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News : International Last Updated: Oct 7, 2010 - 4:50:21 AM


Markets News Wednesday: AIB puts its 22.4% stake in US bank M&T on market; Shares rise after strong close on Wall Street
By Finfacts Team
Oct 6, 2010 - 8:49:33 AM

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Allied Irish Banks: AIB announced Tuesday evening that it is to sell its 22.4% stake in the US bank M&T in a public offering of shares, after talks with potential buyers for the stake broke down.

AIB, in which the Irish State will soon have 90% control, has sold its Polish banking business to Spanish bank Santander for €2.5bn  last month but talks with the banking giant broke down last week.

Goodbody's Ken Darmody commented: "AIB announced last night that it is commencing a process to offload its 22.5% stake in M&T. AIB is planning to offer shares in the open market (underwritten by Morgan Stanley and Citicorp) through the sale of exchangeable notes, which can be converted into M&T shares once the transaction is approved by AIB’s shareholders.

Following the disposal of the Polish subsidiary, netting €2.5bn in capital, M&T was the next likely disposal by the bank. We estimate that a price range in the $75-95 range per share has the potential to add €950-1,350m to AIB’s capital, with M&T closing last night at $83. In recent weeks, the shares had been higher as merger talks appeared to be proceeding with Sovereign, owned by Santander, though last night’s announcement by AIB will attempt to bring an element of certainty to its capital raise process."

Stephen Lyons of Davy commented: "ANALYSIS: The announcement follows last week's revelation that the bank would be required to raise an additional €3bn of capital, taking its total capital requirement to €10.4bn. The recent sale of the bank's stake in BZW yielded €2.5bn and a €5.4bn equity capital-raising is expected in November, which will be underwritten by the government.

This leaves an additional €2.5bn to be generated from asset sales, which includes the M&T disposal, and any shortfall will result in additional conversion of the government's preference shares. There is no price mentioned in the announcement, but if the notes were issued at last night's close of $83 per M&T share (finished up 1.14%) then the transaction would generate close to €900m of capital.

DAVY VIEW: After the disappointment of last week, the long awaited announcement of the M&T disposal has lost much of its lustre. At a price of 50c or 0.9x 2010 tangible book value per share, it will be a challenge to attract investor interest in the equity raise next month and it looks like it will result in majority government ownership. If we assume full government take-up in the equity raise, government ownership will increase to 93%. The timeline for completion of asset disposals has been extended until the end of March next year, which may help secure a better price for the group's remaining assets — principally the UK business. However, we think that the target €2.5bn from disposals is a stretch, which will likely result in some additional conversion of preference shares, the prospect of which will further dampen interest in the group's equity raise."

After the BOJ's surprise move, monetary stimulus by the Fed is going to happen very soon, given the slowdown in economic growth, says Vasu Menon, vice president of wealth management at OCBC Bank. He talks to CNBC's Oriel Morrison:

Moody's flags a downgrade as Irish indicators continue to fluctuate: Davy economist, Aidan Corcoran, comments  - -"The spread of Irish ten-year bonds over bunds rose 10bps yesterday (October 5th) as Moody's indicated that the rating on Irish sovereign debt would probably be cut by one notch from Aa2. Such a move would bring the Moody's rating in line with those of S&P and Fitch. The ISEQ shrugged off the news, posting a 1% rise to 2,697 at market close.

While downgrades to Ireland's debt are never welcome, the effect of the Moody's downgrade, if it occurs, may be of secondary importance when compared with developments in the real economy. It is worth noting that the Irish Markit services PMI fell from 52.9 in August to 48.8 in September, a figure consistent with contraction. On a more positive note, new export business was steady at 53.8, reinforcing the view that exports will lead the economy out of recession.

This may be true, but there remains a significant risk that exports will undershoot expectations. One risk factor is exchange rates. The Bank of Japan surprised markets yesterday by returning to zero interest rates and instituting further monetary easing. With further easing also on the cards in the UK and US, there is a possibility of a strengthening euro providing some downside to export growth."

Insight on Google's latest products and the user experience, with Marissa Mayer, Google vice president of search products:

Economic View: Timely reminder of importance of the four-year budget plan; Goodbody chief economist, Dermot O’Leary, comments  -- "In some ways, Moody’s warning that Ireland may be downgraded further within the next three months and the subsequent widening of spreads on Irish bonds yesterday, is a timely reminder of the challenges that lie ahead for the Irish government.

The announcements in relation to the banking sector were generally greeted favourably by the markets, with 10-year bond yields falling by 0.5% in the three days following the announcement. Yesterday’s increase to 6.4% took the spread over German bunds to over 4% once again. While it would be a wild overstatement to say that the banking issues are now over for the government, they have been parked for now, allowing the focus to be placed on the underlying public finances and, specifically, reducing the budget deficit of 12% of GDP.

The government already knows the importance of the four-year budget plan, to be announced in November, but Moody’s and other ratings agencies and most important of all, the market’s perceptions of the Irish sovereign, will hinge on the credibility of that plan. It is an unenviable task, but based on recent experience there is a will to follow through with it. Given the multi-year nature of the plan though, political consensus would help in convincing the markets of its credibility. The invitation by the government to opposition parties yesterday, and their acceptance, to access budgetary information is a good start, but given the scale of the problems further coordination and agreement is needed."

Discussing an off-script exchange between President Obama and a leading economist, with Martin Feldstein, Harvard University:

US Markets

On Tuesday, the Dow Jones rose 193 points or 1.80% to 10,945.

The S&P 500 rose 2.09% and the Nasdaq gained 2.36%.

Asia Markets

The MSCI Asia Pacific Index jumped 1.3% Wednesday.

The Nikkei rose 1.81%; China's market was closed; Australia's S&P/ASX 200 Index added 1.73% and India's Sensex Index rose 0.60%.

Asia benchmarks

Finfacts Reports

IMF's Strauss-Kahn warns governments on their currency's exchange rate as a weapon to boost demand
EU-China Summit: EU27 exports to China in H1 2010 rose 43%; Germany accounted for almost 50% of total; Ireland had trade surplus
Growth of global economy slowed to 10-month low in September as rates of expansion eased in manufacturing and services
UK faces the risk of a “double dip” in employment
Markets News Afternoon: US services activity rises; ECB ramped up bond-buying last week; Rogue trader Kerviel gets jail and €4.9bn fine
IMF says the financial sector is the 'Achilles' Heel' of the global recovery
Volume of retail trade in month of August dipped by 0.4% in Eurozone
Slowest expansion of Eurozone services for 6 months; Dips in Spain and Ireland; Robust growth in France and Germany

In Europe, the Dow Jones Stoxx 600 is up 1.33% Wednesday.

The ISEQ has risen 1.15% in Dublin.

CRH has added 2.23%; Elan has gained 1.50%;  BoI is also up 1.50%

   

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies 

The euro is trading at $1.3870 and at £0.8703.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Thursday, July 15, 2010, the index  fell for the 35th straight session, by 9 points, or 0.537%, to 1,700 points, Bloomberg report.

On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak; on Tuesday this week, the BDI rose 91 points or 3.67% to 2,569.

Crude oil for November 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $82.91 per barrel up 9 cents from Tuesday's close. In London, Brent for November delivery is trading on the International Commodities Exchange at $84.99.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,347.90, up $7.30 from Tuesday's close


© Copyright 2007 by Finfacts.com

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