BP oil drilling rig in the Gulf of Mexico

In New York Thursday, the Dow Jones Industrial Average closed down down 215.45 points, or 2.5%, at 8376.24, down 36.9% on the year

Component General Motors slid 16% after lawmakers gave Detroit's request for a $34 billion bailout, a bumpy ride.

The Nasdaq Composite Index fell 3.1% and the S&P 500 dropped 2.9%.

Economic data was grim.

A survey of 37 major retail chains by the International Council of Shopping Centers, showed that sales at stores open at least a year -- a measure of retail health known as same-store sales -- fell 2.7% in November over last year. Only a small number of retailers, including discount giant Wal-Mart Stores, showed gains while most department stores reported grim news.

It was the worst month for retailers since at least 1969, when the index began. Excluding Wal-Mart, sales registered a huge 7.7% drop.

The number of US workers filing new claims for unemployment benefits fell last week but remained above the half-million mark that is consistent with falling job numbers. Continuing claims were the highest level in almost 26 years.

Initial jobless claims dropped 21,000 to a seasonally-adjusted 509,000 in the week ended Nov. 29, the Labor Department said.

The four-week average of new claims, which aims to smooth volatility in the data, rose 6,250 to 524,500, the highest level since Dec. 18, 1982.

Orders for manufactured goods decreased 5.1%, following a downwardly revised 3.1% fall  in September, the Commerce Department said Thursday. Originally, factory orders were reported to have fallen 2.5% in September.

New orders for manufactured goods in October, down three consecutive months, decreased $21.9 billion or 5.1% to $407.4 billion. Excluding transportation, new orders decreased 4.2%. Shipments, also down three consecutive months, decreased $13.8 billion or 3.2 percent to $417.7 billion.

Finfacts Reports

Dr. Peter Morici: US November jobs report

Japan's temps accounting for 35% of the workforce in the firing line

Aer Lingus US traffic slumped in November

The MSCI Asia Pacific Index gained 0.2% on Friday.

Benchmarks in Japan and India fell while China's CSI 300 rose 1.53%.

Asia-Pacific - benchmarks

European stocks have fallen Friday and the Dow Jones 600 is down 1.5%.

BMW (Bayerische Motoren Werke AG), the world’s biggest maker of luxury cars, said today that deliveries plunged 25% in November.

Sales fell to 96,570 cars and sport-utility vehicles from 129,459 a year earlier, BMW said.Year-to-date sales slipped 1.8 percent to 1.32 million vehicles.

In Dublin, the ISEQ is up 0.42%.

Anglo Irish has risen 10% and Aer Lingus has risen 8%.

Irish Share Prices

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

 

Davy analyst Robert Gardiner say today:"Abbey has reported a pre-tax loss of €5.4m for the six months ended October 2008. The H1 outturn includes an exceptional charge of €11.9m against the carrying value of its land in Ireland and the UK. More importantly, the group had net cash and investments at period-end totalling €52.3m — this equates to 212c per share. The NAV per share at end-October was 828c. Given the impairment charge, no interim dividend will be paid.

The group completed 235 sales (UK 169; Ireland 66) in the period, generating turnover of €47.2m. Excluding the exceptional charge, the housebuilding business delivered an operating profit of €6.0m. This implies a healthy operating margin of 11% (UK 9.4%; Ireland 15.7%). Despite the weak market conditions, a broadly similar level of completions is expected in the second half."

Goodbody economist: Dermot O’Leary says interest rates going to 1% in Europe: "When the Bank of England cuts interest rates to the lowest level since 1951 and the ECB cuts by the most in its history and it is greeted with little more than a whimper by markets, we know we are living in unprecedented times. Both banks, in effect, did what they needed to do in light of the rapidly deteriorating prospects for the European economy and the expected retreat of prices towards deflationary levels. The 1% cut in UK rates takes the cumulative move since October to 3%. This is a very significant move, but there is probably more to come; rates will hit 1% in the first quarter of 2009 in our view.

While the UK economy will experience more acute problems due to the nature of this economic crisis and the debt-laden nature of its economy, the latest evidence suggests that the euro-zone economy is faltering markedly too. The new ECB staff projections yesterday already revealed that the euro-zone economy will contract by 0.5% in 2009 and it may turn out to be worse. The inflation forecasts look a bit high (median 1.4% for 2009) due to the fact that they are predicated on oil prices averaging $67 a barrel in 2009; they stand at $42 a barrel (Brent) this morning. For these reasons, we think that the market is underestimating the degree to which euro-zone interest rates will fall in 2009.

We are taking the view that rates will fall to the same level as Bank of England rates, i.e. 1%, by the summer. These interest rate cuts are a necessary, but certainly not sufficient, move to stimulate the respective economies. With rates expected to go very close to the zero-bound, European central bankers may also have to dig into the monetary toolkit (like quantitative easing) that is currently being used by Ben Bernanke & Co."

Goodbody analyst Eamonn Hughes says lower interest rates not a one way bet! : "One benefit of the credit crunch is that loan spreads are re-pricing upwards, but the banks are unlikely to see much of it on the net interest margin just yet, given the sheer magnitude of the collapse in new business activity. So we would anticipate that net interest margins ease again in 2009 before stabilising/rising in 2010. In fact, it is an imperative that margins widen if the financial system is to heal itself. So while lower interest rates are clearly a major factor in helping ease financial and economic stresses, it is not all one way traffic, unfortunately.

The 100bps cut by the BOE to 2% yesterday and the 75bps move by the ECB to 2.5% now brings the debate to how low can rates go, with 1% or lower now on the agenda. While the market is anticipating that bank margins start to widen, we could be entering a worrying juncture, whereby deposit margins will start to come under pressure as interest rates decline and intense competition for deposits remains. We keep thinking back to deposit margins in the 2003-2005 period when ECB rates fell to 2%. Margin compression was one of the factors behind our 11% forecast cuts through 2003 for AIB and 5% cuts for BOI when the credit charge was obviously a much smaller figure than it is now in the P&L account. When interest rates decline, banks typically pass them through to deposit rates. However, there comes a threshold level in which lower interest rates are unable to be passed on just because deposit levels are at floors.

For instance, when ECB rates were 2%, overnight deposit rates in Ireland were 40-50bps according to Central Bank data. Deposit margins were 100-110bps in January 2003 and eased down to the lows of 60-70bps as interest rates fell and presumably could come under similar pressures this cycle too. According to Central Bank data, average deposit margins are currently c.110bps. We note the pace with which the Irish and UK banks are passing on lower interest rates on the lending side after the central bank rate cuts. However, particularly in the UK, where there is state ownership, the government may have to be more flexible about allowing the banks to be less vigilant on the deposit side to ease future margin pressures on the banks.

In addition, we would highlight that lower mid and long term bond yields and shortening durations may also cut reinvestment yields for the banks, which was also a margin factor back in 2003/2004. Tracking rolling 1 to 5 year bond yields (to reflect holding to maturities) shows that the average rolling yields haven’t turned down yet, but they will in due course given the extent of the collapse in recent weeks in current actual yields. For instance, two year German yields are down 195bps in three months. So maybe net interest margins will find it more difficult to improve post 2009?"

Hughes also says relationship between banks and property gets more intimate in Spain. "Over the last few years, the boom in housing in Ireland has always been mentioned in the same breath as the Spanish boom. So we note with interest developments yesterday in Spain whereby six Spanish banks agreed to take control of Metrovacesa SA, the country’s largest property company. A case of swapping debt for equity, whereby the owners of the company are giving 55% of the stock to the banks plus the banks are each purchasing an additional 1.8% of the shares of the quoted company. Obviously, such a development represents one template on how banks can re-coup some of their debts. A bit of “in for a penny, in for a pound” it sounds like."

Goodbody analyst Anna Lalor says on Irish Financials; One size does not fit all: "S&P has produced a report, which highlights “significant inconsistencies” in how banks account for risks and how much capital they hold under Basel II, making it very difficult to compare banks capital adequacy levels. S&P has surveyed c.50 European banks, as it prepares a new method to measure capital requirements of banks under Basel II. It has found that various interpretations of the Basel rules has led to up to “four-fold differences in risk weights for the same underlying risks” and highlights that banks in the UK, Spain and some Nordic countries have used less conservative estimates of risk. Following the increase of UK banks core tier 1 capital levels to 8-8.5%, this ratio of capital has been held up as the new target for banks across Europe by some analysts and commentators.

However, with more aggressive Basel II assumptions meaning that, in some instances, UK banks have lower risk weightings for exactly the same risks as International peers (which should ultimately adjust to higher risk weights at the peak of the credit cycle, due to the use of “point in time models” of capital calculation), its comparative capital base is weaker. While we have not seen the full S&P report yet, we are aware that the Irish banks have used a more conservative “through the cycle” approach to calculate their risk weightings under Basel II (Anglo is on standardised Basel II), so although the market undoubtedly now requires banks to hold a higher level of capital, it seems unfair that they would also be expected to increase their capital ratios to the same extent as their UK peers."