See Search Box
lower down this column for searches of Finfacts news pages. Where there may be
the odd special character missing from an older page, it's a problem that
developed when Interactive Tools upgraded to a new content management system.
Welcome
Finfacts is Ireland's leading business information site and
you are in its business news section.
We
provide access to live business television and business
related videos from: Bloomberg TV; The Wall Street Journal;
CNBC and the Financial Times. Click image:
Markets News Wednesday: First Derivatives in talks on acquiring tech firm Cognotec's assets; UK service activity in January hit by bad weather
By Finfacts Team
Feb 3, 2010 - 11:08:48 AM
UK Services: UK service sector growth stalled at the start of 2010 as snow-related disruptions undermined activity and new business. Rates of expansion of both variables were the slowest for five months, while there was a further (albeit modest) decline in employment.
The increase in VAT at the start of the year underpinned the strongest rise in input costs since October 2008 and also led to slightly higher output charges. January’s seasonally adjusted CIPS/Markit Business Activity Index posted above the 50.0 no-change mark for a ninth successive month. The index weakened somewhat since December, falling to 54.5 (from 56.8) and signalled the slowest rise in activity for five months.
The slowdown of activity expansion was attributed by many panellists to the disruptions caused by poor weather in January, which also led to a similarly marked fall in growth of new business. Latest data showed that Hotels & Restaurants signalled steep falls in both activity and new business at the start of the year.
Cognotec: Northern Ireland based First Derivatives announced today that it is in talks with the receiver of Cognotec Holdings, with a view to acquiring its assets. Cognotec, was founded in Dublin 1991 by entrepreneur Brian Maccaba and once employed about 200 people in Dublin and London.
It produced software platforms for foreign exchange trading and was placed into receivership on January 22th. In the year to November 2008 it had revenues of $18.5m and reported a loss of $1.8m and in earlier years, the arrival of the web gave opportunities for many competitors to enter its sector.
First Derivatives employs around 200 people in Newry and has acquired several other financial technology firms in recent year.
In July 2006, Finfacts spoke to Cognotec founder and Chief Executive Briain Maccaba on the FX industry and plans for the company.
Briain Maccaba, worked as an economist at the Confederation of Irish Industry in the 1980's.
The firm had about 140 of its 200 strong payroll based in Dublin in mid-2006, according to Maccaba. In August, the firm hired an extra 25 staff and September it hired a new Dublin based top-level team including a deputy chief executive and head of sales and marketing.
The company had revenues of $28.1 million in 2005 and made a profit of $3.7 million. It expected revenues of over $40 million in 2006.
Cognotec said that it was is targeting the top 100 banks in the world, which it had divided into three categories. Contracts with so-called ‘tier one’ banks were worth more than $20 million over three years, tier two deals are worth about $10 million and tier three are worth up to $5 million.
Briain Maccaba told Finfacts that the company would have revenues of $100 million before contemplating an IPO.
US Regulation: In Washington DC on Tuesday, the chairman of the Senate Banking Committee warned that the Obama administration’s new proposals to restrict the activities of Wall Street firms could risk of derailing months of bipartisan negotiations over overhauling financial regulations.
Former Fed Chairman Paul Volcker talks about his proposal to limit the high-risk activity in which banks and bank holding companies can participate:
“It’s not a movable feast,” the chairman, Chris Dodd, told Paul Volcker, the former Federal Reserve chairman, who is an outside adviser to President Obama. “It’s adding to the problems of trying to get a bill done,” he said at the end of a hearing on the proposals.
Dodd, a Democrat from Connecticut, announced last month that he will not run in the November elections following claims that he received mortgage favours from the biggest standalone lender, Countrywide, which was saved from collapse by Bank of America.
The Irish-American senator may well be be looking to have a role in the financial industry post-retirement, such as a well connected lobbyist.
Dodd said on Tuesday that the administration was “getting precariously close” to excessive ambition for the legislation. “I don’t want to be in a position where we end up doing nothing because we tried to do too much,” he said.
The problem with regulation is that the old adage about half a loaf being better than no bread, is hardly inspiring after a severe crisis.
The hearing on Obama’s proposals to ban banks that use federal deposit insurance and the Federal Reserve’s discount window from engaging in proprietary trading and restrict them from owning hedge funds and private equity funds heard from Paul Volcker.
“The idea is that, with procedural safeguards, a designated agency be provided authority to intervene and take control of a major financial institution on the brink of failure,” he testified.
“The mandate is to arrange an orderly liquidation or merger - - in other words, euthanasia, not a rescue.”
On the proposed ban on proprietary trading, termed by President Obama as the Volcker rule, the former Fed chairman said an international consensus was needed, particularly among those nations where multinational financial institutions are based.
He said that definitions of hedge funds and private equity funds needed to be both “carefully specified” to regulators but also be “broad enough to encompass efforts sure to come to circumvent the intent of the law.”
And in answer to criticism that his rule was too vague, he said, “every banker I speak with knows very well what proprietary trading means and implies.” For example, he said, a pattern of exceptionally large gains and losses over time in a Wall Street firm’s trading book should “raise an examiner’s eyebrows.”
Volcker said efforts by big banks to regulate themselves will inevitably fail. When a bank trades for its own account, compared with the money of its customers, “it will almost inevitably find itself, consciously or inadvertently, acting at cross purposes” to the interests of its customers, he said.
"Europe will not let a country go bust at the end of the day," Peter Attard Montalto from Nomura International told CNBC Wednesday when discussing the outlook for Greece. Vladimir Gersamia from Fortis Investment Management UK joined the discussion:
US markets
In New York Tuesday, the Dow added 111 points or 1.09% to 10,297.
The S&P gained 1.30% and the Nasdaq rose 0.87%.
Asia
The MSCI Asia Pacific Index jumped 1.2% Wednesday.
The Nikkei 225 climbed 0.32%; the Shanghai Composite gained 2.36% and India's BSE Sensex added 2.13%.
Bloomberg reports Toyota Motor Corp.’s U.S. sales slid to a 10-year low in January as the company’s worst-ever recall crisis took its most popular models off the market and made drivers wary.
The decline snapped three months of advances as the company couldn’t take advantage of the U.S. auto market’s longest streak of gains since 2006. The Toyota City, Japan-based carmaker, which has recalled more than 7.6 million vehicles worldwide for defects linked to sudden acceleration, faces U.S. congressional hearings and a rising number of product liability lawsuits.
Asian carriers will make up about a third of the demand for new aircraft in the next 20 years -- an order book estimated to be worth around $1.2 trillion, says Airbus's COO, John Leahy. He tells CNBC's Martin Soong & Oriel Morrison how the firm plans to cash in on this:
Goodbody economist, Deirdre Ryan, comments: Impressive progress being made in reducing government spending - - "The first set of Exchequer Returns of 2010 contain hard evidence that the fiscal restraint that has been implemented by the Irish Government is bearing fruit, with large spending reductions coming through in the hard data. Overall, total spending fell by 7.5% yoy in January. However, it’s more instructive to examine the trends in voted expenditure, which is the portion of spending over which the Government has control and which accounted for c.80% of the total in 2009 (the rest is dominated by interest on the national debt).
On this measure, spending was down 13% yoy in January. Within this, voted capital spending was down 21% yoy, while, more impressively, current spending was down 12% yoy. Furthermore, if spending on social welfare is excluded (which was up 16% yoy in January), spending fell 18.5%. While the rise in unemployment has clearly had an impact on welfare spending levels, the progress that has been made in cutting expenditure outside of this area is undeniable. This is chiefly the result of the public sector pay cuts that were implemented in Budget 2010 last December, a Budget that concentrated solely on reducing expenditure with spending cuts totalling €4bn announced (3.2% of 2010 GDP). On the revenue side the trend remained very weak in January although there is evidence that the revenue decline has at least stabilised.
In January, revenues were down 18% yoy, in line with the 19% decline in revenues seen in 2009 overall. The rate of decline in the main revenue gatherers - VAT (-18% yoy) and Income tax (-10% yoy) - has also moderated a touch, but remain at very depressed levels. For the full year, the Dept of Finance estimates revenue of €30.5bn and a general government deficit of 11.6% of GDP, similar to our own estimates. The key takeaway, though, is there is progress being made in reducing expenditure, thus giving the bond markets little reason to single out Ireland for fiscal indiscipline."
Goodbody analyst Eamonn Hughes comments: Bank of Ireland; Jam today more important than jam tomorrow - -"A few weeks ago, Bank of Ireland indicated that it would look to engage in some liability management and yesterday afternoon announced a programme offering to exchange certain euro, USD and sterling Lower Tier 2 (LT2) notes into new euro and sterling LT2 notes. The exchange relates to about €2.9bn of existing LT2 instruments, with coupons ranging from 0.5%-4.9% on the original principal. The coupon on the new instruments is 10%. The objective beyond a capital gain is to enhance the capital structure in the bank as innovative capital instruments (for instance, instruments with step-ups after call dates) look to be phased out under new capital proposals.
We estimate that 100% take-up on the offer could generate as much as €730m of gains for the bank, though we believe a more realistic outcome is somewhere between 50% and 75%. This would generate gains of between €350 and €550m up front for BOI. However, we estimate that the incremental funding cost on the new instruments would add between €75m p.a. and €100m p.a. to the interest bill. We have a target core equity ratio of 8% for BOI by end 2014 (fiscal FY15), which drives our €3.3bn capital requirement on the bank (2.5x its current market cap). Running these adjustments through our models make minimal impact on our target capital requirement given the up-front gain is eroded over the next 5 years by the higher interest cost to end FY15. Having said that, jam today is more important than jam in the future, since this is the time when the capital base is most stressed and the bank will be seeking to raise equity in the months ahead. So theoretically, the exchange offer makes no difference to our target capital raising level, but practically, it’s helpful for shareholders.
AIB has €4.3bn in LT2, but one must bear in mind that c€1.2bn of this relates to its new notes issued last summer in its previous exchange. So this leaves a figure closer to the BOI level, so presumably one can make a similar commentary about AIB. We estimate a gross equity capital requirement of €4.5bn at AIB, though net this down to €4.0bn on an M&T sale (3.6x its current market cap). For the record, a sale of Poland at market prices would bring this down closer to €2.1-2.2bn (2x its market cap). Before we finish, BOI also has about €1.5bn of Tier 1 and Upper Tier 2 instruments and AIB has about €750m, with some speculation recently that the banks may also consider looking at debt for equity swaps at some stage as well in the run up to any equity fund raising."
Davy chief economist, Rossa White comments: Exchequer returns suggest that end-year 2009 spending was sluggish - - "To some extent, January exchequer returns are old news: most of the tax receipts relate to end-2009 activity; little pertains to January. This week's PMIs, Live Register (leaks suggest an 8,000 increase in January) and consumer confidence are a much better guide to what was going on at the start of 2010. Tax revenue fell 17.7% year-on-year (yoy) last month. That was a touch better than the end-year 2009 run-rate of -19%. It is best to look at the trend excluding-corporation tax where payment dates changed during 2009. Ex-corporation tax, the annual decline was 16.1% versus the 18.4% run-rate at end-2009.
These figures were not affected by the freezing weather in early January. But the first few days of post-Christmas sales — i.e. the last week of December — were blighted somewhat by poor weather. VAT is paid bi-monthly, so January receipts relate to November-December. The decline in VAT of 17.9% yoy in that period was similar to the 17.7% drop for September-October. It suggests that spending was sluggish in the pre-Christmas period. Excise, too, was fairly weak at -16.2% yoy (considering that it incorporated the new carbon tax), although the shorter lags involved perhaps imply a small January weather impact.
The Department of Finance also released its tax profile for 2010. Revenue is expected to decline 6% for the full year. But the (depressed) base effects are favourable as the year progresses. So much so that in the March-July period, revenue may not be that much lower on an annual basis.
Net voted current expenditure (i.e. excluding capital spending and interest payments and subtracting revenue collected by government departments) dropped 11.9% yoy in January. That compares with the full-year forecast (at Budget time) of a 0.4% decline in net voted current expenditure. At this stage, the run-rate looks good, but the timing of spending and departmental receipts is uncertain. The Department of Finance will publish an expenditure time profile at the end of February."
