The Irish Independent reports that Bundesbank boss Axel Weber said last night that the German authorities could not let Hypo Real Estate Bank fail when it ran into difficulties with its Dublin-based subsidiary Depfa.

Speaking at the Institute of European Affairs, Mr Weber said we future banking regulations must be changed to allow some banks to fail. "We need a regime where banks can fail in an orderly fashion and this is where the idea of a 'living will' comes in." He added that there was a risk that the banking problems and the shortage of credit would put a break on recovery. "Firms are not looking for extra credit yet but can banks deliver the necessary credit when they do?" he asked.

The Bundesbank president held up the stable German property market as an example, noting that home buyers typically have to have 30pc to 40pc of the cost of the house in cash. "Both the idea of 100pc mortgages or even 100pc mortgages is inconceivable," he said. Earlier, in a speech in Trinity College, Mr Weber said new bank regulations need to address the issue of moral hazard or another crisis will happen.

Next ECB head

Mr Weber, who is widely tipped to become the next head of the European Central Bank and is now busy helping to draft a new regulatory framework for world banks, said the basic answer must be to increase the amount of money lenders have to keep in reserve for emergencies, known as the Tier 1 capital ratio.

The Tier 1 capital ratio should be highest for banks which have a systemic importance and are too big to fail, Mr Weber said.

This will discourage many banks from seeking to become classed as being of systemic importance.

While Mr Weber did not comment directly on banks in Ireland, Finance Minister Brian Lenihan has repeatedly said he stepped in to save Allied Irish Banks and Bank of Ireland from collapse because they were of systemic importance.

So-called utility banks, which do little more than store money for customers and extend loans, should need a lower Tier 1 ratio, he added.

The Bundesbank boss added that supervisors should be able to choose restructuring over bail-outs.

"Restructuring involving private investors would be the first choice and clearly preferable to direct public intervention," he added.

Mr Weber appeared less impressed with US plans to cap the size and limit the activities of banks, known as the Volcker rule after the octogenarian former Federal Reserve chairman Paul Volcker, who wanted to limit the complexity of banks.

"The Volcker rule enforces a corner solution and, as such, might have unintended and unfavourable consequences," Mr Weber said.

"It could, for example, have undesirable effects on the transmission of monetary policy," the German central banker added.

Mr Weber also criticised plans for a levy on banks that could be used to create a fund to bail out troubled European banks in future crises. "First, it would drain capital from banks. But, more importantly, it would not solve the moral hazard problem," he said, adding it could even amplify that problem.

"As the fund would act as lender of next-to-last resort for failing banks (the government would still have to step in if the fund's resources were exhausted in a crisis) the problem would merely be shifted from the level of government to the level of the fund."

The Irish Independent also reports that Glanbia's sale of its troubled Irish business could be completed as early as June and could generate proceeds of between €255m and €280m, analysts said yesterday.

The commentary came after the dairy group yesterday revealed it was in talks to sell its substantial Irish businesses to the Glanbia co-op, which owns almost 55pc of the plc.

It is understood that Geoff Meagher, who stepped down as Glanbia's deputy managing director last summer, has already been teed up to head the Irish business once it passes over to the co-op.

News of the possible deal drove Glanbia's shares up 5.4pc at the opening bell, marking the group's biggest same-day gain in more than two months, as investors welcomed the prospect of eliminating the plc's most challenging division.

The shares began to slide almost immediately, however, after analysts were told any deal would have to involve either a cash or debt contribution to Glanbia plc.

To raise that cash or take on that debt, the co-op would have to sell off a large chunk of its plc shares, potentially pushing the plc's share price down.

The markets responded to that prospect by driving the shares from their €2.72 open to a low of €2.45 at noon, before a gradual recovery saw it end the day at €2.53.

Despite the mixed market response, Glanbia boss John Moloney yesterday insisted the deal would be a sound strategic move for both the plc and the co-op, an argument that was also advanced by analysts covering the stock.

The Irish business ran at ~an operating margin of just 2.3pc last year, against operating margins of 11p.4pc at Glanbia's US Cheese and Global Nutritionals business, which would become the entire Glanbia group if the deal goes through.

Mr Moloney also pointed to the potential for the group to use any cash from the sale of the Irish business to "deleverage the plc" and "increase the financial flexibility of the plc".

The Glanbia boss refused to be drawn on valuations of the Irish business, but Bloxham's Joe Gill suggested a figure of €255m based on a multiple of six times earnings, where NCB analyst Paul Meade suggested a figure of closer to €280m.

Acquisitions

Mr Moloney said that the proceeds from the sale of the Irish division could be used to fund acquisitions overseas, with the company eyeing up a "pipeline" of targets with turnovers in the $120m to $150m range.

He added that Glanbia's priority would be to work around "global nutrition", hinting at opportunities in the weight loss and anti-ageing sphere.

Glanbia's existing US Cheese and Global Nutritions business includes US-based Optimum Nutrition, whose portfolio includes health and sports products, and joint venture effort Southwest Cheese, which is one of the US's largest producers of cheese blocks.

The US Cheese and Global Nutritions businesses generated revenues of €792m and operating profits of €90m last year, while Dairy Ireland generated revenues of just over €1bn and operating profits of €24m, according to yesterday's full-year results.

Glanbia has carried out extensive restructuring in Dairy Ireland over the last year, with more than 200 jobs cut in 2009, largely in that division.

The group yesterday confirmed another 230 jobs were to go in 2010, again largely in Dairy Ireland.

Mr Moloney stressed that the restructuring of Dairy Ireland would continue despite the division's possible sale, adding that if the co-op deal didn't go through Glanbia plc would not go looking for another suitor.

The Irish Times reports that all 1,200 Aer Lingus cabin crew in the Republic of Ireland are to be sent notices of termination of their employment next month and offered new contracts involving lower salary scales and changed work practices.

Following the implementation of new work practices, which will reduce its requirement for the current staffing levels, the company will cut its cabin crew workforce by around 230.

The personnel concerned are to be let go on a compulsory basis, and offered statutory redundancy terms of two weeks per year of service.

The company said the process to select the staff to be let go was continuing.

The move follows the rejection by cabin crew of the terms of a controversial €97 million cost-saving deal which involved over 600 voluntary redundancies, pay cuts and work practice changes.

More than 440 Aer Lingus staff in other grades who accepted the terms of the deal are to leave under a voluntary redundancy scheme. They will receive a severance package of six weeks per year of service.

The airline is also to abolish the grade of cabin manager in its aircraft as part of a de-layering of management structures. The 64 existing cabin managers will be offered new contracts on revised terms.

Last night the trade union Impact, which represents cabin crew, said the measures planned by the airline were “brutal, targeted and unfair”.

The union called on the Labour Relations Commission (LRC) to reconvene the parties to find a mutual solution. However, last night the company rejected this proposal, and said it had spent several months at the LRC and had reached an agreement which was comprehensively turned down.

A spokesman said the company had no mandate from its board for further talks.

Impact said that despite statements by the CEO of the airline “the measures that have been announced look very much like a form of retribution against cabin crew for voting against the proposals”.

“The announcement today that the company will seek to make the entire cabin crew redundant and rehire roughly 75 per cent of the workers on new contracts is viewed by the union as particularly brutal treatment.”

Impact said cabin crew workers had proved themselves, over successive cost-saving programmes since 2001, to be a loyal and understanding group of workers, but the company’s new proposals would very likely bring that loyalty to an end.

The union is to hold briefing meetings with members in Dublin, Cork and Shannon airports today and tomorrow .

In a statement yesterday, Aer Lingus said: “The cabin crew representatives were informed of the following applicable measures:

• Targeted compulsory redundancies at statutory minimum levels, including the de-layering of the cabin crew organisation;
• New working conditions to achieve increased productivity;
• Transition to new pay scale, including reduced salaries;
• Reduction in variable pay;
• Implementation of new Aer Lingus principles of employment.

“Assuming the full implementation of all of the above measures, it is expected there will be approximately 230 less cabin crew in the organisation, and all remaining cabin crew employees will be on new contracts of employment.”

Meanwhile, sources suggested last night that a number of cabin crew based in Cork had written to the company last night seeking inclusion in the original cost-saving deal put forward by Aer Lingus.

Impact said it was aware of correspondence by two individuals, but did not know the content.

The Irish Times also reports that State-owned Anglo Irish Bank paid deferred bonuses to five senior managers who left the bank late last year, the bank’s former chief executive David Drumm has claimed in his legal action against the lender.

Mr Drumm, who is being sued by the bank over unpaid loans totalling €8.3 million, is counter-claiming for €2.6 million from the bank, which includes a €661,000 bonus deferred for 2006.

Counsel for Mr Drumm told the Commercial Court on Monday that Mr Drumm’s side had the names of Anglo employees who had left the bank and had received their deferred bonuses.

It is understood that Mr Drumm is claiming in his action that Anglo paid deferred bonuses to Pat Whelan, the former head of the bank’s Irish business; chief risk officer Peter Butler; director of finance and former chief financial officer Matt Moran; and two senior lenders at the bank, Joe McWilliams and Owen O’Neill. This was despite the fact that the five managers were not employed by Anglo at the start of this year, he claims.

All five executives left the bank before last Christmas as Anglo’s new chief executive Mike Aynsley installed a new management team.

Mr Drumm claims he is entitled to his deferred bonus just as the other managers received theirs.

A spokesman for the bank declined to comment.

Anglo is believed to have had to pay deferred bonuses where the bank had a pre-existing legal obligation to make the payments.

The court told Mr Drumm’s legal representatives on Monday that he could seek replies from Anglo to questions relating to deferred bonus payments to employees who left between January 2005 and January 2010.

Mr Drumm is also understood to claim that Anglo paid deferred bonuses to senior executives who left the bank over recent years. They include the former head of Anglo’s Irish business, Tom Browne, who left the bank in 2007, and the bank’s former chief operations officer Tiarnan O’Mahony, who departed in 2005.

Annual bonuses at Anglo are deferred over a three-year period with the gap of a year. For example, a bonus for 2006 is paid over three years, from 2007 to 2009, provided the employee is still with the bank at the time.

Mr Drumm was paid a performance bonus of €2 million in Anglo’s financial year to September 30th, 2007, as part of a total pay package of €4.65 million.

He is also suing Anglo for mental distress arising from an alleged breach of privacy and failure to protect confidential information relating to him in respect of news reports published in The Irish Times last autumn.

The bank’s loans to Mr Drumm include a €7.7 million facility that was used to buy shares to support the bank during the credit crunch in early 2008.

The shares became virtually worthless after the bank’s nationalisation in 2009.

The legal action between Anglo and Mr Drumm is scheduled for a full hearing later this year.

The Irish Examiner reports that debt topping more than €37 billion is covered by a state safety net for major banks, Finance Minister Brian Lenihan revealed.

The eligible liabilities guarantee (ELG) covers AIB, Anglo Irish Bank, Bank of Ireland, EBS, Irish Life & Permanent and the Irish Nationwide Building Society and named subsidiaries which have a total of €108bn deposits secured by the scheme.

The admission came during a stormy debate on the Finance Bill which saw the Dáil suspended due to a row in which Labour and Fine Gael accused the Government of bending parliamentary rules by re-introducing an amendment the opposition believed ministers had already agreed to which would have forced a cost benefit analysis to be carried out of tax changes provided for in the bill.

The Government refused to back down and Mr Lenihan went on to tell the Dáil the ELG was a natural progression from the two-year blanket bank guarantee scheme brought in as the country teetered on the brink of financial collapse in September 2008.

"The funding of Irish banks has improved dramatically in the intervening period and the blanket guarantee will no longer be necessary into the future," Mr Lenihan told TDs.

"A key feature of the new scheme introduced in December 2009 is access to longer-term funding, which is in line with the mainstream approach in the EU and is expected to contribute significantly to supporting the sustainable funding needs of the banks and to securing their continued stability. The structure of the scheme allows participating institutions to issue guaranteed and unguaranteed liabilities, which will help reduce their reliance on state guarantee support over time as financial market conditions continue to improve," he added.

Mr Lenihan stressed subordinated debt is not a covered liability under the ELG scheme due to an EU ruling. He also refused to be drawn when pressed by Labour’s Joan Burton on whether he was readying to pump an extra €6bn into Anglo Irish.

"The scale of Anglo Irish Bank’s NAMA-eligible loans are such that they will give rise to some additional capital requirement for the state – there is no question about that. I am assessing the scale of any further capital support in light of the emerging accounting end-year financial position of the bank and the likely impact of the NAMA transfers over the course of 2010," Mr Lenihan said.

Ms Burton said the country would not be impressed to see billions of euro more going into Anglo Irish.

"Does the minister understand how upset many ordinary people are at the notion that the state will absorb perhaps €12bn of losses in Anglo Irish Bank and, will then pump a further €6bn and upwards into the bank?" she stated.

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Trichet hints at monetary fund backing - - ECB President Jean-Claude Trichet on Wednesday took a much more cautious stance on the proposal for a European Monetary Fund than the two German members of the ECB's governing council - - Prof. Axel Weber, Deutsche Bundesbank president and ECB executive board member, Jürgen Stark. Trichet told reporters in Frankfurt that he didn't "reject" the idea of a fund like the IMF and he repeated his statement from last Thursday that the ECB's governing council doesn't yet have a position on the EMF.

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Ex-Cazenove partner guilty of inside deals - - The conviction on Wednesday of Malcolm Calvert, 65, a former head of market marking at Cazenove, is seen as a major embarrassment for the Queen's stockbroker. During the case, the prosecution claimed that an unnamed insider at the bank was the source of the leaks of confidential information on upcoming takeovers that Calvert profited by trading on.

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Papandreou returns to Greek unrest- - Greek Prime Minister George Papandreou said on Wednesday that he sees a “new will” in the European Union to deal with fiscal crises and indicated EU leaders soon will draft a plan to increase oversight of credit-default swaps.

Speaking in Washington, he said Greece is asking for market access to borrow at “sustainable” rates, not seeking a bailout.

The New York Times reports that House Democratic leaders on Wednesday banned budget earmarks to private industry, ending a practice that has steered billions of dollars in no-bid contracts to companies and set off corruption scandals.

The ban is the most forceful step yet in a three-year effort in Congress to curb abuses in the use of earmarks, which allow individual lawmakers to award financing for pet projects to groups and businesses, many of them campaign donors.

But House Republicans, in a quick round of political one-upmanship, tried to outmaneuver Democrats by calling for a ban on earmarks across the board, not just to for-profit companies. Republicans, who expect an intra-party vote on the issue Thursday, called earmarks “a symbol of a broken Washington.”

Both parties are seeking to claim the ethical high ground on the issue by racing to rein in a budgeting practice that has become rife with political influence peddling. So far, though, the Senate is not joining in. House Democrats had tried to reach an agreement with their counterparts to ban for-profit earmarks, but the senators balked, Congressional officials said.

Had the ban on for-profit earmarks been in place last year, it would have meant the elimination of about 1,000 awards worth a total of about $1.7 billion, leaders of the House Appropriations Committee said in announcing that, as a matter of policy, they will no longer approve requests for awards to for-profit groups. Many of those earmarks went to military contractors for projects in lawmakers’ home districts.

Under the new restrictions, not-for-profit institutions like schools and colleges, state and local governments, research groups, social service centers and others are still free to receive earmarks. The new restrictions, for example, would still allow the type of award to local governmental agencies that became infamous in 2005 with Alaska’s “Bridge to Nowhere.”

Representative David R. Obey, the Wisconsin Democrat who leads the Appropriations Committee, said a series of criminal investigations, ethics inquiries and political embarrassments had prompted him to take stronger steps.

“The political reality right now is that the public has lost some confidence in this institution, and one of the reasons is the past abuses of the earmark process,” Mr. Obey said. Earmarks for profit-making companies are “the most vulnerable place” for abuse in the system, he added.

If the Senate does not follow the House’s lead, that would set up a confrontation between the two chambers, with the Senate including for-profit earmarks in its budget bills and the House excluding them. Negotiators from each body would then have to determine which earmarks, if any, would make it into a final bill sent to the White House for approval.

Senator Daniel K. Inouye, the Democrat of Hawaii who leads the Senate Appropriations Committee, said Wednesday that current restrictions were already working and that “it does not make sense to discriminate against for-profit organizations” by banning earmarks to them. He noted that many nonprofits had powerful lobbying operations to secure earmarks as well.

The House ban came less than two weeks after the public release of an investigation by the Office of Congressional Ethics laid bare the pay-to-play culture on Capitol Hill, particularly on the defense appropriations subcommittee. The report found that there was a “widespread perception” among the private-sector recipients of earmarks that giving political contributions to lawmakers on the panel helped secure the grants.

Even so, the House ethics committee on Feb. 26 cleared seven members of the defense panel — five Democrats and two Republicans — of accusations that they had improperly tied earmarks to contributions. The decision prompted protests from government watchdog groups, who said the standard the committee had set for ethical wrongdoing would open the way to further abuse of the earmark process.

The practice of inserting earmarks into spending bills, once used fairly sparingly by Congress as a way of imposing its budget priorities on the executive branch, has mushroomed, with lobbyists competing for the attention of committee members who control the money. Congress, which can award no-bid contracts at its discretion, doled out nearly $16 billion in awards last fiscal year.

House Democrats said the new restrictions, in addition to banning for-profit earmarks, would include greater public disclosure of other earmark requests, audits of 5 percent of nonprofit earmarks, and the establishment of a program directly financed by the Pentagon to promote awards for small, start-up military projects.

“This ban will ensure good stewardship of taxpayer dollars by the federal government across all agencies,” Speaker Nancy Pelosi said.

Mr. Obey announced the new restrictions in tandem with Representative Norm Dicks, a Washington Democrat who leads the powerful defense appropriations subcommittee.

Mr. Dicks’s predecessor on the panel, Representative John P. Murtha of Pennsylvania, who died in February, was renowned for his use of earmarks. The Federal Bureau of Investigation is examining the work of the lobbying firm known as P.M.A., which was run by a former aide to Mr. Murtha and helped secure numerous earmarks for its clients.

One of P.M.A.’s clients, a software intelligence company called 21st Century Systems, got several million dollars in earmarks requested by Representative Peter J. Visclosky, an Indiana Democrat now under investigation by the F.B.I., and executives at the firm credited their political contributions to the congressman in earning his favor.

Some analysts questioned whether the change in leadership on the committee after the death of Mr. Murtha, who had resisted past reforms, had led to the new restrictions.

Asked about the issue, Mr. Obey said: “I’m not going to comment on someone who’s gone. All I will say is that Norm Dicks understands the process.”

House Democrats in particular have been battered by accusations of earmark abuses, with a ethics scandals undercutting their pledges to end a “culture of corruption” in Washington after they took over Congress in 2007.

In the last three years, Congressional Democrats have taken actions that they say helped bring more transparency and competition to the earmark process, though outside critics did not always agree. But the ban drew quick praise Wednesday from both conservative and liberal groups.

“I think it’s a pretty big deal,” said Scott Lilly, a senior fellow at the Center for American Progress who has studied earmarks. “That was always the most questionable and problematic aspect of the whole process,” he said of the for-profit earmarks.

Stephen Ellis, vice president of Taxpayers for Common Sense, a nonprofit group, said that while he would prefer an all-out ban, “for-profit earmarks are ground zero for pay-to-play, and it makes sense to rein them in.”

Mr. Obey said that banning all earmarks would make Congress “a rubber stamp” of the executive branch.

“Where I come from, the Congress has a perfect right, in fact an obligation, to participate in the budget process, but we’ve got to try to do it in a way that protects the integrity of the system,” he said. “This strikes a reasonable balance.”

The NYT also reports that Senate Banking Committee members from both parties said on Wednesday that they had agreed to include in their regulatory overhaul bill a new Office of Research and Analysis that would provide early warnings of possible systemic collapses.

The proposed agency, which has sometimes been referred to as the National Institute of Finance, is intended to give federal regulators daily updates on the stability of individual firms as well as that of their trading partners, including hedge funds.

By standardizing financial instruments and reporting mechanisms, the agency would give regulators a broader view of the health of participants in the financial markets and the potential for problems to spread. The idea’s supporters say that kind of information was lacking in recent years as the housing bubble burst and troubles spread from firm to firm.

“One of the problems we observed in the recent crisis is that nobody knew who had what,” said Senator Jack Reed, a Rhode Island Democrat who last month introduced a stand-alone bill to establish a National Institute of Finance. “The result was a cascading effect of uncertainty and doubt.”

The new agency, which was also endorsed Wednesday by Senator Bob Corker, Republican of Tennessee, would have no policy responsibilities but would instead collect and analyze data, building models to assess relative risks and predict how one firm’s problems might affect others.

As proposed, the new agency would be housed in the Treasury Department with a director, appointed by the president and confirmed by the Senate, who would be an ex-officio member of a systemic risk council that would be created by the bill. The agency would draw its budget from assessments on the largest financial firms, according to people who are close to the negotiations but who were not authorized to speak publicly.

The agency would gather data from the largest firms and from a broad set of market participants, including all United States-based financial institutions, which would be required to report all their financial transactions, regardless of whether the counterparty was based here or abroad. The agency would take steps to safeguard proprietary trading information, while also shining a light onto the so-called shadow banking system of mortgage brokers, subprime lenders and unregulated hedge funds that contributed to the financial crisis.

The financial reform bill approved last year by the House would create a systemic risk council that would collect similar data without establishing an independent agency, a difference that will have to be resolved before a bill is sent to the president.

A group called the Committee to Establish the National Institute of Finance — made up of current and former financial executives, statisticians and economists, including six Nobel laureates in economics — has been lobbying for such an agency for much of the last year.

Allan I. Mendelowitz, a former director of the Federal Housing Finance Board who was a founder of the group, said in an interview that regulators were unable to assess expanding risk in the recent crisis in part because they relied on independent contractors, like the credit rating agencies, for data.

If a security was rated triple-A by the ratings agencies, for example, as were many mortgage-backed securities, regulators wrongly assumed that it posed little systemic risk, Mr. Mendelowitz said.

The agency would require a vast array of computing capacity, supporters said, and it would probably take a couple of years to establish data standards and build analytical models. But it could immediately begin to assess counterparty risk based on existing data.

Senate negotiators also tentatively agreed to establish a $50 billion fund to finance the dissolution of failing firms that could not be rescued through bankruptcy proceedings. The fund is intended to support companies that are forced to wind down their operations, without having to resort to taxpayer bailouts.

People who have been briefed on the negotiations said two proposals were under consideration. One would require financial companies to pay into a fund upfront and the other would have them buy interest-bearing shares in a trust that would allow the firms to keep the assets on their balance sheet.

Also on Wednesday, five Senate Democrats, including two members of the Senate Banking Committee, Jeff Merkley of Oregon and Sherrod Brown of Ohio, introduced a bill that would ban deposit-taking banks from owning or investing in hedge funds or private equity funds and from making market bets for the company’s own benefit.

President Obamaput forward the idea in January and called it the Volcker Rule, in recognition of its champion, Paul A. Volcker, the former Federal Reserve chairman.

The bill has been endorsed by John S. Reed, a former Citigroup chairman; the economist Joseph E. Stiglitz; and Robert B. Reich, a former labor secretary, among others. But it faces significant resistance in Congress and is unlikely to be part of the revised bill that is expected to be introduced this month by Senator Christopher J. Dodd, chairman of the Banking Committee.