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| Jean-Claude Trichet, President of the European Central Bank addressing central bank governors.
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Euro inter-bank rates fell to new record lows today following Wednesday's massive lending by the ECB of €442 billion for a 12 month period to more than 1,100 Eurozone banks.
The one week rate fell to 0.537% and the 3-month rate dropped to 1.120%.
Euribor Rates
The vehicle scrapping incentive that President Obama signed into law on Wednesday, also known as the "cash for clunkers" or "cash for guzzlers" program, is intended to revive weak US car sales by encouraging consumers to trade in their vehicles for more fuel-efficient models. But Standard & Poor's Ratings Services does not expect the program to improve the ratings on the domestic carmakers or on foreign ones selling in the US.
"We expect the program to lead to a small, and probably short-lived, improvement in U.S. auto demand from the very low levels reported early in 2009," said Standard & Poor's credit analyst Gregg Lemos Stein. "Prior to the incentive program's passage, we had forecast 9.5 million unit sales for the full year. We now believe this figure could increase by about 250,000 units at most (or, less than a 3% boost to sales), given the funding provided," he continued.
S&P says the evidence from earlier, similar programs in Europe shows that the initial boost in new-vehicle sales is usually followed by a decline six months to a year later because the programs attract buyers who otherwise might have bought cars later.
Bloomerg reports Ahmad Hamad Algosaibi & Brothers Co., the Saudi family holding company whose Bahraini bank has defaulted, owes 34.6 billion Saudi riyals ($9.2 billion) to more than 100 banks, two people familiar with the situation said.
The Algosaibi group held a meeting with creditors in Bahrain June 24 to ask for a grace period of 90 days to investigate the debt, said one person involved in the talks, who declined to be identified because the information is confidential. A spokesman for the company had no immediate comment when contacted by Bloomberg News.
Algosaibi said June 11 it had discovered “substantial irregularities” within its financial services arm after The International Banking Corporation BSC in Bahrain defaulted on debt. An Algosaibi spokesman said last month that Maan al-Sanea, the Saudi billionaire who owns a stake in HSBC Holdings Plc, managed TIBC. A spokesman for Saad Group, al-Sanea’s holding company, denied he had a management role at the bank.
The number of Americans filing claims for unemployment benefits unexpectedly rose last week, a signal that companies will keep cutting staff even as the economy stabilises. Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20th, from a revised 612,000 the week before, the Labor Department said Thursday.
The number of continuing claims, rose 29,000 to 6,738,000, after falling 126,000 the previous week.
The unemployment rate for workers with unemployment insurance was unchanged at 5% in the week ending June 13.
US GDP
The Bureau of Economic Analysis said Thursday gross domestic product shrank at a 5.5% annual rate in the first three months of the year - - less than the 5.7% fall estimated last month. The six month performance was the worst in half a century. The US economy shrank at a 6.3% annual rate from October to December.
Fed and Bank of America
Federal Reserve Chairman Ben Bernanke said today at a hearing in the US Congress that Federal Reserve officials acted with the "highest integrity" during negotiations with Bank of America over the bank's acquisition of investment bank Merrill Lynch, denying that he threatened to replace management if they walked away from the deal.
"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management," Bernanke said in his prepared remarks at a meeting of the House Oversight and Government Reform Committee.
"Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances," Bernanke said.
In December, Bank of America told US officials it was considering withdrawing from the Merrill deal because of growing losses at the investment bank.
Bank of America closed the Merrill deal with public assistance of $20 billion and loan guarantees.
The Wall Street Journal reports: setting aside the deferential tone usually reserved for Fed chairmen, members of the House Committee on Oversight and Government Reform repeatedly interrupted Mr. Bernanke at Thursday's hearing to review the Fed's role in engineering a government aid package for Bank of America. The lawmakers pored over internal Fed emails subpoenaed by the committee and projected on a screen in the hearing room.
Much of the heat focused on the Fed's part in pushing Bank of America to complete its acquisition of Merrill Lynch in January. House members on both sides grilled Mr. Bernanke on whether he threatened to force out Bank of America Chief Executive Kenneth Lewis. They accused him of inconsistencies in his statements and of keeping information from other agencies.
Lawmakers pointed to a Dec. 20 email written by Richmond Fed President Jeffrey Lacker. One of a series unearthed by the panel, the email recounts a conversation between Messrs. Lacker and Bernanke in which the Fed chief planned to tell Bank of America that "management is gone," if they quashed the deal and later needed more government aid, wrote Mr. Lacker.
Pressed on the issue, Mr. Bernanke said he didn't make such a comment to Mr. Lewis and didn't remember that part of the conversation with Mr. Lacker.
Rep. Dan Burton, (R., Ind.), a former Oversight chairman, said people often used such language to avoid perjuring themselves. "Are you sure you can't remember?"
On Tuesday, the Dow Jones Industrial Average recovered from four days of losses to finish up 172.54 points, or 2.1%, at 8472.40.
The Nasdaq also rose 2.1% and the S&P 500 added 2.14%.
The MSCI Asia Pacific Index rose 1.4% Friday.
The Nikkei 2225 rose 0.83%; Australia's ASX/S&P 200 1.24%; India's BSE Sensex 30 index added 2.78% and China's CSI 300 advanced 0.34%.
Asia-Pacific benchmarks
In Europe Friday, the Dow Jones Stoxx 600 has risen 0.72%.
In Dublin the ISEQ is up 0.24%.
Elan is up 1.45%; Fyffes jumped 15% (see story below) and Smurfit Kappa gained 0.27%.
Fruits' importer Fyffes said in a statement today that at the beginning of the year, it indicated that it was targeting an Adjusted EBIT* for 2009 in the range of €14m-€18m. This target was based on achieving increases in average selling prices in all markets to offset the impact of cost inflation and less favourable exchange rates compared to last year.
In the year to date, the firm says its key input costs have been c.20% higher than last year, including the impact of exchange rates. Offsetting this, market conditions have been generally favourable in recent months, particularly in Continental Europe. The Group has achieved increases in average selling prices and has benefitted from the positive impact of its currency hedging. Fyffes continues to seek increases in selling prices, in all markets, to address the underlying increase in costs.
"Taking these factors into account, and bearing in mind that it is only half way through the financial year, Fyffes is now targeting an Adjusted EBIT for the full year 2009 in the range €16m-€20m, compared to €15.3m last year. The result for the year is expected to be significantly weighted towards the first half, as was the case in 2008," Fyffes said.
*Adjusted EBIT excludes amortisation charges, the Group's 40% share of the results of property spin-off Blackrock International Land plc and exceptional items.
Packaging group Smurfit Kappa Group plc today announced that, by the ‘early bird’ deadline of 25th June 2009, Deutsche Bank, as agent for its lenders, had received consents to proposed amendments to SKG’s Senior Credit Facility in excess of the required acceptance level. The completion of the amendment process is subject to the execution of the Amended and Restated Senior Facility Agreement which is due to take place in early July, post the final consent deadline of 30th June 2009.
In early June, SKG announced that it was seeking to amend its senior credit facilities. This included increasing covenant levels, extending the maturity of the revolving credit facility and giving it the ability to raise longer-dated capital to refinance a portion of existing facilities.
European Benchmarks
Irish Share Prices
Euribor Rates
AIB Daily Report
Bank of Ireland Daily Report
Currencies
The euro is trading at $1.4042 and at £0.8522.
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
Crude oil for August delivery is currently trading on the New York Mercantile Exchange (Nymex) at $71.13 per barrel up 90 cents from Thursday's close. In London, Brent for August delivery is trading on the International Commodities Exchange at $70.64 up 86 cents.
Gold spot price
Gold is trading at $943.20 up $4.30 from Thursday's spot price close in New York.
Davy chief economist Rossa White comments: Spike in savings partly explained by more jobs lost in younger age groups - - "Consumer spending dropped sharply in Ireland over the last year. Disposable income has been hit by lower employment, slowing wage growth and higher taxes. Lower interest rates, inflation and higher social transfers have helped offset some of those negative impulses. Yet it is only in the last couple of quarters that real incomes have dropped. Most of the decline in spending has been caused by a spike in the percentage of income saved (from 2.5% to at least 11%). The disproportionate loss of employment in younger age groups partly explains why savings have spiked.
Life-cycle theory suggests that younger age groups have a higher propensity to spend for a given level of disposable income. As people age, they are more likely to save for retirement. Ireland has a relatively young population, which helped fuel spending during the credit-enhanced boom of 2003-2007. But consumer spending probably dropped at least 11% in volume in the year to Q1 2009.
The Q1 Quarterly National Household Survey released yesterday provides an insight into the rapid rise in saving out of income across the economy. This was due not just to fear of job loss or the hit to wealth for all income earners, but to a change in the mix of those at work. Employment has dropped much more sharply among the 15-34 age group than in the rest of the labour force. In the year to Q1, employment in that younger age group fell 13% or 121,000. For those aged 35 or older, employment nudged 3.2% or 38,000 lower. The share of 15-34 year-olds in employment slid three percentage points from 41.4% to 38.2%. There are more of the likely savers in the workforce now than there were a year ago, and that has hurt spending."
Goodbody chief economist Dermot O'Leary comments: Q1 was probably the worst of the worst for the Irish economy - - "While labour markets are indeed a lagging indicator of economic activity, it is clear that a rapid deterioration of the Irish labour market coincided with the sharp drop in output in the economy post the near implosion in international financial markets at the end of last year. The labour market shake-out was particularly marked in the first quarter, as revealed by yesterday’s data (QNHS); employment levels declined by 3.5% in Q1 alone, bringing the decline to over 5% for the two quarters combined. As a result, employment is now back to levels not seen since Q3 2005.
The sectors experiencing the most marked declines are familiar ones, with construction (-28% yoy) and retail and wholesale (-10% yoy) accounting for 65% of the job losses over the past year. According to the release, the unemployment rate hit 10.2% in the first quarter, more than double that of a year earlier. However, given that we are now at the end of Q2, what have the available data told us about labour market developments in this quarter? Fortunately, the news is somewhat less bad. For example, the Live Register details that are available up to May show that the average monthly increase in those signing on for unemployment assistance (assuming a similar outturn for June to that of May and April) will be of the order of 15,000 people, relative to over 26,000 in Q1.
Furthermore, the increase in the unemployment rate in the three months to May (+1.4pp) was also lower than in the quarter to February 2009 (+2.3pp). Of course, this does not mean that we are close to the bottom for the labour market. To the contrary, our forecasts see the unemployment rate hitting 17.5% by the end of next year and lessons from historical experience suggest that the labour market remains weak for a long time after the bottom in the economy has been reached (see our recent Economic Commentary). We may have seen the worst of the decline though, and next week’s Q1 GDP data will reveal whether the same applies to overall output trends in the economy. One thing is clear from Irish labour market developments: with the amount of slack still building, there will be little or no wage inflationary pressures coming through, allowing the economy to continue to experience real competitiveness gains. No one said it was going to be easy though."
Goodbody analyst Eamonn Hughes comments: Irish Life & Permanent - - "S&P yesterday downgraded IL&P's long term counterparty credit rating to BBB+ from A- and its short-term rating to A-2 from A-1. In addition, it has downgraded Irish Life Assurance (ILA) from A- to BBB+. The outlook on all the ratings is stable, given the expectation of ongoing government support beyond September 2010. All the Government guaranteed debt (maturing up to the 30/9/10) continues to carry short-term rating of A-1+. The BBB+ rating is two notches above the bottom of the investment grade base of BBB-.
The downgrade on IL&P is due too: its high reliance on wholesale funding, which is putting margins under pressure; weakening asset quality; and S&P's "broader view that the group's banking operations in their current format appear to have limited strategic options". It notes that the change to a new holding company may give management more strategic options to maximise shareholder value, but it considers it neutral as a ratings factor. It considers IL&P's financial profile to be "relatively poor", while its earnings outlook is deteriorating. We are forecasting a PBT loss for IL&P this year of €106.5m, followed by a €25.2m loss in 2010, with a return to profitability in 2011.
ILA, the ownership of which S&P counts as a rating strength to IL&P, is seen to be strong in relation to its competitive position, distribution base, low risk balance sheet and "very strong" risk based capital adequacy. However, it also notes, the reliance on Ireland for business, relatively volatile operating performance and ongoing capital demands from IL&P (which we have factored into the multiple we apply to the Life company NAV).
The ratings could be lowered if credit losses significantly exceed S&P's expectations (it expects house prices in Ireland to fall 13% in 2009, and a further 10% in 2010, with a 7% fall in UK this year with stable prices after), ILA's financial strength deteriorates, if "broader developments in the Irish banking system leads to a weakening in IL&P's business and financial profile", or if its expectation of Government support changes.
This is unhelpful for IL&P, given its large reliance on the markets for funding. However, this is mitigated by the Government guarantee (the legislation for which is currently going through the approval process) and its large pool of eligible collateral, which can be used to repo with the ECB. However, over the medium to longer term, its high loan to deposit ratio is the key challenge facing the bank."
