The Irish Independent reports that nationalised Anglo Irish Bank, which has already received €4bn from government funds has now told the Department of Finance that it needs an additional €5.7bn if it is to remain viable and resume lending, it emerged yesterday.
But the bank is far from certain to secure additional funds in light of the stand being taken by the European Commission, and it is Europe which could ultimately decide the fate of the bank.
Finance Minister Brian Lenihan said on November 13 that a second capital injection into Anglo Irish won't exceed the €4bn the Government put in earlier this year.
The Sunday Tribune reported yesterday that the bank said it needed the money to restore capital levels to international norms and to have a sufficient capital buffer against losses which can come from lending to the SME business sector.
A spokesman for the Department of Finance said last night he could not comment on the report. A debate is now taking place between the bank and department officials over the cost of re-capitalising the bank, compared to a wind-down of the lender.
The wind-down option is believed to have found considerable support within the department.
However, the cost is likely to run to well beyond the €5.7bn the bank is seeking.
Out of its €67.3bn loan book, €29bn was in difficulty or in danger of deterioration, according to its half-year report.
Headache
And it is also thought likely that much of the €64bn in deposits held by the bank would disappear in the event of a wind-down being announced, leaving the State with an even bigger financial headache.
The half-year figures paint a disturbing picture, with figures showing the bank's deposit base down by a third, or €17bn, as business customers went elsewhere. Also inter-bank deposits have halved to less than €10bn.
But despite the dire costs involved, the European Commission may order a wind-down as it has strict rules on state aid to firms and banks.
The Irish Independent also reports that almost two-thirds (64pc) of Irish businesses have switched their phone, internet or electricity supplier, with 62pc of those that switched achieving savings of over 10pc, according to a survey by mobile network operator 3.
The results highlighted how "a switching culture" has developed amongst the Irish business community during the economic slump, with significant savings for companies as a result.
The survey found that a growing number of firms are looking at making cost savings.
While increasing sales is still the key challenge for 52pc of businesses surveyed, 35pc of respondents felt achieving further cost reductions would be the number one challenge in 2010.
On the negative side, some 17pc of respondents also felt it would be difficult to maintain current employment levels over the next three to six months.
The Irish Times reports that Taoiseach Brian Cowen has challenged the Opposition parties to spell out in tomorrow’s pre-budget Dáil debate how they intend to achieve savings of €4 billion next year, but they have accused him of trying to engineer “a sham debate.”
Over the weekend, Mr Cowen emphasised the need for spending cuts but Labour Party leader Eamon Gilmore said extra taxes, including a new third rate of tax for those earning over €100,000, should play a significant part in achieving the necessary adjustments.
Fine Gael deputy leader and finance spokesman Richard Bruton said his party had consistently put forward constructive proposals but had been ignored. “Brian Cowen is trying to reduce this to a sham debate about cuts. It is really about whether the Government has the vision to transform the country,” he said.
In another development yesterday, Minister for Health Mary Harney said she was looking at the introduction of prescription charges for medical card holders.
“It is on the table. It could be something like 50 cent per item prescribed. We have to do two things: we have to raise money and we have to discourage overprescribing and the overuse of medication,” she said on The Week in Politics programme on RTÉ television last night.
All of the Dáil parties will have an opportunity to spell out their approaches in what is expected to be a bruising debate tomorrow.
At the weekend, Mr Cowen said he would be asking Fine Gael and Labour to say what corrective action they proposed.
“We will challenge the Opposition parties to produce coherent proposals on how the necessary savings in the magnitude of €4 billion can be achieved. The country deserves to see the alternatives rather than just hear the constant rhetoric of condemnation,” he told the Ógra Fianna Fáil conference in Bundoran.
“It is becoming increasingly clear that Deputy Kenny and Deputy Gilmore are strong on rhetoric but short on specifics. It’s time for them to park the soundbites and to be honest with the people as to what exactly is their budgetary policy.”
Mr Cowen said there was now an opportunity to take action to stabilise the budget deficit, as prices were falling at the fastest rate in 75 years.
Mr Gilmore told a Labour pre-budget seminar that while he accepted the need to achieve adjustments of €4 billion he did not accept that spending cuts alone were the appropriate way. He said the target could be reached through a combination of agreed public service reform, a reduction in the capital budget through lower tendering prices, more revenue from taxation through the elimination of tax relief for landlords and a new third rate of tax on incomes over €100,000.
“It is necessary, given the crisis we face, that those who have most must contribute most. And, however weak they may be, at a minimum, the proposals in the Commission on Taxation on tax exiles should be introduced in this budget,” he said.
“Fianna Fáil take the opposite approach. They talk the language of fairness, but they insist on pursuing cuts in social welfare, without seeking any contribution from the better-off in society," said Mr Gilmore.
Mr Bruton said last night that Fine Gael believed the adjustments should be made by roughly €3 billion in cuts and €1 billion in tax increases.
He dismissed the Taoiseach’s remarks, saying that Mr Cowen as minister for finance had failed abysmally to reform the public service and was in no position to lecture the Opposition about its responsibilities.
“The issue is not whether the Opposition has the courage to spell out its policies. Fine Gael said clearly a year ago that public service pay could not be increased and that increments should not be paid but the Government ignored us . . .”
Sinn Féin says the budget should introduce a “wealth tax” to raise €1.6 billion, increase betting duty to 10 per cent and treble the annual tax on second homes. In a pre-budget submission, The Road to Recovery, the party set out proposals it said would raise and save €7.623 billion mainly through tax increases “for those who can afford to pay”.
The Irish Times also reports that Retail Ireland, a group affiliated to employers’ lobby organisation Ibec, has called on local authorities to cut commercial rates when they come to vote on the topic this month.
The retailers’ body has written to the chairperson of every local authority as well as all city and county managers to ask for a reduction of 20 per cent.
The group has also written to the Taoiseach and Opposition leaders to request that their councillors support the calls, which come as retailers look set for their worst Christmas in several years.
Retail Ireland director Torlach Denihan said 30,000 retail jobs had been lost over the past 12 months and the sector was “struggling to avoid further redundancies” over the coming months.
“Over the last decade, local authorities have been able to fund many projects through development levies and commercial rates paid by the retail sector,” he said.
“They now need to act responsibly and help the sector retain employment in view of the threat posed by the collapse in sales, aggravated by cross-Border shopping.”
Some retailers are already facing increases in rates of up to 50 per cent as a result of revaluation exercises in South Dublin and Fingal, Mr Denihan added.
The latest data for the retail sector from the Central Statistics Office show that the volume of retail sales fell 10 per cent in the year to September, but the value of sales – the price paid for the goods – plunged almost 15 per cent, indicating the extent to which retailers have been cutting prices.
The Irish Examiner reports that Boots, the British healthcare and beauty retail giant, is aiming to nearly double the number of stores it operates in Ireland over the next three years and is looking to boost its pharmacy operations via acquisition.
The company currently has 55 stores in the Republic and later this week it opens its latest – and second-largest – on Cork’s Half Moon Street in a development described by Boots Ireland director Rhys Iley as the best-looking Boots store anywhere.
The new store officially opens on Thursday and in terms of the Irish portfolio is smaller only than the Boots outlet in Liffey Valley.
It also takes Boots’ tally of Cork stores to five. The other two city centre outlets – in Patrick Street and Merchant’s Quay Shopping Centre – will remain trading and no jobs will be lost.
Indeed, 100 jobs are being created immediately through the new opening.
"We see Ireland as being a growth opportunity for us, even though the current trading environment is tough. We’re bringing on 150 jobs here this year and job security is one of the biggest things we can offer right now, as behind construction, the retail industry has been the hardest hit in terms of job losses," commented Mr Iley.
Although Boots Ireland is anticipating a single-figure percentage decline in revenue this year and a "very challenging" Christmas trading period, Mr Iley added that Boots’ investment in Ireland is a long-term strategy.
In the last three years, Boots’ Irish store portfolio has grown in number from 36 to 55.
Mr Iley said that while the recession had put back the company’s growth schedule here by about a year and a half, it is still committed to growing to over 100 stores within the next three years. That growth will cover increasing Boots presence in major conurbations including Dublin, Galway and Limerick and re-focusing on pharmacy services.
This will see it grow over the next two years through the acquisition of existing pharmacy operators, rather than via new builds.
Mr Iley said that although no acquisition targets had yet been identified, the company is always on the look-out for opportunities.
The Financial Times reports that Spain’s central bank wants a third of the country’s 45 savings banks to be quickly absorbed by stronger institutions as part of a radical reform of the financial sector.
In an interview with the Financial Times, Miguel Fernández Ordóñez, governor of the Bank of Spain, outlined plans for a series of mergers within months among the cajas de ahorros, regional savings and loans institutions.
“I think there are at least 15 institutions that should merge with others,”he said.“I hope [by] next spring we have restructured all these institutions, that’s my idea. We now have many, many mergers that we are discussing.”
Spain’s listed commercial banks, some of which were involved in previous domestic banking crises, have so far survived the global financial crisis in better shape than many of their international rivals.
But the unlisted cajas – many of them politicised, linked to regional governments and with an opaque ownership structure – seized market share from the banks at the peak of the recent housing boom and now account for about half of outstanding loans in Spain. Several are heavily exposed to bankrupt property developers and homeowners unable to meet mortgage payments.
In March the authorities took control of the struggling Caja Castilla La Mancha (CCM) and injected emergency liquidity. They subsequently adopted a new law and set up a €9bn ($13.5bn, £8bn) financial sector restructuring fund, which can leverage itself tenfold to deploy up to €99bn, to deal with other weak cajas.
Mr Fernández Ordóñez’s comments are the first official estimate of how many cajas need to go in order to start restoring the sector to financial health, although the number targeted could rise as high as 20 or fall to about 12, depending on the depth and duration of Spain’s economic difficulties.
Sporadic merger negotiations between cajas have been under way for months – involving various lenders in the Catalonia region, for example – but commercial bankers have expressed concern at the slow pace of progress.
Mr Fernández Ordóñez wants to use Spain’s new “Frob” law, which established a Fund for Orderly Bank Restructuring with up to $99bn at its disposal, to achieve his aim of cajas mergers.
Two of the expected mergers – of the rescued CCM with Cajastur, and of Unicaja with Cajasur – are likely to be supported by the more than €4bn accumulated in the cajas’ deposit guarantee fund, but that money will soon be exhausted.
From now on the central bank wants the stronger cajas to finance takeovers out of their own resources, as is expected to happen in tie-ups between various cajas from Navarra, Rioja, Aragón and the Canary Islands, or to borrow money from the Frob that will eventually be repaid.
Mr Fernández Ordóñez said the aim was to avoid using taxpayers’ money as far as possible and agreed that further rationalisation and cost-cutting in the form of branch closures was essential.
In his interview, the governor, who has been attacked by José Luis Rodríguez Zapatero, prime minister, and other cabinet members for his views on the economy, also defended his right as head of the central bank to criticise government policies.
He insisted on the need for labour reforms and budgetary austerity in Spain, where public deficits are expected to exceed 10 per cent of GDP in the coming years. “This two-digit deficit is very important,” he said. “We cannot allow that.”
Video: Miguel Fernández Ordóñez
The FT also reports that the US Federal Reserve is fuelling “speculative investments” and endangering global recovery through loose monetary policy, a senior Chinese official warned on Sunday just hours before President Barack Obama arrived in China for his first visit.
Liu Mingkang, China’s chief banking regulator, said that the combination of a weak dollar and low interest rates had encouraged a “huge carry trade” that was having a “massive impact on global asset prices”.
The comments came as China and the US sparred at the Asia Pacific Economic Co-operation summit in Singapore over exchange rate policies amid rising international criticism that China’s currency is undervalued.
Mr Liu’s unusually blunt remarks underscore how China – the largest US creditor because of its massive holdings of Treasury bonds – has become a trenchant critic of monetary and fiscal policy in the US.
Since the start of the financial crisis, Chinese officials have issued a number of warnings that the US should not inflate away its mounting debt burden. Before these latest comments, however, Beijing had generally been most critical of US fiscal policy, urging Washington to spend less.
But speaking at a conference in Beijing, Mr Liu said the Fed’s policy of maintaining low interest rates together with the weak dollar posed a threat to the global economic recovery.
“[It] is boosting speculative investment in stock and property markets and will pose new, real and insurmountable risks to the global recovery and particularly to the recovery in emerging markets,”said Mr Liu, who is chairman of the China Banking Regulatory Commission.
“The situation has already encouraged a huge dollar carry trade and had a massive impact on global asset prices,”he added.
However, Mr Liu’s criticism of the Fed comes as China’s own monetary policy is attracting growing scrutiny at home and abroad. Critics say the massive expansion in bank loans this year could cause asset price bubbles and inflation.
Qin Xiao, chairman of China Merchants Bank, last month said China “urgently” needed to tighten monetary policy to avoid stock and property market bubbles.
On Monday, Dominique Strauss-Kahn, the head of the International Monetary Fund, said a stronger Chinese renminbi was part of the reforms that Beijing needed to implement in order to increase domestic consumption and help ease global imbalances.
In remarks prepared for a financial conference in Beijing, Mr Strauss-Kahn also said he expected the dollar to remain the principal reserve currency ”for some time”, Reuters reported.
At the Apec meeting in Singapore, the final communiqué from the 21 members was delayed as Hu Jintao, the Chinese president, called successfully for the removal of a reference to the desirability of “market oriented exchange rates that reflect underlying economic fundamentals”.
In a surprise move, the reference had been included in a statement by Apec finance ministers on Thursday, in spite of China’s unwillingness to discuss the issue. Mr Hu ignored the issue in both his speeches and earlier contributions to the Apec debates.
Officials confirmed that it had also been included in the final leaders’ statement, but was removed after a discussion between the US and Chinese leaders.
Lee Hsien Loong, the prime minister of Singapore and Apec summit chairman, did not confirm China’s role in changing the wording of the statement.
But he said some countries were concerned of the possibility of some currencies becoming unstable, and the problem that could arise if governments “had to intervene continually in order to manage their currencies.”
The New York Times reports that even as drug makers promise to support Washington’s health care overhaul by shaving $8 billion a year off the nation’s drug costs after the legislation takes effect, the industry has been raising its prices at the fastest rate in years.
In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation’s drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.
The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.
Drug makers say they have valid business reasons for the price increases. Critics say the industry is trying to establish a higher price base before Congress passes legislation that tries to curb drug spending in coming years.
“When we have major legislation anticipated, we see a run-up in price increases,” says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He has analyzed drug pricing for AARP, the advocacy group for seniors that supports the House health care legislation that the drug industry opposes.
A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.
“They try to maximize their profits,” Mr. Newhouse said.
But drug companies say they are having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs are set to expire over the next few years.
“Price adjustments for our products have no connection to health care reform,” said Ron Rogers, a spokesman for Merck, which raised its prices about 8.9 percent in the last year, according to a stock analyst’s report.
This year’s increases mean the average annual cost for a brand-name prescription drug that is taken daily would be more than $2,000 — $200 higher than last year, Professor Schondelmeyer said.
And this means that the cost of many popular drugs has risen even faster. Merck, for example, now sells daily 10-milligram pills of Singulair, the blockbuster asthma drug, at a wholesale price of $1,330 a year — $147 more than last year. Singulair is now selling at retail, on drugstore.com, for nearly $1,478 a year.
The drug companies “can charge what they want — it’s not fair,” Eric White, the 42-year-old owner of a small jewelry store in Queens, said as he left a pharmacy recently.
Despite having drug insurance, Mr. White says he now pays $110 a month out of pocket for two brand-name allergy medicines, even as he has cut prices in his jewelry store by at least 40 percent to keep customers coming through the door.
He shook his head. “What can I do?” he said. “I need my medicines.”
The drug industry has actively opposed some of the cost-cutting provisions in the House legislation, which passed Nov. 7 and aims to cut drug spending by about $14 billion a year over a decade.
But the drug makers have been proudly citing the agreement they reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation’s drug bill by giving rebates to older Americans and the government. That provision is likely to be part of the legislation that will reach the Senate floor in coming weeks.
But this year’s price increases would effectively cancel out the savings from at least the first year of the Senate Finance agreement. And some critics say the surge in drug prices could change the dynamics of the entire 10-year deal.
“It makes it much easier for the drug companies to pony up the $80 billion because they’ll be making more money,” said Steven D. Findlay, senior health care analyst with the advocacy group Consumers Union.
Name-brand prices have risen even as prices of widely used generic drugs have fallen by about 9 percent in the last year, Professor Schondelmeyer said. But name brands account for 78 percent of total prescription drug spending in this country. And as long as a name-brand drug still has patent protection it faces no price competition from generics.
Ken Johnson, senior vice president of the industry association — the Pharmaceutical Research and Manufacturers of America — criticized the analysis Professor Schondelmeyer had conducted for AARP, saying it was politically motivated.
“In AARP’s skewed view of the world, medicines are always looked at as a cost and never seen as a savings — even though medicines often reduce unnecessary hospitalization, help avoid costly medical procedures and increase productivity through better prevention and management of chronic diseases,” he said.
But Professor Schondelmeyer’s analysis — which found prices for the name-brand drugs most widely used by the Medicare population rising by 9.3 percent in the last year, the fastest rate since 1992 — is in line with the findings of a leading Wall Street analyst, too.
Catherine J. Arnold, a drug industry analyst at Credit Suisse, said her latest study of the nation’s eight biggest pharmaceutical companies showed markedly similar results: list prices rising an average of 8.7 percent in the 12 months ending Sept. 30 — the highest rate of growth since at least 2004.
As does Professor Schondelmeyer, Ms. Arnold based her price calculations on reported wholesale prices and a formula that puts more emphasis on each company’s best-selling drugs.
Ms. Arnold said the prospect of cost containment under health care reform, as well as the tougher business environment, entered into the decisions of manufacturers to raise prices this year.
The industry stands to gain about 30 million customers with drug insurance from the legislation pending in Congress. But the industry also faces the prospect of tougher negotiations from both public and private buyers as the government tries to squeeze savings out of the health system.
“If you’re going to take price increases,” Ms. Arnold said, “here and now might be the place to do that, because the next year and the year after that might be tough.”
Mr. Johnson did not dispute the Credit Suisse study or deny Ms. Arnold’s finding that American drug makers have raised prices at the fastest rate in five years.
He said both studies were incomplete by failing to include rebates that drug makers give distributors. But Ms. Arnold, Professor Schondelmeyer and a 2007 Congressional study of Medicare said the rebates often accrue to the middlemen, not consumers, and higher manufacturer prices lead to higher retail prices.
And the drug industry’s own major consulting firm, IMS Health, has also reported a significant run-up in prices. Back in April, IMS predicted that United States drug sales might actually decline this year.
Billy Tauzin, president of the industry’s trade association, highlighted the gloomy prediction in a June 1 letter to President Obama shortly before striking the deal to cut drug costs by $80 billion. In negotiating the deal, the drug makers argued that they could not afford to give up more than that.
But in October, IMS made an unusual change in the middle of its forecasting cycle, saying it now believed United States sales would grow at least 4.5 percent in 2009 — or $21 billion more than expected six months earlier.
A major reason, IMS said, was higher-than-expected price increases for drugs in the United States.
The NYT also reports that for patients taking a statin to control high cholesterol, adding an old standby drug, niacin, was superior in reducing buildup in the carotid artery to adding Zetia, a newer drug that reduces bad cholesterol, according to a new study.
The results of the study, published in The New England Journal of Medicine, were presented here Sunday night at an annual meeting of the American Heart Association.
The study has been a polarizing topic here and has also attracted the attention of a powerful senator who has been investigating the conduct of two drug makers, Merck and Schering-Plough, in relation to their sales and marketing of Zetia and a combination cholesterol drug, Vytorin, which includes Zetia. The drug makers merged this month.
The small study, with only 208 patients, has attracted outsize attention because the researchers did a head-to-head comparison of niacin and Zetia, which has been heavily marketed.
The Food and Drug Administration approved Zetia in 2002 to lower bad cholesterol, a risk factor for heart disease. But the drug has not yet proved to have a longer-term clinical benefit in reducing heart attacks and deaths. Merck, the maker of the drug, is conducting a clinical trial on that issue involving up to 18,000 patients. Statins like Lipitor have proved in studies to significantly lower the risk of heart attack.
Some cardiologists here hailed the study as an indication that the popularity of Zetia and Vytorin, which had combined sales last year of about $4.6 billion, has far outstripped their evidence of a concrete benefit on heart health. Other doctors here dismissed the study because it did not directly measure the drugs’ effects on reducing heart attacks.
Nevertheless, this study has the potential to make big waves in the use of cholesterol drugs.
“It will certainly strengthen the idea that, after you give a statin, the weight of the evidence is that, as a second agent, you should give niacin,” said Dr. Roger S. Blumenthal, a professor of medicine at the Johns Hopkins University Medical School. “That is the implication of the study.”
But Dr. Peter S. Kim, the president of Merck Research Laboratories, said Sunday in an interview that the study was limited because it did not compare the groups of patients taking a statin and a second drug to a placebo group. Furthermore, he said, a drug’s ability to improve artery-wall thickness has not been proved to automatically correlate with a reduction in heart attacks.
Zetia, he said, lowers bad cholesterol and lowering bad cholesterol is a known good.
The study results “should be compared to the overwhelming body of evidence that lowering LDL cholesterol is an important thing to do to improve cardiovascular health,” Dr. Kim said.
The study randomly assigned patients who were taking a statin and who had heart disease or a risk of heart disease to additionally take either Zetia or Niaspan.
Statins are a class of drug which lowers LDL, known as bad cholesterol because it can cause arterial thickening and lead to heart problems. The drugs work by inhibiting the production of cholesterol in the liver.
Zetia, which inhibits the absorption of cholesterol in the intestines, lowers bad cholesterol.
Niaspan is a prescription extended-release form of niacin, not the over-the-counter vitamin. Niacin increases HDL, known as “good cholesterol.” Niaspan is made by Abbott Laboratories, which financed the study.
Over the course of the 14-month study, the bad cholesterol of the patients on Zetia decreased by 19.2 percent, but the patients’ arterial wall thickness stayed the same, the study said. In the niacin group, good cholesterol increased by 18.4 percent and the carotid wall thickness decreased.
By itself, the study does not have major significance, said Dr. James H. Stein, a professor at the University of Wisconsin medical school. But taken in the context of more than 30 years of research on and use of niacin, he said, the study adds to the weight of evidence that it can a great benefit to patients with heart disease, he said. “Compare that to Zetia where there is not a shred of evidence that it does anything good for blood vessels or heart disease,” Dr. Stein said.
On Friday, Senator Charles E. Grassley, Republican of Iowa, wrote to the Department of Health and Human Services, asking its director, Kathleen Sebelius, what action she intended to take in light of the study results. Mr. Grassley sits on the Senate Finance Committee which has jurisdiction over Medicare and its drug spending. In 2006 and 2007, the drug makers made more than $300 million through Medicare Part D in sales of Vytorin, a drug that combines Zetia and a statin, Mr. Grassley wrote.
In response to a query from a reporter, a Merck spokesman said the small trial did not change the company’s belief in the demonstrated ability of Zetia and Vytorin to reduce bad cholesterol.
