one case a customer asked Irish Life to cancel his life cover for affordability reasons, and tragically one of the people covered died in a road traffic accident. Thankfully their cover still had a short period to go before it formally lapsed, so at least the €200,000 life cover was there for his family.”
Debt ratings agency Moody's has a negative outlook on Greece and Portugal. Thomas Bryne, senior vice president and regional credit officer for Asia and the Middle East at Moody's Sovereign Risk Group discusses Europe's debt woes with CNBC's Karen Tso. Michael Yoshikami of YCMNet Advisors joins in the conversation:
Asia
The MSCI Asia Pacific Index lost 0.6% Monday.
The Nikkei 225 dropped 1.05% and China's Shanghai Composite dipped 0.14%.
Goodbody economist, Deirdre Ryan, comments: Economic View; Silver linings – the euro weakness - - "One of the most prominent features of the recent increase in sovereign risk in Europe has been the pronounced weakening of the euro. The opening weeks of 2010 have seen the euro fall by close to 5% versus the dollar, with the currency languishing at $1.36 this morning, its lowest level since last May. Sovereign and fiscal budgetary concerns have been the main instigator of the weakness and this pressure is set to remain in the near term.
While the European Commission has given the green light to Greece’s fiscal consolidation plan, doubts continue to linger over their willingness to push through with the agreed reforms given that widespread public protests are planned for the weeks ahead. The latter part of last week had seen concerns spread further beyond Greece, with Portugal appearing next on the bond market radar. The 10-year Portuguese spread above bunds widened 40bps to 1.59% in the week, although this is still well behind the 3.5% spread that Greek 10 year bonds command. The Irish spread only had a small upward movement in the week to stand at 1.61%.
These concerns are unlikely to dissipate in the near-term. However, it is not all bad news. The pressure on the euro will undoubtedly benefit the currency union from a trade point of view, and most especially its most open economies. With Irish exports accounting for 90% of GDP, Ireland clearly stands well placed to benefit from these developments."
Goodbody analyst, Eamonn Hughes, comments: Irish Financials; Is the start of summer going to be busy? - - "The Sunday Tribune carried a story over the weekend that the Central Bank Governor is working on a plan that will determine in May the level of appropriate capital required to be raised by the main banks. The Central Bank is reported to be hoping to adopt a phased approach, by initially targeting a low level of capital to be held by the Irish banks, though pitching this figure at the right level means juggling the demands of the markets (both the equity and debt markets), the EU and the rating agencies. The capital raisings by the banks would then come after the Governor’s determination.
The debate about appropriate or the acceptable low levels of capital is clearly not a trivial one. Our view is that the appropriate level of capital for banks is going to normalise at 8% core equity ratios (tangible common equity and excluding preference shares). Basel III will obviously have an impact here as well, but our view is that determinations on that front are likely to run well out to later this year and 8% under B2 will not equate to 8% under B3 (more likely 5-6% in our view). Our 8% target level for the Irish banks is by 2014, so our capital raising targets of €4.0bn for AIB (already incorporating a sale of M&T) and €3.3bn for BOI incorporate a 6-6.5% target in the short term to absorb losses out to the trough in the cycle (end 2011), with retained earnings in 2012-2014 rebuilding capital ratios back up to the targeted 8%. It is our view that the 6-6.5% is probably the lowest level that will be acceptable by all interested parties and thereby highlight that our methodology is already built upon a phased approach.
Should the article prove correct in the timing, it would broadly tie in with comments made by the Minister for Finance last week in the Dail (the parliament) that he expects the EU to rule on the banks’ restructuring plans “in the first half of the year” and that decisions on the recap of the banks “needs to be taken before the summer.”"
Eamonn Hughes also comments: Irish Financials; Dexia agrees plan with the EU - -"On Saturday morning, Dexia came to agreement with the EU on its restructuring plan as part of its State Aid investigation. We need to check, but we think Dexia lodged its plan with the EU last March. Dexia had already launched a restructuring plan back in November 2008, so many of the aspects of its plan that the EU was looking into were already in train. The bank had already made some moves to improve its risk profile and the EU has signed off on its plan to reduce its cost base by 15%.
However, of most interest to vested interests in the Irish banks, the decision has been taken with the EU to divest of a number of its international businesses – Dexia Crediop (70% stake) and Dexia Banka Slovensko (85.5% stake) by end October 2012 and Dexia Sabadell (60% stake) by end December 2013. It will also divest two smaller entities as well.
It is our base case that AIB will have to sell its stake in M&T, which should reduce its capital requirement by c€600m+. However, the disposal of the international operations will keep the possible disposal of Poland (which would generate circa €1.9bn of capital, most through capital gain and includes circa €0.5bn from risk weighted asset reduction) on the radar. Dexia has also committed to reduce its balance sheet by about 35%, a figure that we think the Irish banks will look to achieve by 2014."
