Gold is trading at $912.80 up $3.70 from Wednesday's spot price close in New York.

Goodbody economist Deirdre Ryan comments: Latest survey evidence on Irish pay trends - - "The need for Ireland to restore competitiveness if it’s to benefit from any recovery occurring elsewhere is well known. In the regard we have been monitoring closely the available survey evidence documenting the developments in relation to pay and wage costs. The latest survey from IBEC, the Irish Employers group is intrusive on this front. The survey, for Q2, covered 468 member companies and some 57,000 employees (x% of total employment for Q1).

It has widespread coverage across sectors with 38% of respondents from the manufacturing sector, 34% from the services sector and 25% from the retail and distribution sector, and so can be seen as a good barometer of overall trends. Similar to the previous evidence from ISME, it finds firms are continuing to adjust headcount and pay levels in the current environment. According to the survey, in the 6 months to May, pay cuts for employees at management level amounted to 4%, for ‘other salaried staff’’ decreases in pay of 1.6% were found, while for production workers pay cuts of 1% were found to have occurred.

While this latest evidence from IBEC indicates pay cuts that are not as severe as those highlighted in the ISME survey, the latter encompasses the small and medium enterprise sector only, where the environment has been particularly difficult. The most recent ISME survey indicated pay cuts had occurred in 50% of firms, with an average pay cut of 13%. Nevertheless, the IBEC survey points to widespread pay freezes already in place and this is set to remain the case, with two thirds of firms intending to apply pay freezes over the next three months. Retraining of staff is also set to be a key theme for employers, with 40% of respondents expecting to retrain existing staff. Further redundancies are also indicated in the survey. Reducing the permanent headcount is expected in 30% of companies over the next quarter, while it is under consideration in a further 27% of firms according to the survey. While the picture painted by this latest data is not a pleasant one, it does nevertheless, highlight that firms are taking the necessary steps to adjust in the current very challenging business environment."

Goodbody analyst Anna Lalor comments:

Irish insolvencies rise 130% yoy in H109 - - "Figures released by insolvencyjournal.ie yesterday show that corporate insolvencies in Ireland rose 129% yoy in the first six months of the year to 702. On a 12 month rolling basis, insolvencies are up 133% yoy, with the largest rise in receiverships, up 307% to 110 cases (of 1169 insolvency cases in the year to end-June). Receivership is frequently used by banks in order to take possession of assets used to back loans. Creditor voluntary liquidations remain the largest category of insolvency and rose 126% yoy in the year to June to 875. There has been some moderation in the pace of growth in insolvencies from the peak rate of 138% recorded in March and April.

This is more evident on a three month rolling basis, where insolvencies in Q2 were down 10% qoq, with a 48% drop in receiverships, a 29% fall in court liquidations, a 3% decline in creditor voluntary liquidations and a 58% rise in examinerships. Commentary on insolvencyjournal.ie suggests that the decline in receivership cases could be due to “strategising” by the banks, ahead of NAMA. While it is possible that banks and other creditors may be taking a “wait and see” approach in relation to NAMA, it is likely that much of the decline qoq is due to the peak level (to date) of insolvencies in February and March, which were probably related to the large economic deterioration in Q1 (with that quarters’ performance expected to be the worst in this recession for Ireland).

Financial advisory firm, FGS, also released H109 insolvency figures (showing a slightly higher 135% yoy increase), which give a yoy comparison by industry sector. While the property and construction sector continues to account for the largest share of company failures (35% of H109 insolvencies), it accounted for a reducing share of the increase at 29% (compared to 50% in H108), with furnishing and interiors companies, hotels and restaurants and retail companies accounting for 16%, 16% and 6% of the increase yoy, respectively. Combined, these three sectors accounted for 33% of H109 insolvencies, compared to 26% in H108. This shows, as is already widely accepted, that the credit crunch and related recession are putting increasing strain on non-property related companies, which is reflected in our expectation that the credit charge for such companies in Ireland will almost triple on 2008’s level this year (to close to 3% of loans) and remain elevated over the following two years, with the property and construction charge (pre-NAMA) expected to ease from next year onwards."

UK proposals on reforming financial markets highlight increased regulatory burden - - "HM Treasury yesterday issued a report, Reforming financial markets, in which it outlines the measures it sees as necessary to strengthen regulation of banks in the UK. Many of the proposals have been highlighted frequently already - higher capital requirements, higher quality capital, pro-cyclical capital buffers, a “backstop” leverage ratio, greater international coordination of bank regulation and new standards for bank liquidity - and will be determined by international regulatory bodies in the coming months and years. However, there are a number of other UK-specific measures outlined, some of which have been flagged in the UK press in recent days. These enhanced regulations will lead to a much higher regulatory cost for banks.

The UK Government has lent to the Financial Services Compensation Scheme (FSCS) as a result of the financial crisis as it could not meet the demands placed on it since 2007. The Treasury intends that in the future the FSCS will be pre-funded, although it does not intend to introduce the new levy until 2012 and after that it will be done on a phased basis. It remains to be seen whether the consumer or the banks will bear the ultimate cost of this change. AIB UK already pays into the FSCS and although BOI’s UK deposit business was covered by the Irish deposit guarantee until recently, it has signed up to the FSCS over the past few weeks as the UK media had been highlighting its non-membership on a regular basis. In relation to systemic risk, each bank will have to draw up plans for its orderly wind-up should it fail, while capital requirements will be linked to the size and complexity of a firm, which is likely to mean higher capital requirements for banks that have higher systemic risk and would cost more to the taxpayer to bail out were they to fail (which may create a regulatory arbitrage encouraging larger banks to break up)."

CEBS suggestions on liquidity buffers to banks - - "The Committee of European Banking Supervisors (CEBS) has released draft guidelines on liquidity buffers for European banks, which are open for consultation. It indicates that these are primarily for banks’ internal risk management purposes, but notes that they could also be a reference for supervisory review purposes. The UK has already proposed new liquidity requirements for its banks and the Bank of International Settlements (BIS) is also drawing up proposals on amending rules surrounding liquidity requirements for banks. The CEBS guidelines set out what it believes to be the appropriate size and make of liquidity buffers in order to make banks better able to withstand liquidity shocks. These buffers should mean banks are able to withstand liquidity stress for at least one month without changing their business models.

It is recommended that the buffers are built with reference to stressed scenarios for idiosyncratic and market specific stresses as well as for a combination of the two, with a time horizon of at least one month and more accurate measurement over a one week time period. The banks should be able to generate the required liquidity over these time horizons through its eligible assets, comprising cash and assets that are “both highly liquid in private markets and central bank eligible”. The pressure that higher liquidity requirements can have on bank margins, through holding more lower yielding liquid assets such as government bonds has been a factor in our expectation of lower bank ROEs for some time to come. However, the CEBS guidelines are similar in many ways to the liquidity requirements brought in by the Irish Regulator in July 2007, so the Irish banks should be more prepared for any changes in the pipeline than most, although the recent crisis may see tighter definitions of eligible assets, hair-cuts and the extent of stress tests required."