The Irish Independent reports that the EU Commission is expected to give the go-ahead to the controversial National Asset Management Agency (NAMA) by tomorrow evening, but Brussels is keeping the Government guessing as to what conditions it will attach to it.
Sources said the EU would urge NAMA, headed by Brendan McDonagh, to press ahead quickly with getting the 'bad bank' up and running to start cleaning development loans off the banks' balance sheets. This follows reports of growing frustration at the European Central Bank over the commission's perceived slowness in deciding on the restructuring plans of Irish banks -- another critical part of the overall rescue plan, along with NAMA. EU rules on aid from government mean the banks would need to have a realistic prospect of returning to profitability in three years, and reducing their debts to sustainable levels in five.
"Viability is the big issue,"one Brussels expert said. He said the restructuring plans raised at least five different issues of state aid on which competition Commissioner Joaquin Almunia would have to rule.One possible outcome is that the commission will approve the start of NAMA operations, but with a review in six months or so to see how things are developing.
Meanwhile, a number of Irish fund managers -- including those of the major banks -- are lining up to take a majority stake in the €100m-plus "special purpose vehicle" (SPV), which is designed to keep NAMA's debt off general government borrowing as defined under EU rules.
Fund managers
The Irish Association of Investment Managers is acting as a channel between NAMA officials and the funds, which include the asset management arms of Bank of Ireland, Irish Life & Permanent and Allied Irish Banks, as well as insurance group Aviva.
The participation of Bank of Ireland and AIB investment arms is likely to raise eyebrows in political circles, because their parents are expected to transfer almost €30bn in loans to NAMA.
Sources familiar with the deal stressed last night that the funds would be investing clients' money, not the banks' money.
"You can't discriminate against a pension scheme by virtue of the fact that it is a client of one of the banks participating in NAMA," said one source.
The proposal is understood to envisage the investing funds receiving a dividend of more than 6pc a year over the 10-year lifespan of NAMA.
But the payment of annual dividends depends on whether the agency is delivering on its business plan and is not guaranteed.
The anticipated payout is higher than the current 4.7pc interest yield at which the Irish Government can borrow for 10 years.
Observers said the difference reflects the fact that, as well as no government guarantee, there will be no market in which to trade their shares in the SPV.
They added that the EU statistical service, Eurostat, will be closely monitoring the plan to make sure the investors are also taking on sufficient risk to allow the NAMA debt stay off the government books.
The Irish Independent also reports that in a strange twist to the recession, Ireland posted a record trade surplus last year, as imports tumbled even faster than exports.
A second statistical quirk is that this result means trade made a bigger contribution to the economy, even though trade levels were lower.
For 2009 as a whole, the estimated trade surplus totalled €38.8bn -- more than a third higher than the overall surplus of €28.8bn recorded in 2008.
Behind this headline, detailed figures from the Central Statistics Office for the first 11 months of last year show a 3pc fall in exports over the same period of 2008, and a 23pc drop in imports.
The collapse in imports of road vehicles had the biggest economic impact, with purchases falling from €3bn in 2008 to just €800m in January-November of last year. Imports of computer equipment were down by 46pc and oil products by 36pc -- partly caused by lower oil prices.
The figures came as the head of the World Trade Organisation (WTO) said global trade contracted by about 12pc in 2009 but had started to pick up.
Pascal Lamy said the organisation had revised downwards its previous estimate of a fall of about 10pc last year. He said it was the sharpest decline since the end of World War II.
Figures
The figures mean Ireland increased its share of global exports for the first time in several years, even if, like the trade surplus, it was not entirely for the best reasons.
"Irish export volumes have been declining in recent months, but their relative performance has still been quite impressive amid the collapse in global trade flows last year,"said Alan McQuaid, chief economist at Bloxham Stockbrokers.
Mr McQuaid said a lot would depend on the performance of sterling, particularly for indigenous exporters.
The figures show a 15pc fall in exports to the UK, and a 30pc drop in imports, in the first 11 months of 2009.
Cross-Border shopping was not enough to offset a €320m fall in imports from Northern Ireland -- a drop of 27pc -- while exports declined 20pc.
"Modest rates of increase in world demand by historical standards are anticipated for this year," Mr McQuaid said. "A recovery in Irish exports seems likely to be muted, with an average volume increase of between 0.5 and 1pc."
The chief executive of the Irish Exporters Association, John Whelan, called for a new export strategy to offset the weakness of sterling and help exporters "move aggressively into new growth markets".
The Irish Times reports that Aer Lingus cannot be moved from the Dublin airport hangar that its rival Ryanair has been seeking as a precondition of creating 300 new aircraft maintenance jobs there.
Hangar 6 at Dublin airport has been at the centre of a row between Ryanair chief executive Michael O’Leary and Tánaiste Mary Coughlan since it emerged that his company offered to create 500 maintenance jobs there, but only on the condition that the Government arranged the hangar’s sale or lease to the airline.
Aer Lingus occupies Hangar 6 under a 20-year commercial lease from the Dublin Airport Authority (DAA), worth €24 million, agreed last December. It can only be moved to facilitate redevelopment of the airport.
The DAA’s chief executive Declan Collier told the Joint Oireachtas Committee on Transport yesterday that a series of legal agreements dating back to the early 1990s gives Aer Lingus control over who occupies the facility.
The authority also told the committee that Ryanair has been aware of this for two years, despite the fact that Mr O’Leary argues that there is nothing preventing the Government from instructing the DAA to move Aer Lingus. The DAA ultimately owns Hangar 6 and originally leased it to Ulster Bank subsidiary First Active, in a contract that runs to 2017.
First Active sublets it to Shinagh, an Aer Lingus subsidiary, which held the building for the old Team Aer Lingus maintenance business, which the airline sold in 1998. Shinagh subsequently sublet it on to a subsidiary of SR Technics (SRT), which ultimately acquired what had been Team Aer Lingus. SRT pulled out of Dublin early last year with the loss of 1,100 jobs.
Aer Lingus chief executive Christoph Mueller also confirmed these details to the committee yesterday. When members asked him why the company was leasing it back from itself, he responded:“I ask myself the same question”.
Mr Mueller told the committee that the airline is using the hangar to maintain up to six or seven aircraft a day and is not leaving it lying idle as Mr O’Leary has claimed. It plans to move other parts of its business into the offices that form part of the building.
The DAA bought SRT’s interest in Hangar 6 last year. It said yesterday that it decided that when the “legal complexities” surrounding the building became clear, it decided that leasing the building back to Aer Lingus was the best course of action.
The DAA said that it was willing to deal with Ryanair and said that notwithstanding the legal difficulties,“it was possible that the hangar could subsequently have become available for use by Ryanair or other third parties”.
“When it became clear that Aer Lingus was not going to vacate Hangar 6, Ryanair was informed by the IDA that Aer Lingus had legal rights and the hangar would not become available,”the authority’s statement said.
It added that 365 new jobs will be created in the former SRT hangars by Aer Lingus, Dublin Aerospace and aircraft maintenance firm M50.
The Irish Times also reports that the aviation commissioner Cathal Guiomard has sought to fast-track one of two challenges by Ryanair to his decision fixing the maximum charges the Dublin Airport Authority (DAA) may levy at Dublin airport over a five-year period to 2014.
Ryanair is seeking to judicially review the charging decision and to appeal it to a panel set up by the Minister for Transport.
The DAA claims the effect of Ryanair’s proceedings, “if not their object”, is to create enormous uncertainty about charges to apply at Dublin airport’s Terminal 2, due to open in November.
While the DAA can apply the charges allowed by the commissioner, its counsel Paul Sreenan said Ryanair’s judicial review creates uncertainty for other operators on whether they go into Terminal 2, as Ryanair is essentially looking for orders compelling the commissioner to oppose differential pricing between Terminals 1 and 2.
Mr Justice Peter Kelly said the case highlights a “discrepancy” in the Aviation Regulation Act 2001, as the Act both allows for “leisurely” appeals to the Minister for Transport against decisions of the commissioner, while also prescribing a two-month limit within which applications for leave to seek judicial review of the same decisions must be brought.
The Act allows for parties, such as in this case, to ride two horses at the same time with a different time frame applying to both options, he said. The legislation should be looked at to avoid a recurrence of this, he added.
He suggested Ryanair’s judicial review was “a waste of public time” in the Commercial Court, while the airline continued to have its appeal in its“back pocket”.
If Ryanair lost its appeal, it could then seek judicial review of the appeal tribunal’s decision, he noted. Frank Beatty, for Ryanair, said his client was entitled to bring its proceedings.
The judge said it was “quite unacceptable” that Ryanair, although essentially seeking to quash the commissioner’s decision, had applied for 23 different reliefs in that regard, which were all “rehashes of the same thing”.
The “alphabet is insufficient” to provide for Ryanair’s grounds for judicial review, many of which – including a statement that Ryanair is a limited company providing low-cost air transport – were “not grounds at all” and amounted to “spraying the countryside” with claims, he said.
Mr Justice Kelly fixed April 15th next for the hearing of both the adjournment application and the leave application.
Ex-srt Staff March On Minister’s Office
Former SR Technics staff have called on Ryanair, the Dublin Airport Authority (DAA), Aer Lingus and Minister for Enterprise Mary Coughlan to put petty prejudices aside and stop playing politics with their jobs.
About 100 of the maintenance firm’s former workers yesterday marched across Dublin to Ms Coughlan’s Kildare Street offices to protest at how a Ryanair offer to employ up to 500 staff at Dublin airport has now turned into a public relations exercise.
Chris Walker, who worked for SR Technics for 31 years, said Ms Coughlan’s decision to decline the offer and her failure to accept an earlier management proposal to save jobs beggared belief.
“Effectively we believe we are caught in a turf war between the DAA, Aer Lingus and Ryanair,” he said. “Obviously the DAA moved to put Aer Lingus in the hangar to keep Ryanair out . . . We want to know why two serious offers to save jobs were squandered.”
Mr Walker said many felt Aer Lingus using the hangar was akin to converting the M50 motorway into a cycle way.
The Irish Examiner reports that a major study of the food supply chain shows that producing farmers are not making a profit and on average are getting just a third of the final retail price.
The report by the Irish Farmers Association claims the actions of the retail multiples in aggressively competing for market share are undermining the price received by producers to the point where they are putting the sustainability of family farm food production in jeopardy.
It warns unless this is addressed, it is only a matter of time until the food supply chain breaks down and price increases and volatility for consumers become the norm.
"Globalisation and lack of regulation in the banking sector led to the breakdown of financial markets. The same can happen in the food supply chain unless effective action is taken now," the report said.
The report, Equity for Farmers in the Food Supply Chain, outlines what is needed to bring the primary producer up to break even.
IFA president John Bryan, speaking at the launch of the report in the Mansion House, Dublin, said the clear message to retailers, processors, Government and the European Union is that the food supply chain is broken because farm families cannot survive on prices below the cost of production.
"Farmers are the ultimate price takers at the opposite end of the food supply chain from powerful retailers, which are dictating uneconomic price levels to producers."
Mr Bryan said an average increase of little more than 5% in the farmer’s share of the current retail price would provide producers with a viable income.
Retailers, processors and food suppliers, in addition to providing real value to consumers, must ensure that primary producers are treated fairly. The evidence shows clearly that this is not happening, he said.
Mr Bryan said the Government and the European Commission must address the market failure in the food supply chain by new regulation and the proper enforcement of existing competition law to tackle anti-competitive conduct.
"The new statutory code of practice promised by the Government must enshrine the principle of fair trade for farmers in the grocery trade by providing a means for the more equitable share-out of the consumer price across the food chain," he said.
Mr Bryan said the Government must also legislate for an independent ombudsman, who would have the power to demand information from retailers while maintaining the anonymity and confidentiality of suppliers who make complaints.
He said the retailers were in danger of destroying the benefits to consumers of a secure supply of Irish and European food.
"Irish farmers are proud to produce food in an environmentally sustainable way, to the highest standards of traceability, quality, safety and animal welfare, in the world."
Other proposals cover proper labelling and the auditing of commitments to source Irish products.
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The New York Times in a story on the impact of a plant closure, says that the first to have a heart attack was George Kull Jr., 56, a millwright who worked for three decades at the steel mills in Lackawanna, N.Y. Three weeks after learning that his plant was closing, he suddenly collapsed at home.
Less than two hours later, he was pronounced dead.
A few weeks after that, a co-worker, Bob Smith, 42, a forklift operator with four young children, started having chest pains. He learned at the doctor’s office that he was having a heart attack. Surgeons inserted three stents, saving his life.
Less than a month later, Don Turner, 55, a crane operator who had started at the mills as a teenager, was found by his wife, Darlene, slumped on a love seat, stricken by a fatal heart attack.
It is impossible to say exactly why these men, all in relatively good health, had heart attacks within weeks of one another. But interviews with friends and relatives of Mr. Kull and Mr. Turner, and with Mr. Smith, suggest that the trauma of losing their jobs might have played a role.
“He was really, really worried,” George Kull III said of his father. “With his age, he didn’t know where he would get another job, or if he would get another job.”
A growing body of research suggests that layoffs can have profound health consequences. One 2006 study by a group of epidemiologists at Yale found that layoffs more than doubled the risk of heart attack and stroke among older workers. Another paper, published last year by Kate W. Strully, a sociology professor at the State University of New York at Albany, found that a person who lost a job had an 83 percent greater chance of developing a stress-related health problem, like diabetes, arthritis or psychiatric issues.
In perhaps the most sobering finding, a study published last year found that layoffs can affect life expectancy. The paper, by Till von Wachter, a Columbia University economist, and Daniel G. Sullivan, director of research at the Federal Reserve Bank of Chicago, examined death records and earnings data in Pennsylvania during the recession of the early 1980s and concluded that death rates among high-seniority male workers jumped by 50 percent to 100 percent in the year after a job loss, depending on the worker’s age. Even 20 years later, deaths were 10 percent to 15 percent higher. That meant a worker who lost his job at age 40 had his life expectancy cut by a year to a year and half.
Additional investigation is still needed to understand the exact connection between job loss and poor health, according to scientists. The focus is mostly on the direct and indirect effects of stress. Acute stress can cause biochemical changes that trigger heart attacks, for example. Job loss and chronic stress can also lead to lifestyle changes that damage health.
Studies have, for instance, tied job loss to increased smokingand greater chances of former smokers relapsing. Some laid-off workers might start drinking more or exercising less. Increased prevalence of depression has been tied to both job loss and the development of heart disease.
“We’re just at the very beginning of studying pathways,” said William T. Gallo, a professor of epidemiology and biostatistics at Hunter College in New York. “We want to find out how we can intervene so we can lessen the effects of job loss, or eliminate them.”
The anxiety among the 260 workers at the ArcelorMittal steel plant in Lackawanna, just south of Buffalo, actually began months, even years, before the company announced in mid-December 2008 that it was closing. Bethlehem Steel, the previous owner, had shut the main steel mill in 1985. After it shuttered the coke ovens across the street from the galvanizing mill in 2001, two workers committed suicide.
Bethlehem went bankrupt in 2003, passing the galvanizing operation on to International Steel Group, which merged with ArcelorMittal in 2005. Workers had been fighting to preserve their jobs ever since.
Even before the plant finally closed last April, Anthony Fortunato, president of Local 2604 of the United Steelworkers of America, counted at least a half-dozen workers who had coronary problems dating to 2006.
A 2009 study led by Sarah A. Burgard, a professor of sociology and epidemiology at the University of Michigan, found that “persistent perceived job insecurity” was itself a powerful predictor of poor health and might even be more damaging than actual job loss.
Nevertheless, it was not until after company officials announced that the Lackawanna plant was closing that any of the workers actually died from a heart attack.
The news of the closing hit Mr. Kull hard, according to his family. He had always been a drinker, but now he was drinking almost every night and seemed depressed.
“He was going out and trying to forget about all of this stuff,”his son said.
Mr. Kull, who was 5-foot-8 and a stocky 200 pounds, had a history of high blood pressure but had passed his company physical the year before, including a stress test. On Dec. 28, 2008, he sat down to watch a Buffalo Bills game and have a few drinks. He got up to make dinner but collapsed on the sofa.
Weeks later, his co-worker, Mr. Smith, thought he might have pulled a muscle while raking snow off the roof when he started having chest pains in bed. It did not cross his mind, he said, that he might be having a heart attack. He had no problems with his blood pressure, his cholesterol was low and he was in decent shape, often playing hockey with his boys on their backyard rink.
But his wife, Kim, watched as he tossed and turned at night, fretting about whether he would find a job that paid as much as his position at the mills. When he was still feeling uncomfortable the next day, she made him see a doctor.
“I think the stress just got to him,”she said.
Mr. Turner’s wife, Darlene, noticed that he was smoking more after he learned about the plant closing. He was up to more than two packs a day, from a little over a pack. She also saw that he seemed to be laboring more when he exerted himself.
About the same time, they found out that her hours had been cut at her accounting job, to just one day a week. Still, he kept his worries to himself. At his funeral she learned from colleagues that he had been asking for Tums at work.
“My husband was the type of person that just kept everything inside,” Mrs. Turner said.
She came home on Feb. 13, 2009, and found her husband sitting on the love seat, his hat and gloves still on.
At first she thought he had fallen asleep.
The NYT also reports that bets by some of the same banks that helped Greece shroud its mounting debts may actually now be pushing the nation closer to the brink of financial ruin.
Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.
These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.
“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.
As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust.
Last September, the company, the Markit Group of London, introduced the iTraxx SovX Western Europe index, which is based on such swaps and let traders gamble on Greece shortly before the crisis. Such derivatives have assumed an outsize role in Europe’s debt crisis, as traders focus on their daily gyrations.
A result, some traders say, is a vicious circle. As banks and others rush into these swaps, the cost of insuring Greece’s debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety — and the whole thing starts over again.
On trading desks, there is fierce debate over what exactly is behind Greece’s recent troubles. Some traders say swaps have made the problem worse, while others say Greece’s deteriorating finances are to blame.
“This is a country that is issuing paper into a weakening market,”said Ashish Shah, co-head of credit strategy at Barclays Capital, referring to Greece’s need for continual borrowing.
But while some European leaders have blamed financial speculators in general for worsening the crisis, the French finance minister, Christine Lagarde, last week singled out credit-default swaps. Ms. Lagarde said a few players dominated this arena, which she said needed tighter regulation.
Trading in Markit’s sovereign credit derivative index soared this year, helping to drive up the cost of insuring Greek debt, and, in turn, what Athens must pay to borrow money. The cost of insuring $10 million of Greek bonds, for instance, rose to more than $400,000 in February, up from $282,000 in early January.
On several days in late January and early February, as demand for swaps protection soared, investors in Greek bonds fled the market, raising doubts about whether Greece could find buyers for coming bond offerings.
“It’s the blind leading the blind,” said Sylvain R. Raynes, an expert in structured finance at R&R Consulting in New York. “The iTraxx SovX did not create the situation, but it has exacerbated it.”
The Markit index is made up of the 15 most heavily traded credit-default swaps in Europe and covers other troubled economies like Portugal and Spain. And as worries about those countries’ debts moved markets around the world in February, trading in the index exploded.
In February, demand for such index contracts hit $109.3 billion, up from $52.9 billion in January. Markit collects a flat fee by licensing brokers to trade the index.
European banks including the Swiss giants Credit Suisse and UBS, France’s Société Générale and BNP Paribas and Deutsche Bank of Germany have been among the heaviest buyers of swaps insurance, according to traders and bankers who asked for anonymity because they were not authorized to comment publicly.
That is because those countries are the most exposed. French banks hold $75.4 billion worth of Greek debt, followed by Swiss institutions, at $64 billion, according to the Bank for International Settlements. German banks’ exposure stands at $43.2 billion.
Trading in credit-default swaps linked only to Greek debt has also surged, but is still smaller than the country’s actual debt load of $300 billion. The overall amount of insurance on Greek debt hit $85 billion in February, up from $38 billion a year ago, according to the Depository Trust and Clearing Corporation, which tracks swaps trading.
Markit says its index is a tool for traders, rather than a market driver.
In a statement, Markit said its index was started to satisfy market demand, and had improved the ability of traders to hedge their risks. The index and similar products, it added, actually make it easier for buyers and sellers to gauge prices for instruments that are traded among players over the counter, rather than on exchanges.
“These indices have helped bring transparency to the sovereign C.D.S. market,” Markit said. “Prior to their creation, there was no established benchmark index enabling investors to track the performance of segments of the sovereign C.D.S. market.”
Some money managers say trading in Greek swaps alone, not the broader index, is the problem.
“It’s like the tail wagging the dog,”said Markus Krygier, senior portfolio manager at Amundi Asset Management in London, which has $40 billion in global fixed-income assets. “There is a knock-on effect, as underlying positions begin to seem riskier, triggering risk models and forcing portfolio managers to sell Greek bonds.”
If that sounds familiar, it should. Critics of these instruments contend swaps contributed to the fall of Lehman Brothers. But until recently, there was little demand for insurance on government debt. The possibility that a developed country could default on its obligations seemed remote.
As a result, many foreign banks that held Greek bonds or entered into other financial transactions with the government did not hedge against the risk of a default. Now, they are scrambling for insurance.
“Greece is not a small country,” said Mr. Raynes, at R&R in New York.“Credit-default swaps give the illusion of safety but actually increase systemic risk.”
