See Search Box
lower down this column for searches of Finfacts news pages. Where there may be
the odd special character missing from an older page, it's a problem that
developed when Interactive Tools upgraded to a new content management system.
Welcome
Finfacts is Ireland's leading business information site and
you are in its business news section.
We
provide access to live business television and business
related videos from: Bloomberg TV; The Wall Street Journal;
CNBC and the Financial Times. Click image:
The Irish Independent reports that AIB, the country's second largest bank by value, has admitted that rural land offered up by its borrowers as collateral has "typically'' come down in value by at least 50pc.
In response to questions from the US watchdog, the SEC, the bank says development land is between 20pc and 50pc off original valuations. The bank has been answering questions from the US regulator over the last few months about its credit practices. Land in urban areas is between 20pc and 50pc off its original value, according to the bank, with investment properties down by the same amount.
The bank has told the watchdog, in letters released this week, that the discount to original value depends on the type of land involved. "Unserviced land in rural areas will most likely suffer a greater reduction in value if purchased at the height of a property boom than a fully let investment property with strong lessees,'' the bank says in a letter to the SEC (Securities and Exchange Commission).
AIB has told the watchdog that discounts can be significantly more than 50pc below the original value when the land is in a poor location or has delayed planning status.
The bank makes it clear that write-downs in collateral are not the same as write-downs in loans, which involve equity put in originally by the developer or land owner.
It says discounts are arrived at after applying several different methods, including local market knowledge.
The US regulator, the world's most powerful, also asked AIB about how long it takes to get value when collateral is taken by the bank. The institution has replied that this can take up to five years. "Depending on the type of security and stage of development, it has been estimated that it may take in excess of two years and up to five years before AIB receives funds from the sale of assets.''
Meanwhile, AIB has hugely increased its holdings of Irish government bonds according to a 20-F annual report submitted yesterday to the SEC.
This report shows that the bank has increased its Irish bonds with maturities of between one and five years from just €500m in 2008 to €1.8bn last year.
The amount of bonds with maturities over five years also increased, from €363m to €1.7bn. The bonds are held, along with US Treasuries and euro government bonds, in the bank's available for sale assets portfolio.
The Irish Independent also reports that Brussels is expected to outline its verdict on the restructuring plans of Ireland's two big banks by the end of the month.
This would coincide with the Government's planned announ- cement on the level of capital banks will need to raise, as information comes through on the discounts faced on their first batch of NAMA-bound loans.
A spokesperson for the EU Competition Commissioner Joaquin Almunia declined to comment other than to say that "the assessment is still ongoing in both cases" and that it was not yet possible to say when the rulings would be made.
Sources familiar with the process said the Commission will need to have sight of the Government's view on what capital ratios the banks will need to meet before completing its review.
The new head of the Financial Regulator, Matthew Elderfield, and his ultimate boss, Central Bank governor Patrick Honohan, are key players in establishing the new capital levels.
Ability
The general consensus in the market is that European banks need to reach an 8pc equity capital ratio -- a key level of a lender's ability to withstand a shock loss -- by the end of 2012.
However, there is a strong view among some analysts that Irish banks will need to hit this target earlier to convince international investors that they are in full recovery mode.
Mr Elderfield's first public appearance tomorrow will be keenly monitored by market players for clues on the watchdog's thinking on the key issue.
Although Brussels gave NAMA the green light, senior European Central Bank officials have been concerned that delays in reaching a decision on the banks' restructuring plans could undermine the entire bank rescue project.
It is understood that case officers dealing with the Irish bank plans are concerned they are restricted in what pain they can inflict on the lenders in the domestic market, where they enjoy industry-leading positions in a number of segments.
The Irish Times reports that close to 120,000 new jobs could be created if Ireland transforms itself into an innovation centre, according to the report from the Government’s Innovation Taskforce to be published tomorrow.
But the final draft report – seen by The Irish Times – warns that a “sea change in attitudes towards innovation and enterprise is also required.” The report backs the introduction of bonus CAO points for maths in the Leaving Cert in order to boost student interest. It also proposes major investment in upgrading broadband capability. And it backs changes to the bankruptcy laws.
Significantly, it also commits the Government to investing at least 3 per cent of gross domestic product in research and development until 2020. The Government had made no firm commitment to research spending beyond 2013.
The report by the taskforce, to be launched by Taoiseach Brian Cowen, is designed to incorporate feedback from the business and education community into the Government’s smart economy strategy announced in December 2008. The 28 members met five times since last July to formulate their recommendations.
The report says “we need a sea change in attitudes – in public and private sectors – towards innovation and entrepreneurship, to recognise that they involve risk, and occasionally result in failure”.
As well as backing a reform of bankruptcy laws, the taskforce says universal access to high-quality broadband is a key infrastructure for the smart economy. It says accelerated progress is required but makes no proposal in the draft report on new capital funding in this area.
The report also envisages senior civil servants taking placements in major companies in order to get practical experience of business.
On education, the report welcomes the TCD-UCD Innovation Alliance and the NUI Galway-University of Limerick Strategic Alliance. It backs further collaboration between third-level colleges.
But it signals support for student tuition charges saying, “we must develop sufficient revenue streams to sustain excellence in our third level colleges.”
At second level, it says “we need to raise levels of competence and attainment in maths and sciences so that they feed into science and related disciplines at third and fourth levels. We believe that mathematics attainment is crucial in this regard and suggest additional measures to improve this, such as the awarding of CAO bonus points to those taking higher level mathematics for Leaving Certificate.”
Other key recommendations include:
** The establishment of a new national intellectual property (IP) protocol so that entrepreneurs and companies can find and access IP created in the universities in order to turn it into products and services that meet customer needs.
** New moves to develop and market Ireland as an International Innovation Services Centre offering global IP management, licensing and trading services.
** Transformation in the scale and nature of the Irish venture capital environment by attracting top-tier venture financing to Ireland so as to successfully scale innovative companies.
** Ireland branding itself as an innovation hub through attracting the European headquarters of private US companies via a specially-devised European accelerator programme.
The report recommends that the current Strategy for Science, Technology and Innovation (SSTI) 2006-13 should continue until 2020. “We believe that current economic difficulties should not be allowed to diminish the level of investment which we believe is necessary and inhibit the return on investments already made,” says the report.
The Innovation Taskforce has been described as one of the most important committees assembled by the Government. It is chaired by secretary general of the Department of the Taoiseach Dermot McCarthy. Members include Lionel Alexander, a vice-president with Hewlett Packard; Dr John Hegarty, provost of Trinity College Dublin; and Dr Chris Horn, co-founder of Iona Technologies.
The Irish Times also reports that the Government will not seek to block plans by Aer Lingus to make about 230 members of cabin crew redundant on a compulsory basis.
Aer Lingus management said yesterday it was introducing the compulsory redundancy plan for the cabin crew after they voted against a €97 million restructuring plan at the airline.
This announcement followed an extraordinary meeting of the Aer Lingus board yesterday. The board is believed to have unanimously backed this course of action.
About 440 other members of staff are to leave the airline on a voluntary basis in accordance with the terms of the cost-saving plan.
The trade union, Impact, which represents most of the cabin crew, is to meet management today to discuss the company’s plans.
It said last night it would then consult members in Dublin, Cork and Shannon over the coming days.
Aer Lingus chief executive Christoph Mueller said the airline would respect the decision by four other groups at the airline – pilots, middle management, ground operations personnel and craft workers – to back the cost-saving programme which involved voluntary redundancies, pay cuts and work practice changes.
The airline will implement the terms of the cost-saving deal as agreed by the other groups.
However, he said there could be “no sweetheart deal for cabin crew” and there would be no re-ballotting on the issue.
“We have turned all the stones,” Mr Mueller said.
Mr Mueller met Transport Minister Noel Dempsey prior to the announcement of the compulsory redundancies at the airline.
The company yesterday also wrote to the Department of Enterprise, Trade and Employment to notify it of its intention to make 230 staff compulsorily redundant.
In a statement last night the Department of Transport stated: “The Government is satisfied, from all of the information available to it, that a major restructuring of the group’s cost base is essential if Aer Lingus is to survive.
“The cost base of Aer Lingus is seriously out of line with that of its competitors. Airlines throughout the world are either rationalising or going out of business as a result of the global economic downturn.
“The Government wants to see a strong, viable Aer Lingus in the future. The cornerstones of Government aviation policy are competitiveness and connectivity. A viable Aer Lingus is key to ensuring the achievement of these objectives.”
Sources close to Aer Lingus said the airline had not yet decided what terms it would offer those targeted for compulsory redundancy. It could simply pay them their statutory entitlement or it could offer them the same terms as under the voluntary leaving scheme.
Impact said its priority now was to consult cabin crew members in order to agree how best to move forward. However, it acknowledged that the available time to broker a solution was extremely limited.
Aer Lingus said it was seeking €20 million in cost savings from cabin crew.
Impact said suggestions that cabin crew had sought, or were somehow seeking, a “sweetheart deal” are both wrong and extremely unhelpful.
The union said the development presented “a very serious challenge to cabin crew workers; however, the union will continue to make efforts to secure jobs and working conditions.
“The union had recommended the cost saving proposals on the basis that they would have minimised job losses, and help sustain the future of the airline. But Impact also acknowledged that aspects of the cost-saving proposals would be very difficult for members to accept.”
The Irish Examiner reports that more than 900 jobs are to be created over the coming three years, as a boost to the Government’s ongoing "smart economy" strategy.
Trade and Commerce Minister Billy Kelleher announced yesterday that the Government – in conjunction with Enterprise Ireland – has supported the establishment of 73 new high-potential start-up companies in the last year and called them "an integral part" of the Government’s economic plans.
These new companies are expected to generate combined sales of around €600 million over the aforementioned three-year period, with exports likely to account for more than 80% of this figure.
The 900 new jobs, due to come on stream, will bring employment across these firms to nearly 1,500 in total.
"The Government is focused on developing Ireland into a ‘smart’ or knowledge-based economy and, over the last decade, has continued to increase its investment in the generation and exploitation of intellectual property developed in Ireland’s higher education institutions," Mr Kelleher noted.
"It’s absolutely critical for the development of the smart economy that we do everything possible to drive the continued growth of entrepreneurial, innovation-led companies that will underpin Ireland’s reputation worldwide as a centre of innovation excellence," he added.
Enterprise Ireland chairman Hugh Cooney said that the latest announcement shows that there are still "significant" opportunities for new business start-ups in the Irish market, despite the ongoing challenging international trading environment.
Besides a paid subscription , the Financial Times provides the following options:
Free Registered User
See up to 10 articles a month, access email services and portfolio tools
Runaway Prius triggers fresh Toyota probe - - A California man called 911 for help on Monday and said his blue 2008 Toyota Prius sped up to more than 90 miles per hour on Interstate 8 near San Diego before a California Highway Patrolman helped him slow the car and bring it to a stop.
CNBC's Phil LeBeau has the details on the automaker's recall of its "prized" Prius:
Call for action on speculation rules - - Germany and France are calling for urgent EU action to tighten regulation in sovereign debt markets - - in particular of credit default swaps- - in the wake of the Greek crisis.
Patents reform plan foresees big savings - - a report for the British government says reform of international patents would save the world economy up to £23bn a year.
Wide trade gap hits recovery hopes- - The UK's trade gap with the rest of the world widened unexpectedly in January to its largest since August 2008. Exports saw their sharpest drop in more than three years, according to the Office for National Statistics (ONS).
Weber dubs EMF idea a ‘sideshow’- - Germany's proposal for a European Monetary Fund to bail-out Eurozone countries in the future is not helpful and diverts attention from the necessary fiscal consolidation, Bundesbank President Axel Weber said on Tuesday.
The New York Times reports that Senator Bob Corker, the Tennessee Republican who is playing a crucial role in bipartisan negotiations over financial regulation, pressed to remove a provision from draft legislation that would have empowered federal authorities to crack down on payday lenders, people involved in the talks said. The industry is politically influential in his home state and a significant contributor to his campaigns, records show.
The Senate Banking Committee’s chairman, Christopher J. Dodd, Democrat of Connecticut, proposed legislation in November that would give a new consumer protection agency the power to write and enforce rules governing payday lenders, debt collectors and other financial companies that are not part of banks.
Late last month, Mr. Corker pressed Mr. Dodd to scale back substantially the power that the consumer protection agency would have over such companies, according to three people involved in the talks.
Mr. Dodd went along, these people said, in an effort to reach a bipartisan deal with Mr. Corker after talks had broken down between Democrats and the committee’s top Republican, Senator Richard C. Shelby of Alabama. The individuals, both Democrats and Republicans, spoke on condition of anonymity because they were not authorized to discuss the negotiations.
Under the proposal agreed to by Mr. Dodd and Mr. Corker, the new consumer agency could write rules for nonbank financial companies like payday lenders. It could enforce such rules against nonbank mortgage companies, mainly loan originators or servicers, but it would have to petition a body of regulators for authority over payday lenders and other nonbank financial companies.
Consumer advocates said that writing rules without the inherent power to enforce them would leave the agency toothless.
Mr. Corker said in an interview that he had played a role in shaping that section of the legislation, but said people should withhold judgment about the treatment of payday lenders and other companies until the bill was made public.
Asked whether the industry’s campaign contributions to him had shaped his thinking about the issue, he replied, “Categorically, absolutely not.”
After banks, payday lenders have been perhaps the most vocal sector of the financial services industry in fighting off efforts at federal regulation. The industry’s trade group estimated that payday loan companies contributed $10 billion to the economy in 2007, and directly employed 77,000 people.
W. Allan Jones, who started Check Into Cash, in Cleveland, Tenn., in 1993, has been a longtime friend and supporter of Mr. Corker’s. The company says it is now the country’s third-largest payday-lending chain, with 1,100 stores in 30 states. Payday loans are short-term, high-interest loans — typically 400 percent on an annualized basis — to help borrowers cover expenses until their next paycheck. Many take out more loans, digging themselves deeper into debt.
Mr. Jones, his relatives and his employees have given money to Mr. Dodd, Mr. Shelby and other members of the Banking Committee, but have been particularly active donors to Mr. Corker, records show. They have contributed at least $31,000 to his campaigns since 2001, when he was running for mayor of Chattanooga.
In 1999, Mr. Jones and other payday lenders started the Community Financial Services Association to lobby against regulation. The group’s political action committee gave $1,000 to Mr. Corker last year.
State lawmakers and regulators in recent years have moved to rein in the practices of payday lenders, which watchdog groups say often charge exorbitant fees for low-income consumers with little financial sophistication.
Last year, the White House proposed the creation of a consumer protection agency to guard against lending excesses. The proposal included the first comprehensive federal plan to regulate the industry.
In December, the House passed a regulatory overhaul that provided for a new consumer agency with power to write and enforce rules for banks and other financial institutions, like payday lenders.
In 2006, Congress adopted a bill championed by Senator Richard J. Durbin, Democrat of Illinois, to cap at 36 percent the annual percentage rate on loans to active-duty members of the military and their families, a step that primarily affected payday lenders. In 2008 and 2009, Mr. Durbin proposed extending that cap to loans to all borrowers.
The industry says a cap would be devastating to its profitability.
On Monday, the nation’s largest payday lender, Advance America of Spartanburg, S.C., said in a filing to the Securities and Exchange Commission that “any federal law that would impose a national 36 percent A.P.R. limit on our services, if enacted, would likely eliminate our ability to continue our current operations.”
According to the filing, the industry began to expand significantly in the late 1990s because of the low cost of entry and fairly loose state regulations. “However, due to market saturation and to federal and state legislative and regulatory challenges, we believe the cash advance services industry has largely stopped growing in number of centers in the United States,” Advance America said.
Mr. Corker’s campaign received $6,500 in the last two years from Advance America’s founder, George D. Johnson Jr., its chief executive, William M. Webster IV, and its political action committee.
A report last year by Citizens for Responsibility and Ethics in Washington, a nonpartisan watchdog group, found that the payday industry increased spending on lobbying to $2.1 million in 2008, from $730,000 in 2005.
Steven Schlein, a spokesman for the Community Financial Services Association, said the industry should not be dragged into the regulatory reform.
“The banks caused the financial meltdown, and they’re spending millions and millions to spare themselves from tighter regulation while throwing the consumer lending industry under the bus,” he said. “They’re trying to divert attention to us.”
Mr. Corker also issued this statement: “Our goal in this legislation should be to level the playing field so that the same rules apply to all involved in lending.”
Consumer groups, however, say that enforcement is crucial to curbing abusive, deceptive or unfair practices.
On Tuesday, while Mr. Dodd and Mr. Corker continued negotiating other provisions of the regulatory overhaul — notably, the extent to which state attorneys general would be able to enforce consumer protection rules against banks — the Federal Reserve’s chairman, Ben S. Bernanke, met with National People’s Action, an activist group that wants the Fed to restrict the banks it oversees from financing payday lenders.
Mr. Bernanke, who had met with the group twice before, is trying to fend off proposals in the Senate to strip the Fed of much of its power to supervise banks. A recommitment to protection consumers is part of that strategy.
That advice, contained in a confidential report prepared by the bank last August, turned out to be prescient. It arrived months before Greece and its staggering debts became the big story in the financial markets. The report, a copy of which was obtained by The New York Times, warned that the risks posed by spiraling government debts might be graver than people realized.
Now, some European leaders are pointing fingers at the very financial instruments that Goldman was recommending. They insist that credit-default swaps — and the traders who wield them — have worsened the problems in Greece and elsewhere. Calls are growing for the United States and Europe to crack down on speculative trading in general and on such swaps in particular.
On Tuesday, as the Greek prime minister, George A. Papandreou, met with President Obama in Washington, the German chancellor, Angela Merkel, added her voice to the chorus calling for closer scrutiny of derivatives. The president of the European Commission, José Manuel Barroso, also weighed in, saying his office would closely examine certain types of swaps trades that he called “purely speculative.”
“If needed, the commission will use the competition powers it has in that matter,” Mr. Barroso said, speaking at the European Parliament in Strasbourg.
But even among policy makers, the exact role of credit-default swaps — which essentially provide insurance in the event a company or government defaults on its debts — remains the subject of fierce debate. Germany’s financial services regulator, known as BaFin, said Tuesday that despite all the hand-wringing it had found no evidence that speculators were using swaps to bet aggressively against Greece. Instead, BaFin said, the evidence suggested that most investors were trying to use the instruments to hedge their risks, much the way farmers use futures to guard against a sudden plunge in crop prices.
But in a speech in New York, Gary Gensler, chairman of the Commodity Futures Trading Commission, singled out credit-default swaps as directly contributing to the financial crisis and needing comprehensive reform.
“The 2008 financial crisis had many chapters, but credit-default swaps played a lead role throughout the story,” he said. “We need broad regulatory reform of over-the-counter derivatives to best lower risk and promote transparency in the marketplace.” He said credit-default swaps had “unique features that require additional consideration.”
The criticism of credit-default swaps stems, in part, from the multiple and at times seemingly conflicted roles that investment banks like Goldman Sachs often play in the markets.
Over the last decade, Goldman and others helped the Greek government legally mask its debts so the nation appeared to comply with budget rules governing its membership in the euro, Europe’s common currency. In that role, Goldman advised Greece and, in return, collected hundreds of millions of dollars in fees from Athens.
But, just as the true extent of Greece debts began to worry investors, Goldman put on another hat. Last July, it sent clients a 48-page primer on credit-default swaps entitled “C.D.S. 101.” The report said that credit-default swaps enabled investors “to short credit easily” — that is, to bet against certain borrowers. The report made no mention of Greece.
Goldman followed up with its August report, issued by its hedge fund research unit, which said the price of swaps “may be too cheap as it may underestimate the risks to developed countries who have recently issued large amounts of debt.”
“Buy C.D.S. of developed sovereigns,” the report said. Again, no countries were singled out.
Despite such advice, Goldman promptly went back to work for the Greek government. Since last September, the bank played a role in underwriting more than $33 billion of new bonds for Greece, Spain and Britain, according to data compiled by Dealogic. Those three countries are among the most heavily indebted developed nations, as measured by their debts relative to economic output.
Goldman, in a statement, said its reports merely outlined a variety of trading strategies. The bank said it saw no conflicts in its various roles.
“It is not a conflict to sell new products on behalf of clients while suggesting to other clients, who may have different opinions and objectives, that they may want to buy insurance to protect themselves,” Goldman said.
Andrew Ang, a finance and economics professor at Columbia Business School, said banks typically tried to maximize their profits across a range of businesses, and that he saw no conflict in Goldman Sachs’s approach.
Still, others warn that credit-default swaps have evolved from what was essentially an insurance product into instruments of pure speculation.
