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Markets News Afternoon: AIB says Irish Government likely to take stake of 17% prior to €7.4bn recapitalisation; IMF chief says Greece may need €120bn in aid over 3 years
By Finfacts Team
Apr 28, 2010 - 5:06:47 PM
President Barack Obama meets with the National Commission on Fiscal Responsibility and Reform in the Roosevelt Room of the White House, April 27, 2010. The commission is due to recommend measures to cut the federal deficit
AIB's executive chairman Dan O'Connor told shareholders at the AGM (annual general meeting) today that the Irish Government is likely to take a stake of 16% or 17% in the bank next month. The shareholding will be in place of a dividend owed to the Government by the bank.
The Government received preference shares worth €3.5bn in AIB last year as part of its recapitalisation programme. AIB is due to pay dividends on these next month, but the EU has blocked banks who receive State aid from making cash payments. This will force AIB to give the Government shares instead of cash. In March the State was forced to take a 15.7% stake in Bank of Ireland for the same reason.
O'Connor said the Minister for Finance Brian Lenihan has set out what he expects from AIB in the future in terms of capital requirements and the Financial Regulator has said AIB's targeted equity tier 1 capital ratio should be 7% in common with other banks - - with core tier 1 capital at 8%. The means that the total amount of additional equity capital that AIB needs to raise is €7.4bn.
The chairman said the capital targets to be met are demanding. AIB’s self-help plan involves the sale of its UK and Polish businesses - and its 24% stake in US bank M&T.
The trade union IBOA's General Secretary Larry Broderick has urged AIB to reconsider its decision to sell off its subsidiaries in Northern Ireland and the UK.
In an address to the bank's AGM, Broderick said that staff in First Trust Bank in Northern Ireland and AIB in Britain were not only anxious about their own futures, but also worried at the potential impact of any sell-offs on their customers. He questioned the wisdom of trying to dispose of the two divisions at a time when market conditions were so poor that the bank was unlikely to realise the full economic value of the businesses.
Broderick also spoke of the growing unease of staff throughout the AIB Group. He said that despite making considerable financial sacrifices as well as enduring abuse from customers and the public over the actions of senior management, ordinary bank workers were worried that their jobs could be in jeopardy in any future attempt by management to restructure AIB.
The alternative to disposals is a higher capital injection from taxpayer funds.
"The contagion effects are clearly spreading," Ken Wattret from BNP Paribas told CNBC Wednesday when discussing the Greek debt situation. Kathy Lien from GFT joined the discussion:
US Mortgages: An index of mortgage applications in the US dropped last week as rising mortgage rates hit refinancing, while an approaching deadline for a homebuyers’ tax credit boosted purchases for a fifth time in six weeks.
The Mortgage Bankers Association’s index decreased 2.9% the week ended April 23rd. The Washington-based group’s refinance measure fell 8.8%, while the gauge of purchases climbed 7.4% to the highest level since October, the month before the tax credit was initially due to lapse.
“We’re going to see some mortgage demand, with buyers taking advantage of the tax credit,” Robert Dye, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. “We’ll see some weak demand on the back side” after the tax credit expires.
The US government's $8,000 tax incentive is bringing buyers into the market ahead of the deadline for signing contracts at the end of the month. Any further increase in housing demand after the credit ends may depend on gains in employment as a growing economy pushes up borrowing costs.
The average rate on a 30-year fixed loan rose to 5.08% from 5.04% the prior week, the group said. Rates reached a record low of 4.61% in March 2009 after the Federal Reserve began a mortgage-purchasing plan aimed at lowering lending rates. The program ended last month.
At the current 30-year rate, monthly payments for each $100,000 of a loan would be $541.72, up from $514.44 a year ago when the rate was 4.63%.
Senate to hold third vote on financial regulation bill this afternoon, with CNBC's John Harwood:
US Financial Reform: The US Senate will hold a third vote today on Democrats’ push to start a floor debate on their financial-overhaul legislation and end bipartisan negotiations, Majority Leader Harry Reid said.
The vote will be held at 12:30 p.m. Washington time, said Reid, a Nevada Democrat. Republicans blocked debate in the first two votes this week as Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat who wrote the bill, and Richard Shelby of Alabama, the banking panel’s top Republican, continued efforts to agree a deal.
Senate Minority Leader Mitch McConnell, a Kentucky Republican, cited testimony at a Senate subcommittee yesterday by Goldman Sachs CEO Lloyd Blankfein, who said he was “generally supportive” of the Democrats’ bill.
“Republicans aren’t about to rush this bill just to make Lloyd Blankfein happy,” McConnell, who held a secret meeting with hedge fund managers in New York two weeks ago, said. “And not before there’s an ironclad protection against any taxpayer funding of Wall Street firms like his.”
Discussing Wall Street's ethics, with Edward Freeman, Business Roundtable Institute for Corporate Ethics and Paul Argenti, Tuck School of Business at Dartmouth:
US markets
On Wednesday, the Dow has gained 55 points or 0.50% to 11,047.
The S&P 500 has added 0.70% and the Nasdaq Composite has advanced 0.06%.
On the New York Mercantile Exchange, oil for June 2010 delivery is trading at $82.81 up 37 cents from Tuesday's close. In London, Brent crude for June delivery is trading at $85.63 a barrel.
Currencies
The euro is trading at $1.3136 and at £0.8665.
For live currency updates, check the right-hand column of the Finfacts home page. The dollar traded at a record low $1.6038 per euro on July 15, 2008.
