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News : International Last Updated: Jun 1, 2010 - 7:14:54 AM


Tuesday Newspaper Review - Irish Business News and International Stories - - June 01, 2010
By Finfacts Team
Jun 1, 2010 - 5:44:54 AM

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The Irish Independent reports that Finance Minister Brian Lenihan yesterday received two reports on the banking crisis.

Failures to regulate banks and too many property tax breaks will be highlighted in the reports. The reports form the first part of the inquiry into the near collapse of the banking system. One report, from international banking experts Klaus Regling and Max Watson, focuses on the banks' activities in the years before the crisis.

The second, from Central Bank governor Professor Patrick Honohan, looks at the regulation of the banking sector by the Central Bank and Financial Regulator. Mr Lenihan is expected to bring both reports to the Cabinet, but it is not clear if this will happen today or at a later meeting. A spokesman for Mr Lenihan said he hoped the reports would be released to the public in the next 10 days. Taoiseach Brian Cowen said yesterday that a Dail debate and more investigation would follow on from the reports.

"As we said, we would have a scoping inquiry from those authorised personnel and they'll be reporting to the Department of Finance for assistance and we would consider those reports," he said.

"And in due course we'll have a Dail debate on them as well and arising out of that we'll have further investigation."

Once the report by Mr Watson and Mr Regling is released, the Government will then move to a second phase, which is a statutory commission of investigation. The terms of reference of this commission have not yet been decided.

Prof Honohan's report examines the regulation of the banking system by the Central Bank and Financial Regulator. It is expected to find the Regulator failed to adequately police the banking system.

The tax breaks provided to sections of the property industry in the years leading up to the crash form a heavy part of the report by Mr Regling and Mr Watson.

The decision to give tax breaks to various types of property investments will be a central plank of the report and this has the potential to cause political embarrassment.

Mr Cowen admitted earlier this month that tax breaks should have been shut off by the Government at a much earlier date.

The remuneration levels at Irish banks is also a central area of concern for the inquiry, along with wholesale funding.

The Irish Independent also reports that Central Bank governor Patrick Honohan has spoken out in support of the Government's economic policies by dismissing experts who believe Ireland and the euro are in deep trouble.

"Doomsday discussions are actually beside the point because governments have committed themselves to viable fiscal plans," Professor Honohan said yesterday.

The comments come days after University College Dublin economics professor Morgan Kelly said it was only a matter of time before the country goes bust.

Prof Honohan's comments are the first public endorsement of government policy for some time.

Prof Honohan added that he thinks the euro area is "safe" and he expects it to continue to expand. "I don't have any doubt in my mind that the euro and the euro area are permanent features of the landscape," he said. "The euro will continue to have an even growing membership of countries."

So far, investors seem unconvinced by the efforts of the European Central Bank and European governments to solve the continent's problems.

The euro has slumped 14pc against the dollar this year.

"It's not surprising that markets would react in this way and I suppose without necessarily endorsing exactly what the market is doing, one has to be realistic," Prof Honohan said.

Prof Honohan also weighed into the debate raging within the ECB over the bank's decision to buy government bonds, saying it could be an "important" new weapon in the bank's armoury and that any risks associated with the policy were being managed.

The Irish Times reports that Anglo Irish Bank has proposed putting just one-fifth of its loans into a so-called good bank as the cheapest option facing taxpayers under a revised viability plan submitted to the European Commission yesterday.

The bank plans to dump up to €24 billion in loans into an internal bad bank to be run down over time after Anglo transfers €36 billion in loans to Nama.

The bank believes there could be between €12 billion and €15 billion in loans on its books that could be moved to a good bank out of a total loan book of €72 billion before transfers to Nama began. The revised plan to split State-owned Anglo into a good bank-bad bank was submitted to Brussels as the Government committed a further €2 billion in capital to the heavily loss-making institution.

This brings to €14.3 billion the total amount in taxpayers’ funds committed to the bank as the capital bill at Anglo rises toward the potential €22.3 billion outlined by the Government in March. Anglo has argued that the cost of winding the bank down immediately or over time would be significantly higher than splitting itself into a good bank and bad bank.

Minister for Finance Brian Lenihan has increased the promissory note to €10.3 billion from the €8.3 billion committed in March – on top of €4 billion in State cash injected into the bank last year.

The Department of Finance said the note, which is essentially an IOU under which Anglo can draw cash from the State for up to 15 years, reduces the impact of the bailout this year and stretches the payments into the future.

The additional €2 billion was required after Nama paid a lower-than-expected price for the first loans acquired from Anglo owing by the 10 biggest borrowers.

Nama, which was set up by the Government to remove toxic development loans from the banks, applied a discount of 55 per cent on the first €9.3 billion in loans moved last month from Anglo. The bank had expected Nama to apply a discount of 28 per cent.

Further capital injections will depend on discounts applied on the remaining €26 billion Nama-bound loans at Anglo and losses on the loans left behind at the bank.

The Irish Times also reports that lending to Irish businesses continued to fall in the year to April, but the pace of decline moderated, the Central Bank said.

Credit to non-financial corporations fell 4.5 per cent on an annual basis in April, compared to 4.6 per cent in March. This excludes the impact of loans transferred to the National Asset Management Agency and valuation effects.

The net flow of credit transactions during the month was -€109 million, or 0.1 per cent, compared with -€1.3 billion in March and -€842 million in February as repayments exceeded new lending.

The amount of credit outstanding to businesses, excluding banks, on the balance sheets of Irish financial institutions stood at €134.2 billion at the end of last month, as the transfer of loans to Nama and an increase in impairment provisions reduced the total.

Loans with a book value of just under €4 billion at the end of March 2010 were transferred to Nama in April, along with loans of €347 million issued by non-resident offices of the participating credit institutions.

Meanwhile, household credit was down 1.8 per cent during April, with the net flow of household credit transactions at -€346 million. This compares with a revised decline of 1.9 per cent in March, when transactions were -€466 million.

Residential mortgage lending outstanding fell by €348 million during April, a fall of 1.6 per cent for the year.

Meanwhile, credit card debt rose slightly during the month, but repayments on personal cards were about €11 million higher than new spending.

Bloxham economist Alan McQuaid said the figures supported concerns that a lack of credit could hinder Ireland's economic recovery.

"Even allowing for muted demand for businesses for bank credit, the latest lending data maintain concern that the Euroland/Irish economic recovery could be held back over the coming months by a significant number of companies being unable to get the credit that they need," he said.

"On the positive side, the data support the view that the European Central Bank will keep official interest rates on hold at 1 per cent for the remainder of this year, with no rate hike likely until the first half of 2011."

The Professional Insurance Brokers Association (PIBA) said the figures were worrying and indicate that “normality is some way off”.

It called on the Government to raise the minimum lending requirements set for the banks.

"The reality is that people are having great difficulty in acquiring mortgages. And those hardest hit are first-time buyers," said PIBA's mortgage services director Rachel Doyle.

“The reality is that banks are cherrypicking in a very crude way and that is having a damaging effect on everyone, including the banks themselves."

Meanwhile, the data also revealed the overnight money market interest rate (Eonia) fell marginally by 6 basis points during the month. Unsecured rates over longer maturities were relatively unchanged, and the spread between secured and unsecured inter-bank borrowing rates were also stable.

Monetary financial institutions in Ireland accounted for €195.5 billion of the euro area’s broad money supply, or M3, in April, an annual rise of 1.4 per cent.

The Irish Examiner reports that Ireland's major banks will have left the worst behind them and be "fixed" by the year end, Central Bank governor Patrick Honohan believes.

"People may not fully internalise and appreciate that we’ve fixed the banks until they suck it and see," Mr Honohan said in an interview with Bloomberg.

"It may be some months before the market fully realises that this is working out," he added.

AIB and Bank of Ireland are trying to raise a combined €10bn by the end of 2010 to meet new capital requirements and shore up losses from the collapse of the property market.

Mr Honohan also dealt with recent warnings made by Professor Morgan Kelly of UCD who said the bailout of the banks involving the transfer of €80bn in bad loans to NAMA and the €7bn pumped into the main banks, plus the guarantees, would eventually bankrupt the country.

"He is right in his perception that it’s a heavy price to pay," Mr Honohan said. "But I am sure that it is a manageable burden."

Prof Honohan said recently the total cost of bailing out Anglo Irish Bank could be €25bn.

Finance Minister Brian Lenihan took the state and the taxpayer closer to that figure yesterday when he pledged a further €2bn in capital to the bank. This cash is part of a previously announced plan to inject €10bn into the lender, the minister said in a statement.

The rest may be paid over a period of 10 to 15 years, he said.

Mr Lenihan made €8.3bn available to Anglo in March on top of the €4bn invested in it last year to keep the bank from going under.

At the time he said the bank could need another €10bn and the latest €2bn announced today is part of that bailout package.

The €8.3bn and yesterday’s €2bn are in the form of promissory notes and facilitates them being drawn down over an extended period.

In Brussels yesterday the European Commission approved a one-month extension to Ireland’s bank guarantee scheme to the end of June.

The Government may well look to extend further before Irish banks again start issuing debt without state backing.

Ireland first issued a guarantee for some €400bn of bank liabilities at the height of the credit crisis in September 2008, in what then was one of the most extensive schemes of its kind. The guarantee, which was originally for two years, was amended last year to allow banks to issue guaranteed debt with maturities of up to five years, but it still had a 2010 issue deadline and is periodically reviewed by Brussels.

Ireland joined 13 other EU countries – including Germany, Sweden, Spain, Latvia and Poland – in getting its state guarantee scheme approved until end-June. With Irish banks some of the worst hit in the credit crisis and also dependent on the state for their capital needs, analysts and media reports said the Government would seek to further extend the guarantee until the end of 2010.

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Editor's Picks:

China property risk is worse than in US - - Central bank adviser issues bubble warning; Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank’s monetary policy committee, said recent government measures to cool the property market needed to be part of a long-term push to bring high housing prices under control. 

Chinese workers swap angst for anger - - After suicides, strikers at a separate factory refuse to be pacified; The workers’ defiance was written in red ink. “If you are Chinese you will definitely not sign – one for all and all for one,” a striking Honda employee wrote over a form urging his colleagues to renounce more industrial action.

Google ditches Windows on security concerns  - - Internal directive follows China hacking

China Insight A cocktail party - without the cocktails - - "Witness Fidelity’s legendary British fund manager Anthony Bolton’s explanation for his decision to come out of retirement and launch a new career at the helm of a China fund: 'Only a remarkable opportunity could have tempted me ... This may be the biggest economic and investment story of our generation.'

In the spirit of the nutcracker revolutionaries, I would like to warn you that I think the Asian business development model is flawed"

Philip Stephens Prurience, media and Laws' resignation - - "It was impossible, the presenter on Radio 4’s flagship Today programme informed the nation the morning after the story first broke, for the chief secretary to stay in his job. He could not impose harsh spending cuts on hard-working voters while his own probity was in question. Thus Mr Laws was charged, tried and convicted over the airwaves.

This, of course, was humbug – the sanctimonious 'public interest' defence the media always deploys when it wants to throw mud at someone in the public eye. There was a time when the BBC concerned itself with dispassionate reporting and analysis of the facts. Now it runs at the front of the tabloid pack."

Nouriel Roubini Solutions for a crisis in its sovereign stage - - "the eurozone must get its act together. It must deregulate, liberalise, reform the south and stoke demand in the north to restore dynamism and growth; ease monetary policy to prevent deflation and boost competitiveness; implement sovereign debt restructuring mechanisms to limit moral hazard from bail-outs; and put expansion of the eurozone on ice."

ECB warns of ‘hazardous contagion’  - - Estimate of €195bn in bank writedowns in 2010 and 2011.

Access to the New York Times is currently free. If you are not registered, click here

Editor's picks:

Job outlook for teenagers worsens- - Stimulus money that helped some government job programs is running out, and private employers are reluctant to hire. Above, young people marched to the State House in Boston to protest cuts in financing for jobs.; With so many people competing for so few jobs, unemployed youth “are the silent victims of the economy,” said Adele McKeon, a career specialist with the Boston Private Industry Council who counsels students on matters like workplace etiquette, professionalism and résumé writing.

Israeli raid complicates US ties and push for peace- - The deadly operation on a flotilla trying to break a blockade of Gaza introduced a new strain into already tense relations between the United States and Israel; While the administration’s public response was restrained, American officials expressed dismay in private over not only the flotilla raid, with its attendant deepening of Israel’s isolation around the world, but also over the timing of the crisis, which comes just as long-delayed American-mediated indirect talks between Israelis and Palestinians were getting under way.

Owners stop paying mortgages, and stop fretting- - Some overextended borrowers stop paying the mortgage and capitalize on the time that it takes to be evicted; Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.

“We could pay the mortgage company way more than the house is worth and starve to death,”said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”

Chinese supercomputer is ranked world’s second-fastest, challenging US dominance- - The Dawning Nebulae computer has achieved a sustained speed of 1.27 petaflops — the equivalent of one thousand trillion mathematical operations a second.

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Will Wall Street go free?- - Now that the Justice Department has dropped an investigation into AIG, will anyone pay a price for destroying the economy? Meanwhile, a single trader at Morgan Stanley, Howard Hubler, made a gigantic, wrong-way bet on the mortgage market, costing his firm some $9 billion in 2007 — the single largest loss a trader has ever incurred on Wall Street — and almost sending Morgan Stanley to a fate similar to that of Bear Stearns and Lehman. Yet Morgan Stanley allowed Hubler to resign quietly and, according to Michael Lewis’ book “The Big Short,” to walk off with a severance package worth “tens of millions of dollars.” There has been no talk of a criminal investigation into Hubler’s trading at Morgan Stanley or why they paid him so much money to go away.

BP retries diverting oil leak with dome- - Officials said they had resolved some of technical problems that had forced them to abort a previous attempt to use a dome to funnel oil to a tanker.


© Copyright 2010 by Finfacts.com

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