The Irish Independent reports that Ireland has changed its stance on EU banking regulation and now strongly supports the proposals put forward by the EU Commission and backed by France and Germany, Finance Minister Brian Lenihan told an international conference in Dublin yesterday.
His remarks came as the commission published proposals to set up two pan-EU bodies to strengthen banking supervision in the wake of the global credit bubble and bust.
The proposals, launched by Internal Markets Commissioner Charlie McCreevy, Commission President Jose Barosso and Economics Commissioner Joaquin Almunia, would establish a European Systemic Risk Council, comprised of central bankers and national regulators, which would monitor any build-up of risks and call for action before those risks become unmanageable.
There would also be a steering group to oversee insurance, banking and securities markets. Britain has already signalled that it is unhappy with much of the plan, fearing a loss of regulatory sovereignty over the City of London.
The UK is also among those objecting to the idea that the European Central Bank would chair the risk council in Frankfurt.
The Government's position had initially been close to that of Britain, but the banking collapse has helped prompt a change of heart. Officials have seen the difficulty both of regulating foreign-owned banks in the domestic market, and the multi-trillion euro activities in the International Financial Services Centre (IFSC).
"We probably were more in the UK camp before, but we have moved over to the belief that there is a need for stronger, more consistent regulation across the EU," a Department of Finance source said.
Mr Lenihan told the conference of the Parliamentary Assembly of the Organisation for Security and Co-operation in Europe (OSCE) that Ireland welcomed and supports the key recommendations in the Commission document and wants the proposed new system in place and operating as quickly as possible.
"The fashion was for 'light touch' regulation of the banks, their bonuses and the amount of lending. But all that has gone out of fashion and everyone is saying we must be more careful in the future," he said. The proposals will go to a sum- mit of EU leaders in June for approval.
The Irish Independent also reports that staff at AIB have been told that there will need to be a "significant injection of funds" into their pension scheme after the deficit widened to almost €1bn.
The scheme experienced a decline of 34.3pc in investment returns last year and does not meet statutory funding standards, a briefing document sent to bank staff reveals.
The note points out that "this is the first occasion that the scheme has not satisfied the minimum funding standard and we will be advising the Pensions Board in due coarse."
The minimum funding standard is a test of a pension scheme's ability to meet its liabilities if it has to be wound up. The AIB pension scheme had a minimum funding standard deficit of €519m at the end of 2008.
A new actuarial valuation is due to be completed in June this year, which will look at the ability of pension to operate on an ongoing basis.
Staff who joined the bank before 1998 are part of a defined benefit scheme and do not currently make any contributions towards their pension, a spokesperson for AIB said.
However, there are proposals that they would begin to contribute up to 5pc of their salary to the scheme.
People who joined the bank after 1998 became part of a defined contribution scheme, but in 2007 the bank introduced a hybrid scheme which allowed these staff to be part of a defined benefit scheme up to the salary level of an assistant manager.
Hybrid scheme members contribute 5pc of their salary to towards their pensions.
The Irish Times reports that house prices fell 1.9 per cent in April as potential buyers continued to hold out for further declines in the market before purchasing a property, according to the latest edition of the Permanent TSB/Economic and Social Research Institute (ESRI) house price index.
Last month’s decline in average national house prices marks an acceleration in the monthly drops in prices recorded in the first three months of the year, which were 1.4 per cent, 0.8 per cent and 1 per cent in January, February and March respectively.
Property prices have now fallen back to levels last seen in summer 2004.
According to the index, house prices have fallen 4.9 per cent so far in 2009, but prices for first-time buyers have dropped at the steeper rate of 7.9 per cent.
The average price paid for a house in April 2009 was €248,640, compared with €261,573 in December 2008 and a peak of €311,078 in February 2007.
“This is the fastest rate of decline in national prices that we have seen to date since the index started in 1996,” said Permanent TSB’s general manager of business strategy Niall O’Grady.
“The particularly dramatic reduction in prices for first-time buyers reflects their reluctance to buy in a market that is still declining and where unsold properties are being reduced further.”
However, the Professional Insurance Brokers Association said “excessively tight” mortgage lending criteria were preventing first-time buyers from entering the market.
“The banks have gone from one extreme to the other. Normal lending must be restored to the marketplace, and that requires more urgent intervention by the Government,”said Rachel Doyle, director of the insurance association’s Network Services.
Alan McQuaid, economist at stockbroking firm Bloxham, said developers were being forced to drastically scale back asking prices in an attempt to clear existing stock, which was flooding the market with new properties and exacerbating the declines in prices.
“The bottom line is that the Irish property market is heavily entrenched in a deflation spiral and, given the myriad of factors that have led to its creation, it is unlikely to recover any time soon,”Mr McQuaid said.
Over the 12 months to April, properties in the commuter counties of Louth, Meath, Kildare and Wicklow saw the greatest reductions in their price tags, according to the index.
House prices in those counties fell 17.8 per cent over the period, compared to a drop of 14.3 per cent in Dublin house prices over the same period.
The average price paid for a house in Dublin was €331,206 in April, compared to an average price of €214,444 outside Dublin. In the commuter counties, the average price was €254,281.
House prices: in numbers
4.9%
The average percentage price fall in 2009. Prices for first-time buyers have dropped 7.9 per cent
€248,640
The average price paid for a house in April. This compares with €261,573 in December 2008 and a peak of €311,078 in February 2007
€331,206
The average price paid for a house in Dublin in April. This compares with an average price of €214,444 outside the capital. In the commuter counties, the average price was €254,281
The Irish Times also reports that National Irish Bank has asked the High Court to rule that Durkan New Homes, two of its directors and another company are all liable for loans of some €37 million provided by the bank in relation to a development at Cabinteely, Co Dublin.
Mr Justice Peter Charleton has reserved to June 26th his judgment on NIB’s proceedings against Durkan New Homes, its directors Don and Marian Casey and Tullycross Developments Ltd.
The bank claims the effect of cross-guarantees means all four defendants each have a liability for the €37 million sum, but this claim is disputed. The defendants contend the bank’s claim is limited to securities on certain properties specified in loan agreements.
NIB claims payment was sought on foot of the cross-guarantees on February 24th last, and should have been made within a month of that date.
The bank alleges that some €37.1 million is due under two separate but related loan agreements of March 2006.
It claims one loan agreement related to DNH, with offices at Ranelagh, Dublin, and to Don and Marian Casey, of Woodbrook, Beech Park, Cabinteely (the DNH agreement), while the second agreement related to Tullycross, with a registered office care of O’Donnell Sweeney Solicitors, Earlsfort Terrace, Dublin.
NIB claims the loan facilities were provided to refinance and further finance a development at Beech Park, Cabinteely. It also claims DNH and Don and Marian Casey executed a guarantee and indemnity relating to obligations of Tullycross to the bank, while Tullycross executed a similar guarantee relating to the obligations of the other parties.
Under the DNH agreement, it was claimed Don and Marian Casey executed two mortgages providing for co-ownership between the bank, on one side, and DNH and the Caseys on the other, of various properties at Beech Park/Bray Road, Cabinteely. NIB claims Tullycross also executed two similar co-ownership mortgages.
The bank claims the loan agreements provided, during the term of the loans, that the defendants’ debts to the bank would not exceed 70 per cent of the combined value of identified properties, in which circumstances the bank’s recourse against the defendants would be limited to the respective interests in the properties specified.
It is claimed the repayment date under each of the loan agreements was September 30th last when, it is alleged, the defendants paid only the interest due and not the “bullet payment” of capital due.
The bank also alleges the defendants’ debts to the bank under the loan agreements had, by late September, exceeded 70 per cent of the combined value of the properties specified in the agreements.
The Irish Examiner reports that Fine Gael leader Enda Kenny slammed the "bad bank" idea as unworkable yesterday.
Comments made by Michael Somers, head of the national Treasury Management Agency, to a Dáil committee last week seriously questioning the viability of the National Assets Management Agency NAMA), meant "the plan was already holed below the water line," he said.
Fine Gael’s proposal would park the bad debts of the banks without having to try and put a value on them, an impossible task in the current economic climate, he said.
The Fine Gael plan would free the banks of their bad debts and allow them to the start pumping vital funding into the struggling Irish business sector, he said.
He was speaking at the launch of an 18-point rescue plan to support small business that would save the average firm about €50,000 a year. The strategy would also protect 80,000 jobs currently under threat and deliver a further 100,000 new jobs, he said.
The party’s enterprise spokesman Leo Varadkar said the plan would cut costs, improve competitiveness and protect jobs.
He ruled out the idea of an assault on the minimum wage which hits the most vulnerable of the working population. As it stands it provides a wage of €375 for a 40-hour week and wasn’t much higher than what those "who are not working" get to live on."
In that context: "We wouldn’t propose to cut the minimum wage," he said.
The measures to support small businesses include the tackling of business costs such as rent, a freeze on Government charges, and concrete steps the Government can take to protect jobs.
"Small businesses are the backbone of the Irish economy. There has been a silent haemorrhaging of jobs from small & medium enterprises across the country," added Mr Kenny. "Despite that the Government has failed to produce any concrete measures to support SMEs and stem the tide of rising unemployment."
Recent budgets made a bad situation worse for both workers and employers.
The increase in VAT rates that drove millions of euro of business north of the border is a classic example of that type of poor decision making by this Government, Mr Kenny said.
He also spoke of the need to free up the banks to lend to businesses. He knew of one case where a man in business for 50 years had to let five people go recently for the first time ever. Both he and the five workers "cried" the day he made them redundant, he said.
Yet when the same businessman sought an extension of his overdraft his local branch manager had to refer the matter to Dublin and it was refused.
"That decision was taken in Dublin by a guy who never created a job in his life," and it further highlighted the need to get the banks back lending.
The Financial Times reports that General Motors moved closer to bankruptcy in the US on Wednesday as the political dispute over the fate of its international operations intensified in Europe.
The European Commission agreed to organise a meeting of ministers from all EU countries with an interest in the Opel and Vauxhall businesses that the troubled US carmaker has had to spin off as part of its global restructuring.
The move came amid growing anger at the role played by Germany, where nearly half the GM Europe unit is based, in deciding which company will end up buying them.
GM says it has three plants more than it needs in Europe, prompting bidders for the business to compete on pledges not to close plants or cut jobs in Germany, which will provide most of the European government loan guarantees needed to keep the Opel/Vauxhall operations afloat.
Members of chancellor Angela Merkel’s government, were meeting with suitors last night to narrow the field of bidders, which include Italy’s Fiat and Canada’s Magna.
Belgian premier Herman van Rompuy wrote to the Commission, it was revealed on Wednesday, asking it to ensure that any GM decision be fair to all countries with such interests. “A one-country solution for a truly European-based company seems not in line with the idea of a European Union and its legislation,” Mr Van Rompuy said.
GM’s plant in Antwerp is seen as one of its likeliest to be shuttered in any restructuring. Britain’s biggest union also urged the UK government to step up financial support.
Separately, it emerged that whichever company buys the Opel/Vauxhall operations will face substantial losses this year.
According to the offer document sent out to bidders last month – seen by the Financial Times – GM is projecting a loss before tax and interest payments of more than $3bn this year for its Opel/Vauxhall businesses.
But GM is tempting prospective buyers with projections that Opel/Vauxhall’s sales revenues will increase from $22bn to more than $30bn by 2012, according to the document, on which the carmaker declined to comment.
“It demonstrates that you will need a lot of cash to run Opel,”said Arndt Ellinghorst, head of European automotive research with Credit Suisse in London.
In the US, the prospect of bankruptcy loomed closer for GM as it failed to win agreement from holders of $27bn in unsecured bonds for a contentious debt-for-equity swap.
Barring a last-ditch compromise, the embattled carmaker will be unable to meet the US government’s June 1 deadline for submitting a viable restructuring plan in return for continued funding, and could file for Chapter 11 protection next week.
The FT also reports that US Treasury yields rose to their highest level in six months on Wednesday, raising concern that rising mortgage rates could damp a nascent recovery in the economy.
The yield on the benchmark 10-year Treasury note rose 24 basis points to 3.74 per cent, a level last seen in mid-November. The 10-year note has climbed from lows of 2.1 per cent in December. The S&P 500 stock index fell 1.9 per cent.
Long-term yields have been rising as investors respond to evidence of “green shoots” in the economy, the increasing US debt burden, the risk of a revival in inflation and a flood of new Treasury issuance.
Traders said yields rose on Wednesday as investors in mortgage securities reacted to recent market movements. They did so by selling Treasuries they had bought as hedges against the risk that homeowners would refinance mortgages at lower rates. This sent Treasury prices lower and yields sharply higher.
While short-term yields remain stable, longer-term yields have been volatile for several days, raising questions about whether the US Federal Reserve will have to increase its planned purchases to Treasuries.
This week’s sale of $101bn in new debt far outweighs the Fed’s buying of $7.55bn to support the market and keep yields lower. For this financial year, $2,000bn in new debt is expected and already this year the Treasury has sold $800bn in Treasury coupon issuance, which almost matches the $922bn sold last year.
“A $2,000bn deficit and $2,000bn in Treasury supply far outweighs the Fed’s planned purchases of $300bn,”said Gerald Lucas, a senior investment adviser at Deutsche Bank.
Tuesday’s sale of $40bn two-year notes attracted solid buying and the issue remains anchored below 1 per cent. The sale of $35bn in five-year notes also saw good demand on Wednesday ahead of the issuance of $26bn in seven-year notes on Thursday.
Moody’s reaffirmed the US government’s triple A rating in spite of a rising debt burden.
The New York Times reports that the Federal Reserveis spending more than $1 trillion to keep interest rates low and help credit flow, but investors are getting worried that those efforts are starting to falter.
The specter that government spending may stoke inflation and push up borrowing costs rattled Wall Street Wednesday, dragging stocks lower on concerns that Washington is issuing more bonds to finance the economic recovery than investors are willing to buy.
Higher interest rates could throw a new wrench into credit markets, stifle lending and prolong the recession.
There is still a healthy demand for short-term government debt. But investors who suspect that inflation is looming are leery of locking themselves into a 30-year Treasury bond that pays relatively low interest. As a result, the difference in yields between two-year and 10-year notes grew to one of its widest points ever on Wednesday, showing the hesitance toward longer-term government debt.
“What I think we’re seeing here is flat-out concern about the amount of debt the government’s going to be issuing,” said James Grady, director of fixed-income trading at TD Ameritrade. “People are realizing they don’t want to own bonds.”
The yield on the Treasury’s benchmark 10-year note rose to its highest level since November on Wednesday. The note fell 1 17/32, to 94 30/32, and the yield, which moves in the opposite direction from the price, rose to 3.73 percent from 3.55 percent late Tuesday.
Rates on a 30-year fixed Fannie Mae mortgage hit 4.69 percent, up from 3.94 percent a week ago.
Analysts said the gyration in bond markets was putting the Fed in an increasingly tough position.
Although the central bank has aimed its official interest rate at near zero, a historic low, if market interest rates continue to rise, the Fed would face more pressure to expand its purchases of $300 billion in longer-term Treasuries, analysts said. But to do so, it would have to print even more money, a move that could dilute the value of dollars already in circulation and lead to inflation down the road.
At its most recent meeting in late April, the Fed’s Open Market Committee said some policy makers recognized that the central bank might need to increase its purchases of Treasuries “at some point to spur a more rapid pace of recovery.”
It was an unlikely day for credit jitters to drive markets lower. An auction of five-year Treasury notes went better than analysts had expected, drawing the most demand from foreign buyers in months. And Moody’s Investor Service said that it was not about to cut the United States government’s triple-A credit rating, despite fears that the price tag for stimulating the economy is too high.
Still, investors who thronged to the safety of government bonds last year are getting edgy about Treasury’s plans to issue $2 trillion in new debt. More money is flowing back into stock markets and riskier ventures like corporate bonds, reducing the demand for government debt just as Washington is issuing more than ever. “Interest rates are going to rise, and rise more than expected,” said Hugh Johnson, chairman of Johnson Illington Advisors.“It really scares you as an investor.”
The Dow Jones industrial average fell 173.47 points, or 2.1 percent, to close at 8,300.02 ,while the broader Standard & Poor’s 500-stock index fell 1.9 percent, or 17.27 points, to 893.06. Less severe declines in technology stocks helped to contain losses on the Nasdaq composite index, which was down 1 percent, or 19.35 points, to 1,731.08.
Some investors used the day to book profits from Tuesday’s trading, when the Dow bounced 200 points on slivers of data showing that consumers were feeling more optimistic about the economy. Consumer-geared companies surged higher on hopes that consumers would shake their funk and spend money at shopping malls, rather than sock it away.
“It’s a little frothy, and it doesn’t take much to turn it one way or the other,”Bart Barnett, head of equity trading at Morgan Keegan, said of the stock market.
As the troubled automaker General Motors appeared to edge closer to filing for bankruptcy, investors fled the company’s stock. Shares of G.M. fell 20 percent to $1.15 as bondholders rejected an agreement to forgive billions in debt that would have given them a 10 percent stake in the company.
Other automakers were also swept up in the broad decline, which tugged all sectors of the market lower. Ford was down 1.1 percent, and New York-traded shares of Toyota, Honda and Nissan also fell.
The price of gold was lower, and the dollar gained ground against the euro but sank against the British pound.
The price of crude oil climbed $1 to $63.45 a barrel in New York after Saudi Arabia’s oil minister predicted that oil prices could reach $75. As oil prices have risen from their recent lows of $33 a barrel, gasoline costs have crept up, raising some concerns about inflation in energy prices.
The NYT also reports that Timothy F. Geithner, who before his confirmation as Treasury secretary unintentionally charged that China was “manipulating” its currency, will make his first trip to that country since taking office and meet with its leaders next week amid rising concern about China’s willingness to continue buying United States debt.
The Treasury announced on Wednesday that Mr. Geithner had meetings scheduled with President Hu Jintao, Premier Wen Jiabao and Vice Premier Wang Quishan. He will also promote American business interests and press the case for both countries, which are the world’s biggest emitters of the heat-trapping gases that contribute to climate change, to work to limit the pollution.
During his Senate confirmation hearing in January, Mr. Geithner vexed Chinese officials when, in written answers to questions from senators, Mr. Geithner wrote that “President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency.”
Under a 1988 law, if the administration formally reports to Congress that China is intentionally holding down the value of its currency, the renminbi, and in turn the price of its exports, such a finding could lead to the imposition of trade barriers.
Treasury officials, speaking on condition of anonymity, later said that Mr. Geithner’s written comment about China’s currency had been mistakenly included in his responses to senators, and that the administration was not signaling a more confrontational stance than the Bush administration had taken toward trade with China.
As the officials recounted, after Mr. Geithner ended his oral testimony, members of the Senate Finance Committee had submitted scores of questions that had to be answered before the panel’s vote on his nomination the next morning. Treasury aides worked all night to complete them, using a compilation of Mr. Obama’s campaign statements.
One of those was the president’s comment that China manipulates its currency, a charge that is popular with the unions that are a major force in Democratic politics. Many labor unions believe that, by pegging the renminbi to the dollar, the Chinese give their exports an unfair trade advantage over more expensive American products.
That the administration would now back off that statement is another example, along with Mr. Obama’s struggles to end the war in Iraq and close the prison at Guantánamo, of the difficulties of reconciling campaign promises and governing realities.
Treasury officials have not indicated whether currency rates will be on the agenda. Perhaps the chief issue facing global markets is the extent to which China will continue investing heavily in Treasury bills.
If China believes the dollar is going to decline in the future, given the ballooning United States debt, it could reduce its purchases. Investors worry that a spat over currency issues could push China to reduce its investments in Treasuries, putting the American economy at risk.
Mr. Geithner’s China trip has been long planned but falls at an inopportune time. Monday is the deadline by which a Treasury-led auto task force must decide whether to force General Motors into bankruptcy protection. The administration is expected to choose the bankruptcy route and to take a 70 percent stake.
Mr. Geithner will speak on economic relations at Peking University on Monday and visit the Beijing Capital Museum to recognize American companies’ role in China’s economic development, including on clean energy.
In an event with personal meaning, Mr. Geithner will meet with officials of the Ford Foundation. His father, Peter F. Geithner, oversaw the foundation’s Asia development programs; the family lived in India and Thailand. In a coincidence only recently confirmed, the elder Geithner was in charge of a program for which Mr. Obama’s mother worked in Indonesia, where Mr. Obama spent four years as a child.
