The Irish Independent reports that the creation of the Government's National Asset Management Agency (Nama) won't have any immediate benefit for consumers borrowing money next year, the outgoing boss of Allied Irish Banks warned TDs and senators yesterday.
Eugene Sheehy, who steps down as chief executive of AIB next week, made the comment as he and his Bank of Ireland counterpart, Richie Boucher, were being grilled at a joint committee hearing at Leinster House about the institutions' lending practices to beleaguered consumers and small businesses.
Mr Sheehy, flanked by AIB's new executive chairman Dan O'Connor, and the managing director of the bank's Irish retail arm, Robbie Henneberry, told the Oireachtas Joint Committee on Finance and the Public Service that while Nama was "hugely positive" for providing some stabilisation, it was "not a panacea" to the problems facing the banks and the economy.
"If people think that the day after Nama, that the country is going to be awash with money, that's not going to happen," Mr Sheehy told stunned politicians. "There will be a trickle-down effect," he added.
President Mary McAleese signed the Nama legislation into law last weekend.
It's predicted that the agency will eventually take control of assets with a current book value of €77bn at a discounted price of about €54bn. AIB, Bank of Ireland, Anglo Irish Bank, EBS and Irish Nationwide will all dump loans into the new institution.
In return, the financial institutions will receive government bonds that will help shore up their balance sheets. Mr Sheehy said that the creation of Nama should eventually help the institutions to offer cheaper lending.
"We want credit to be as cheap as possible," he said.
Fine Gael's deputy leader and finance spokesman Richard Bruton later claimed that Fianna Fail had been "screwed over" by AIB because the bank doesn't plan to use the bonds to tap additional funding from the European Central Bank.
The AIB and Bank of Ireland chiefs told committee members that they have been actively lending to small businesses.
The Irish Independent also reports that more than two million adults are planning to cut back on their Christmas spending as hits to income and job losses are set to take the sheen off the festive season.
And thousands of families will be forced to dip into their savings to pay for Christmas, the new research reveals.
The findings show that most adults plan to slash their seasonal spending.
However, 1.2 million will spend the same amount as last year, new research conducted by Behaviour & Attitude for EBS Building Society shows.
Just 300,000 adults are planning to spend more on Christmas than last year.
Cash-strapped consumers between the ages of 35 and 49 years are the most likely to cut back on their festive outlay.
The research also reveals that half of savers are being forced to dip into their nest eggs to compensate for lost income.
Women under the age of 40 are the most likely to be raiding their savings to fund their day-to-day spending, the EBS survey shows.
A survey produced by consultancy firm Deloitte last week estimated that the average spend per household is expected to be €1,110 this Christmas, down €244 from last year.
Out will go spending on computer games, with less to be spent on gifts, Deloitte said.
Work colleagues should not expect any seasonal cheer, as most people plan on cutting back on socialising, research from Deloitte shows. EBS said its research shows four out of five people have radically altered their spending habits because of the downturn.
Nervous consumers, who are set to be heavily out of pocket from next month's Budget, continue to hoard cash.
The average amount being saved each month is €368, or €4,415 annually. This represents a slight increase since August, and is likely to be because of the need to put money aside to cover the cost of Christmas.
EBS head of marketing Aidan Power said: "We are seeing savings, access to savings and the importance of savings in maintaining people's lifestyles continuing to impact hugely on people's lives.
"We would encourage everyone to review their current and planned expenditure to ensure that they have made appropriate plans to give them the peace of mind that they require to manage their finances both now and in the medium to long term."
The Irish Times reports that Bank of Ireland does not expect to seek further cash injections from the State according to the five-year restructuring plan submitted to the EU, but expects the Government to remain a substantial shareholder after the reorganisation is completed.
Richie Boucher, the bank’s chief executive, told the Oireachtas finance committee that EU conditions on restructuring plans for lenders across Europe do not necessarily have a “read through” for how it might treat Bank of Ireland.
The bank would meet regulatory capital requirements, he said, and satisfy capital levels expected by the bank funding markets after incurring losses on €15.5 billion in loans moving to Nama.
“We believe we can manage but we will be looking to other sources to enhance our capital,”he said.
Expecting higher capital regulatory demands, the bank would look for additional sources of capital, said Mr Boucher.
He told reporters after the committee hearing that it was “highly unlikely we would be able to pull off a rights issue” to repay some of the State’s €3.5 billion investment.
Mr Boucher told the committee he could not say what the discounted price to be paid by the State for the Nama loans would be due to uncertainty in the process.
The bank’s shares closed up 2 per cent, or four cent, at €1.70.
Pat Molloy, governor of Bank of Ireland, said the bank would reduce its reliance on the State bank guarantee within the five-year restructuring plan and repay the Government’s investment.
The bank disclosed that it had drawn €7 billion in funding from the European Central Bank and was planning to run down loans of €37 billion to shrink its business.
Bank of Ireland admitted to the committee that cash flow for businesses remained a problem and that small and medium-sized enterprises (SMEs) faced tough trading.
Des Crowley, head of the bank’s retail division, said the lender was assisting borrowers in difficulty with moratoriums, interest-only periods on their loans and reductions in their repayments. He said the bank was renegotiating loans with 600 borrowers a month.
The bank said it was approving almost 4,800 of 6,000 loan applications from SMEs every month, and had advanced €2.1 billion over the first nine months of the year. “Our objective is to support viable businesses,” said Mr Crowley.
The bank said it was sanctioning more than 350 mortgages every week, lending more than €1.5 billion over the same period.
Fine Gael finance spokesman Richard Bruton said there was “intense cynicism” about the level of lending disclosed by the banks and the quantity of credit available. “You are presenting such a positive spin – it is just not credible,” Mr Bruton told the bank.
Mr Molloy acknowledged that there was a “mismatch” between the perception of available credit and the disclosures by the banks.
“We have a huge task to get across convincingly what we are doing,” he said. Mr Boucher said the bank had not been effective in communicating how it made money and why it needed to do so.
Mr Crowley said that the next 12 to 18 months would be “seminal” for the bank in rebuilding trust after the banking crisis. Responding to criticism from Independent Senator Shane Ross about the appointment of an internal management team, Mr Molloy, a former chief executive of the bank, said he thought the bank had “the right team in place”.
The bank said the “fierce competition” in the deposit market, which was squeezing net interest margins and profitability, would be alleviated by the €54 billion liquidity from Nama’s bonds.
Nama will have “a positive impact” on the bank’s ability to support the economy, said Mr Boucher, and the agency would have no effect on good loans over which it was taking control.
The Irish Times also reports that the Budget will prioritise research spending in areas that offer good commercial potential, the Tánaiste has indicated.
While she acknowledged that spending detailed in the programme for government would not be met, she did not want to see a “downward spiral” in State support for research.
Mary Coughlan was speaking yesterday at the Science Gallery at a meeting with staff from leading multinational firms in Ireland and representatives of all 10 Science Foundation Ireland Csets (Centres for science, engineering and technology) and the Tyndall National Institute. All conduct co-operative research with large research-based companies, many of them multinationals.
The meeting emphasised the value of research as a way to create wealth and jobs. More than 80 companies participate and have invested €70 million so far, stated the Foundation’s director general, Prof Frank Gannon. The meeting also saw the launch of the Cset Commercialisation Forum, set up to support the commercialisation of research discoveries.
The Irish Examiner reports that outgoing chief executive has poured cold water on the bank simply selling off overseas divisions in order to raise further funds for the group.
Addressing the Joint Oireachtas Committee on Finance and Public Service, Eugene Sheehy, who is due to stand down from his role as AIB chief at the end of this month, said that there was "no particular opportunity" to close down any one business and "pump money" back into the Irish operations.
AIB has said relatively recently that it intends to raise around €2 billion in fresh capital in the next year and a half, adding that this could be achieved through a number of options.
The bank has remained tight lipped over the potential of selling its 70% stake in Polish bank Bank Zachodni WBK and its 25% stake in US bank, M&T, although the latter sale has seemed more likely of late.
However, Mr Sheehy suggested it would be "the wrong thing to do" to withdraw from Poland, an operation which he said is providing liquidity for the overall group.
Meanwhile, AIB’s new temporary executive chairman, Dan O’Connor, confirmed that the bank would be sending out a circular to shareholders "imminently" with regard to its intended participation in the National Asset Management Agency (NAMA).
Both AIB and Bank of Ireland have a window of 60 days, from the formal establishment of NAMA, to hold shareholder votes on their individual participation in the new project.
On the subject of NAMA, Mr Sheehy told the committee that the new body "is expected to have a positive effect on the cost of funding to AIB over time".
"Already, there is evidence that international providers of funds to Ireland have taken a positive view of the NAMA proposal," he added.
He also said that the quality of AIB’s balance sheet would be "vastly improved" post-NAMA.
However, he hesitated before admitting that the bank "will consider" trading the expected €16bn-€17bn in bonds it will get from NAMA in exchange for its transferred loans for additional loans from the European Central Bank (ECB).
Currently, around 6% — or €10bn in monetary terms — of AIB’s balance sheet is made up of ECB loans.
Mr Sheehy said it would be the bank’s aim to keep the ECB loan level low.
The bank added that it does not foresee the need to receive further money from the Government after it transfers loans to NAMA.
The bank also said it has adequate lending capacity.
The Financial Times reports that Germany’s leading banks will have to wipe as much as €90bn off the value of securities and loans this year and next, the Bundesbank warned on Wednesday.
Hans-Helmut Kotz, a Bundesbank board member, called on German banks to use the “room to manoeuvre” created by public-policy responses and a return to economic growth to “put some fat on the ribs” of their capital bases. The 17 largest German banks made writedowns of just over €130bn in 2007 and 2008, according to the Bundesbank.
His exhortation came hours after WestLB, a lender owned by the state of North Rhine-Westphalia and local banks, agreed to a €3bn ($4.5bn, £2.7bn) capital injection from the government – a first for the troubled Landesbank sector.
Mr Kotz welcomed the agreement, which will see WestLB put €85bn in assets into a “bad bank”, as an “appropriate solution” to stabilise the bank and strengthen the sector as authorities prepare to end exceptional measures.
Mr Kotz declined to say how much new capital the large banks would need. But he said new capital would “not automatically” match looming writedowns, as banks could use profits and provisions to cushion their balance sheets.
“We are of the opinion that the situation is manageable,” Mr Kotz said, though he warned the German banking system still faced “major challenges”, especially if economic growth dipped.
The Bundesbank forecasts that writedowns of loans will hit €50bn-€75bn this year and next, much higher than the €40bn seen in 2007 and 2008.
But with the financial crisis waning, collateralised debt obligations and other securitised assets may not have to be adjusted much in value. Writedowns could fall to €10bn-€15bn from €90bn in the past two years, the central bank said.
The analysis suggests total writedowns by Germany’s biggest banks could hit €220bn between 2007 and 2010, a value approaching half of total adjustments, the International Monetary Fund recently forecast for the eurozone.
In September, the IMF said banks in the 16-nation bloc would have to write down $800bn (€530bn, £480bn) by the end of 2010 – with only 40 per cent of this value realised to date – and raise $310bn in new capital.
The findings will be scrutinised by the European Central Bank, which is pushing for a “timely” unwinding of its policies to cope with the crisis.
The FT also reports that Beijing is facing a growing backlash from prominent figures in business and academia over claims that there has been creeping renationalisation in parts of the economy during the last year.
China’s economy has recovered sharply in recent months as a result of an unprecedented expansion of government-directed bank lending, which has largely been channelled to state-owned enterprises.
However, critics say that the stimulus measures have also been accompanied by the state reasserting control over some sections of the economy, which could hurt the country’s long-term growth prospects.
“Before the global economic crisis we still felt like we were moving continuously towards a more market-oriented and liberalised economy, but the government’s stimulus programme has pushed that trend backwards,” Zhang Xin, chief executive of Soho China, one of the country’s 10 largest property developers, told the Financial Times in an interview.
“We are seeing this in real estate but it is much worse in other industries where private players are being crushed.”
The dominance of state-owned enterprises is being reasserted in a range of industries, including airlines, steel and coal-mining at the expense of private ownership – a phenomenon that has been called “guojin mintui”, translated as “the state advances as the private sector recedes”.
Most of the country’s privately owned airlines that were set up in recent years have been absorbed by loss-making state competitors in virtual hostile takeovers, while Rizhao Steel, a prominent private steel company, agreed to sell a majority stake to a state-owned rival under strong political pressure.
While Beijing has not advocated renationalisation as a goal, officials and businesspeople say the government’s policies have had that effect, particularly since the onset of the global crisis last year.
“The state monopoly on market entry for many sectors is caused by the insufficient reform of our political system,” according to Liu Jipeng, professor at China University of Political Science and Law who helped draft China’s state assets law.
Mr Liu said an important factor in the change of heart in Beijing on privatisation was the fear that China could see the rise of its own version of the Russian oligarch Mikhail Khodorkovsky, who was jailed in 2005 in what many observers saw as Kremlin retaliation for his growing involvement in politics.
The Chinese government has already taken some steps to try to defuse fears of a wave of nationalisations and has set up a group under Zhang Dejiang, vice-premier, to find ways to support small and medium-sized companies.
State media have reported the issue has been included among six main topics expected to be discussed in coming weeks by China’s Communist leaders during their annual closed-door Economic Work Meeting, which sets the economic agenda for the forthcoming year.
In another sign of the complicated relationship between the Chinese state and private industry, the Communist party school in eastern Jiangsu province said earlier this year that it was launching a course specifically aimed at the children of successful private entrepreneurs.
The planned curriculum mixed financial and economic courses with instruction on party history and other political education. The course was to have started last month, but officials at the school said that it had been delayed.
The New York Times reports that President Obama is pledging a provisional target for reductions in greenhouse gas emissions in the United States, the first time in more than a decade that an American administration has offered even a tentative promise to reduce production of climate-altering gases, the White House announced Wednesday.
At the international climate meetings in Copenhagen next month, Mr. Obama will tell the delegates that the United States intends to reduce its greenhouse gas emissions “in the range of” 17 percent below 2005 levels by 2020 and 83 percent by 2050, officials said.
The figures reflect targets specified by legislation that passed the House in June but is stalled in the Senate. Congress has never enacted legislation that includes firm emissions limits or ratified an international global warming agreement with binding targets.
Mr. Obama will travel to the United Nations talks to deliver the promise in hopes of spurring significant progress there. He will appear Dec. 9, near the beginning of the 12-day session, on his way to accept the Nobel Peace Prize in Oslo on Dec. 10, officials said.
By making the pledge in an international forum, Mr. Obama is laying a bet that Congress will complete action on a climate bill next year and will be prepared to ratify an international agreement based on the commitment.
But White House officials acknowledged that those outcomes were uncertain. They will depend in large measure on whether the Democratic sponsors of the legislation can win 60 votes for a measure that is at the moment unpopular and whether major developing nations, notably China and India, deliver credible emissions reduction pledges of their own.
Mr. Obama has met over the past two weeks with the leaders of China and India, the fastest-growing sources of greenhouse gases, to discuss climate change and the Copenhagen conference. American officials said that both countries told the president they would be prepared to announce steps to reduce the rate of growth of emissions if the United States put a pledge on the table.
Neither has done so yet, although Chinese officials have hinted that they will announce a near-term target for reducing energy use relative to economic growth, or “carbon intensity,” before the Copenhagen conference opens.
“Obviously, we hope other major economies will put forth ambitious action plans of their own,” Carol M. Browner, the president’s senior adviser for energy and climate change, said at a White House briefing on Wednesday morning.
Mr. Obama, who had not previously committed either to emissions targets or to going to Copenhagen, has been under considerable pressure from other world leaders and environmental advocates to reassert American leadership on climate change.
Andreas Carlgren, the Swedish environment minister, said that Mr. Obama had now raised expectations for the Copenhagen talks, but he expressed a note of disappointment about the timing of his visit. He said he hoped Mr. Obama would come in the final days of negotiations, when dozens of other heads of government were planning to arrive.
A White House official said a return trip was “highly unlikely.”
It was unclear what effect Mr. Obama’s promise of domestic emissions reductions would have on the slow progress of climate legislation through Congress. Until now, the administration’s negotiators have said they will not get ahead of Congress in making promises in an international forum, but Mr. Obama has now essentially adopted the targets of a climate and energy bill that passed the House in June.
The House bill aims at greenhouse gas reductions of 17 percent below 2005 levels by 2020 and sharper cuts in the following decades, through a cap-and-trade system that includes most of the nation’s major sources of carbon dioxide emissions. Last month, a Senate committee passed a measure calling for a 20 percent cut by 2020, but that is expected to be weakened as the legislation moves through other Senate committees and onto the floor, perhaps next spring.
“By putting a serious number for U.S. emission reductions on the table, the president has just called the world’s bet and then raised it for our negotiating partners,” said Representative Edward J. Markey, co-sponsor of the House legislation.
Senator John Kerry, Democrat of Massachusetts, co-sponsor of the Senate legislation, said he believed that the president’s actions would give a boost to the Copenhagen talks and help move the Senate bill. He called the decision to declare an American target a “game changer,” domestically and internationally.
“By announcing a provisional target, contingent on the support of Congress, the president has defined a path to an international agreement that challenges the developed and developing nations to fulfill their obligations,”he said. “It lays the groundwork for a broad political consensus at Copenhagen that will strip climate obstructionists here at home of their most persistent charge, that the United States shouldn’t act if other countries won’t join with us.”
But Senator James M. Inhofe, the Senate’s most outspoken skeptic on climate change, said that Mr. Obama’s public pledge would do little to speed an international agreement and foolishly prejudged the outcome of a Senate debate that had barely started. Mr. Inhofe, Republican of Oklahoma, said that Senate climate legislation was “dying on the vine” and that the Senate would never ratify a treaty that did not require strong emissions reductions from major developing countries.
“The U.S. Senate has made clear on numerous occasions that unilateral action by the United States is unacceptable, because it will harm our economy and have virtually no effect on climate change,”Mr. Inhofe said.
Mr. Obama takes little risk in appearing briefly at the Copenhagen conference because he and other world leaders punctured expectations for the session 10 days ago in a side meeting of leaders of Pacific nations. The leaders agreed that they would work at Copenhagen toward an interim political declaration on climate change that stopped short of a binding international treaty. Delegates are expected to pledge to complete work on a treaty next year.
Mr. Obama came to office promising to end eight years of relative inaction on climate change under the Bush administration, but the inaction of Congress has limited the administration’s ability to negotiate with other nations. At the Kyoto climate conference in 1997, the Clinton administration joined other industrialized nations in pledging to reduce greenhouse gas emissions by 5.2 percent by 2012, but Congress refused to ratify the agreement because it made no demands of developing nations.
Many foreign leaders, particularly those in European nations that have been more aggressive in dealing with climate change, have become critical of Mr. Obama’s seeming passivity on the issue. The White House appears to hope that the announcement of the targets and the trip to Copenhagen will quiet some of the dissension and help Mr. Obama re-establish American leadership on what he calls one of the signature issues of the time.
Mr. Obama said recently that he would attend the session if his presence could help lead to a successful outcome. It is significant that he will appear at the beginning rather than at the end of the 12-day meeting. Most major decisions at such environmental talks come in the closing days.
Yvo de Boer, head of the United Nations climate directorate, said in an e-mail message that he would like to see the American target in writing and a pledge of money to help poorer nations adapt to a changing climate.
“If the president comes in the first week to announce that,” Mr. de Boer said,“it would be a major boost to the conference.”
The White House also announced that several cabinet secretaries would speak at the Copenhagen conference: Lisa P. Jackson, the Environmental Protection Agency administrator; Steven Chu, the secretary of energy; and Ken Salazar, the secretary of interior.
The NYT also reports that the American International Group said on Wednesday that it had settled long-running legal battles with Maurice R. Greenberg, the company’s former chief executive, in an attempt to move past years of costly fighting.
The settlement also applied to two firms that Mr. Greenberg controls — C. V. Starr & Company and the Starr International Company — as well as A.I.G.’s former chief financial officer, Howard I. Smith. A.I.G. said it released the parties from all claims.
The settlement called for A.I.G. to payup to $150 million in legal claims made by Mr. Greenberg and Mr. Smith. The exact amount is still to be determined by a third-party mediator, Layn R. Phillips of the California law firm Irell & Manella.
Mr. Greenberg did not tip his hand as to what plans he might have for A.I.G. Since his ouster, he has concentrated on building business and investment ventures through C. V. Starr, which, like others in the industry, has hired talent away from A.I.G. At A.I.G., Robert H. Benmosche, the new chief executive, has fumed that he is at risk of losing executives because his government overseers will not let him pay competitive bonuses.
It is possible that Mr. Greenberg will now consider having C. V. Starr team up in certain business ventures. C. V. Starr has still been going through the slow and laborious process of being licensed to sell insurance under its own name. However, it is already very much in the business of serving as a general agent to other companies, like the Chubb Group, selling their specialized lines of insurance.
At some point C. V. Starr might also sell the specialized insurance written by A.I.G.’s big property and casualty group, which recently began using the name Chartis.
A.I.G. and Mr. Greenberg had been fighting since the abrupt end of his 37-year leadership, during which he built the insurer into one of the world’s largest companies. Even after his departure, Mr. Greenberg remained the company’s largest stakeholder. After the government took control in exchange for its bailout last year, he continued to be the largest common stockholder, together with the two private companies and entities he controls.
He has harshly criticized the management of A.I.G. under the government’s control, saying steps were being taken that would destroy value. He also sued A.I.G., saying it had misrepresented its financial position.
Under the settlement, A.I.G. has also agreed to give Mr. Greenberg access to archival materials that will help him write his memoirs. And both sides have agreed to refrain from publicly disparaging the other.
A.I.G. also agreed to turn over some photographs of Mr. Greenberg, a Persian rug in the company’s headquarters and other personal items. When Mr. Greenberg was forced out as chairman and chief executive in 2005 during an accounting scandal, he said various artworks and personal items belonged to him and sued to recover them.
In a countersuit, A.I.G. had accused Mr. Greenberg of improperly removing $4.3 billion worth of A.I.G. shares from a special retirement plan in his role as chairman of Starr International. But last summer, a jury rejected A.I.G.’s demands that Mr. Greenberg replace the stock, and a federal judge affirmed the decision.
Few believed that Mr. Greenberg would make any headway with A.I.G. until Mr. Benmosche became chief in August. Mr. Benmosche immediately made a surprise announcement that he thought Mr. Greenberg had worthwhile advice to provide.
“The resolution of these long-running disputes will remove a significant distraction and expense and allow A.I.G. to better focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders,” Mr. Benmosche said in a statement.
Mr. Greenberg added:“I too am pleased that these long-running disputes are now over, and I want to express my appreciation for Bob Benmosche’s help, and the help of the A.I.G. board, in resolving them. I look forward to assisting A.I.G. in trying to preserve and restore as much value as possible for all of A.I.G.’s stakeholders.”
In settling the disputes, A.I.G. was represented by a team at Paul, Weiss, Rifkind, Wharton & Garrison, led by Daniel J. Kramer. Mr. Greenberg was represented by Boies, Schiller & Flexner, led by David Boies. Mr. Smith was represented by Winston & Strawn, led by Vincent A. Sama.