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News : International Last Updated: Apr 1, 2010 - 12:42:40 PM


Markets News Thursday: Honohan says 'bad bank' NAMA will spend €40-50 billion on toxic loans; Top earning US hedge fund manager made $4 billion in 2009
By Finfacts Team
Apr 1, 2010 - 9:19:00 AM

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President Barack Obama shows First Lady Michelle Obama a letter he received from a young person, in the Outer Oval Office, March 31, 2010. On Wednesday, he pledged to expand offshore oil and natural-gas drilling in the Atlantic and the Gulf of Mexico, which may help Democrats win some Republican support for a climate change bill.

The toxic property 'bad bank,' the National Assets Management Agency (NAMA) will spend between €40-50 billion on acquiring loans from the country's financial institutions, Central Bank Governor Patrick Honohan said today.

The estimate is below the Finance Department's initial €54 billion projection last September. NAMA began accepting loan transfers this week. "The loans are being bought at quite deeply discounted rates, reflecting the sharp fall in property prices since the biggest and most problematic of the loans were made some years ago at the height of the bubble," Prof. Honohan says in an article in the Financial Times today. "The pricing has been designed with the objective of enabling NAMA to recover its substantial outlays - between €40 billion and €50 billion - over the coming decade," he said.

Prof. Honohan continued: "As the dust settles, it is clear that most of the damage in this crisis - - reputational and financial - - has been done by just one institution, Anglo Irish Bank. Anglo was taken into full public ownership in early 2009, following the revelation of a number of questionable transactions the previous year. Meeting the bank’s net liabilities, in accordance with the guarantee of September 2008, has already cost the government more than €12bn and is likely to cost about €10bn more. This is a truly shocking figure, albeit one that is affordable for the state.

The losses reflect a runaway credit binge led by this bank (whose balance sheet grew at an average annual rate of 36 per cent for the 10 years to 2007). All of the other major banks in Ireland, including those that are foreign-controlled, joined the scramble to lend into the property and construction bubble, each concerned - - it seems - -more with market share than with the risks of a bust."

Dublin Airport: The Dublin Airport Authority says at least 400 new retail jobs will be created when Terminal Two (T2) opens later this year. It claims that despite the economic downturn there has been huge interest in the retail space available in T2.

The new terminal will accommodate 40 retail outlets, including shops, restaurants and bars.

The DAA has announced five retailers as the preferred bidders for outlets, including bookseller WHSmith and jewellery retailer, Swatch.

It says almost 70% of passengers make some purchase as they travel through the airport and that the new outlets will create at least 400 full time jobs.

There is no estimate for a loss of jobs in the main terminal.

Hedge Fund Billionaires: The top earning US hedge fund manager made a $4 billion in 2009 by betting big on the financial sector.

The manager, David Tepper, wagered that the government would not let the big banks fail, even as other investors fled financial shares amid fears that banks would collapse or be nationalised.

The runner-up was George Soros, the Hungarian émigré; his fund, Quantum Endowment, grew 29 percent in 2009, earning Soros $3.3 billion in fees and investment gains.

Irish Financials; The Irish Banking Plan - NAMA and capital requirements: Goodbody analyst, Eamonn Hughes, comments  - -"It’s been a busy week. March 30 provided the initial NAMA haircuts (47%), new capital targets from the Regulator (7% equity tier 1 and 8% core tier 1 by end 2010) and the Minister for Finance’s assessment of the banks’ capital plans. March 31 brought FY09 finals from BOI. Putting it all together on valuations, our base case for BOI sees a market cap. sized rights issue (€1.9bn), raising €500m from a further capital exchange and conversion of €800m of the government’s preference shares and purchasing the warrants. Our valuation model generates c.13% upside and would see the State with a c.23% stake.

However, we estimate that BOI is already trading on c.0.88x its recapped end 2010f TERP adjusted book value, approaching its post-recapitalisation peers, notwithstanding that BOI is still this side of its recap. Our base case for AIB is that it sells its UK subsidiary (1x P/NAV) and US & Poland stakes (at market cap valuations) for a combined €4.7bn capital gain, bringing its €7.4bn requirement down to €2.7bn. We raise 1x its market cap (€1.1bn) and solve for the preference shares and warrants (current market price). This generates 37% upside (on a prospective 2014f PE based model) and implies a state shareholding of 49%. On more traditional valuation parameters, we estimate AIB is trading on 0.7x its TERP adjusted recapped end 2010f book value (adjusted for capital raises & disposals). AIB may trade up in the short term (move to Trading Buy), but our model tells us to take money off the table at 0.9x. Please see our report out this morning for more details."

Governments in South Korea and Taiwan could begin to withdraw emergency stimulus, but not Japan, says Tim Condon, head of research, Asia at ING Financial Markets. He explains why to CNBC's Karen Tso & Sri Jegarajah:

Economic View; Muted reaction in bond markets to banking news; goodbody chief economist, Dermot O’Leary, comments - - "On the day after the enormous cost of the Irish banking crisis was laid bare, it is somewhat surprising that there was little movement in the price of Irish bonds as a result. Indeed, the yield on Irish ten-year bonds actually narrowed by 2bps to 4.47%, lowering the spread over German bunds by the same amount to 1.38%.

The higher than expected haircut on the loans moving across to NAMA indeed reduces the risk to the Irish taxpayer relative to what was expected just a few weeks ago, but this had been leaked in the days leading up to the announcement on Tuesday. One would have thought the admission that the cost of keeping Anglo Irish Bank afloat may come to an extra €18bn over and above the €4bn that was injected last year would have surprised the market somewhat. That may be reflected in markets in the coming days and weeks, but it is somewhat comforting from a sovereign perspective that there was no knee-jerk reaction yesterday even on a day when Greek bond yields increased by a further 9bps (spread vs Germany now stands at 3.44%).

As we discussed yesterday, the announcements on Tuesday of the likely costs of recapitalising the banking system, stemming from both NAMA discounts and new capital requirements, draw a line in the sand for the banking crisis in Ireland, giving an element of certainty to international markets. If Ireland is to continue to navigate itself out of the problems that it got itself into, this transparency must continue. "

President Barack Obama discusses his plans to allow oil and natural gas exploration in the US to reduce US dependence on foreign oil:

Irish unemployment claimants are stabilising: Davy economist, Rossa White, comments - -"Irish unemployment claimants are nearing a peak. Claimants rose only 800 in March following the 2,300 drop in February. That means the March number was some 0.4% below the cyclical high so far recorded in January. The estimated unemployment rate (extrapolating forward from the Q4 household survey) has been unchanged for the last three months.

In fact, the rise in claimants has been pretty slow since last August. However, there are other circumstances to take into account bar a moderation in the pace of firing. It seems that there was a swell of newly unemployed workers claiming benefit from early last year. But a proportion of these workers did not ultimately qualify for benefits. Once the administrative backlog was worked through, many claimants dropped off the Register. The upshot is that the rise in claimants exaggerated the deterioration in the labour market early last year (it was bad, but not that bad!); equally, the situation was perhaps not improving as quickly as the Register suggested in H2.

The estimated unemployment rate was unchanged for a third straight month at 13.4%. That compares with 10.8% in March 2009 and only 5.2% in March 2008 – showing how much damage the construction bust has wreaked in just two years. Fortunately, sectors exposed to global recovery are already stabilising: last week's Q4 numbers showed employment growth in industry (albeit marginal), tourism and certain high-end business services. The rest of the private service sector will stabilise by mid-way through the year in line with a bottom in consumer spending. We reckon the unemployment rate will peak this summer, below 14%. "

US markets

The Dow dipped 51 points or 0.47% Wednesday to 10,857.

The S&P 500 closed down 0.33% and the Nasdaq declined 0.53%.

Asia

The MSCI Asia Pacific rose 0.9% Thursday - - for the fourth time in five days

The Nikkei 225 added 1.39%; the Shanghai Composite gained 1.15%; Australia’s S&P/ASX 200 Index advanced 0.66% and India's Sensex Index climbed 0.49%.

Confidence among big Japanese manufacturers rose for the fourth straight quarter in the three months to March, the Bank of Japan's Tankan survey showed Thursday, reaching its highest level since September 2008 due to robust overseas demand.

However, the survey showed that companies still plan to reduce capital spending slightly during the fiscal year started today. Snd smaller firms and non-manufacturers remain gloomy, the data showed.

Asia benchmarks

Finfacts Reports

Irish manufacturing output increased at sharpest pace in March since June 2006
US jobs and economic scenarios
Germany and France agree to support a bank tax
PMI survey data for China and India shows strong manufacturing growth in March in both countries
State-owned Anglo Irish Bank reports loss of €12.7bn for the 15 months to end December 2009 -- the largest loss in Irish corporate history
Markets News Afternoon: Shares fall in Europe and US; Bank of Ireland jumps 24% in Dublin; US business activity expands in March but at slower pace
European Commission gives temporary approval for Irish Government to inject funds in Anglo Irish Bank and Irish Nationwide; Restructuring plans have to be submitted by June
Irish Live Register increases to 433,000 in March
Irish private sector credit fell again in February; Residential mortgage loans and household credit dipped
Eurozone unemployment rate at 10.0% in February; Netherlands lowest at 4%; Ireland at 13.2% and Spain at 19%
Eurozone annual inflation is expected to rise to 1.5% in March 2010

In Europe, the Dow Jones Stoxx 600 has risen 0.87% Thursday.

The ISEQ has risen 0.43% in Dublin.

CRH has risen over 1% and AIB is up 4.34%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3491 and at £0.8865.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - -  close to a 1986 low.

The BDI closed at 3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59% lower in 2009 than a year earlier.

On Monday, the BDI fell 77 points or 2.48% to 3,021  - - a 10th straight dip and brings the current decline to 15%; the BDI fell 39 points or 1.29% to 2,982 on Tuesday; on Wednesday, the index rose 16 points or 0.54% to 2,996.

In the Financial Times on Wednesday, Feb 17th, Javier Blas wrote that the weakness in the Baltic Dry Index, long seen as an indicator of global economic activity, does not reflect a downturn in global trade. Instead, the measure of freight costs is showing a strong supply of new vessels that helps explain the 40% drop in three months. “New supply is astonishingly high and it is overwhelming the otherwise robust demand for bulk commodities from China,” he wrote. “On the other hand, bullish investors should be cautious of any near-term turnround. Rather than a sign of stronger economic activity and commodities demand, it is likely to reflect cancelled orders, scrappage and port congestion.”

Crude oil for May 2010 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $83.61 per barrel down 16 cents from Wednesday's close. In London, Brent for May delivery is trading on the International Commodities Exchange at $82.57.

Gold spot price

Gold is trading at $1112.60 down up $1.00 from Wednesday's spot price close in New York.

Finfacts Gold Page

FBD Holdings (Buy, Closing Price €7.32); Regulator to look for administration of Quinn Insurance to become indefinite on April 12: Goodbody analyst, Ken Darmody, comments  - -"Press reports this morning suggest that Quinn Group and its lenders are locked in talks aimed at releasing Quinn Insurance from the guarantees that have led to appointment of provisional administrators to the insurance arm of the group. The reports also point out that the Regulator plans to proceed regardless, with the judgement against Quinn Insurance, after taking a dim view on the whole situation. The “non-disclosure” of the guarantees and the “incorrect calculation of solvency and reserves” are steps too far for the Regulator to row back on, even if Quinn Insurance can plug the €200m shortfall in the accounts or remove the guarantees from the insurance arm. The Regulator is due to push for the appointment of the administrators to become indefinite at a hearing on April 12."

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