The Irish Independent reports that elements of the bank guarantee will not be continued after September, Finance Minister Brian Lenihan said yesterday.

"We want to see them (the banks) off the guarantee as soon as possible. What we're talking about here is the phasing out of the guarantee over time," Mr Lenihan said on RTE. But the taxpayer could still have to shoulder the risk on most of the €77bn which the banks will have to raise in fresh funds before the end of the year, industry sources say.

This is because they can be covered by the extension of parts of the guarantee scheme to December 31. The extension, agreed with the EU in June, covers bank borrowings of between one year and five years' duration. This will allow the banks replace the loans which have to be repaid at the end of September, when the original two-year guarantee was due to expire.

Department of Finance information shows that the only liabilities still set to come off guarantee at the end of next month are loans and corporate deposits of less than three months' duration and interbank deposits.

All the others are guaranteed to the end of the year. Mr Lenihan said discussions were under way with the European Commission about extending some of the September deadlines. There may be government concerns about the effects of an end to the guarantee on both interbank deposits and short-term corporate deposits.

The Government is examining applications made by individual banks as discussions continue, Mr Lenihan said.

Bailouts

Blanket rescues of the kind controversially launched by the Irish Government could become a thing of the past, under proposals being considered by the Basel Committee on Banking Supervision.

The committee, which sets international banking rules, is proposing that investors who lend to banks should bear some of the cost of future bank bailouts in an effort to curb excessive risk-taking by banks and reduce the dangers to taxpayers of bank failures.

The most controversial aspect of the Irish bank rescue was that so-called 'subordinated' loans, which do not legally have to be repaid if the bank does not have the funds, were also covered by the taxpayer.

The same thing happened in several countries. The committee wants to go further than leaving subordinated debt to carry risk. It said all bonds sold to provide regulatory capital for banks should be capable of absorbing losses if the bank cannot fund itself in the private markets.

The Irish Independent's Deputy Business Editor Emmet Oliver writes that that from the perspective of the Irish economy and Irish customers, Bank of Scotland (Ireland) was the good bank that went bad.

When it first entered the Irish market more than a decade ago, it brought cheap mortgages and longer opening hours.

It also shattered the stranglehold of AIB and Bank of Ireland, offering choice and spreading credit into corners of the economy previously neglected by the incumbents.

But the bank, we now realise, was all about short-term market share gains and unsustainable lending.

In fact, the financial conduct of Bank of Scotland (Ireland) over recent years in Ireland has been nothing short of extraordinary.

For example, the bank had a loan-to-deposit ratio as the crash came of 5 times -- meaning that for every €5 on loan, there was only €1 of deposits backing the loans up, forcing the bank to plug the gap with wholesale funding from other banks. This was the highest level of leverage in the Irish market and far higher than even Irish Nationwide or Anglo Irish Bank.

Apart from the lack of deposits to support its lending, the bank also took a major gamble backing a host of Irish property developers, many of whom eventually landed in major financial trouble, like Liam Carroll and Bernard McNamara.

Bank of Scotland (Ireland) became the fifth-largest lender to the property-development sector and the bank's association with Liam Carroll was one of the most renowned linkages in Irish banking.

The bank was also a big player in mortgages with a 7pc market share, much of it encouraged -- for a time -- by the offering of 100pc mortgages.

Now the bank's €33bn loan book is so toxic the bank has been forced to shift it into another company, to be wound down over several years.

With the bank no longer prepared to stay in Ireland because of limited growth opportunities, one wonders how the borrowers with loans in this company will be handled -- it's unlikely to be with kid gloves.

Foreign banks provided one-in-three of every euro lent by the tail-end of the boom. Consequently, the loss of Bank of Scotland (Ireland) will have a reasonably large impact on borrowers, particularly Small to Medium Enterprises (SMEs).

Other foreign banks could conceivably follow as the opportunities to make money here reduce.

What Ireland ideally needs now is a new bank, one with a clean slate, and unencumbered by bad debts. Such a new entrant would also prevent the Irish banks from excessively raising charges and mortgage rates. But is there anyone out there? Sadly, not at present.

The Irish Times reports that up to 150 hotels are facing an uncertain future as Bank of Scotland (Ireland) yesterday announced it is to cease providing working capital to business customers by the end of the year due to the bank’s withdrawal from the Irish market.

It is estimated that the bank provides upwards of €30 million in working capital facilities to the hotel sector.

It is responsible for 20 per cent of all loans to the sector – equating to more than €2 billion in long-term loans.

While hotels, along with retail and business customers, will be obliged to repay their loans to the bank as normal, there is concern that the decision to withdraw working capital facilities will have a serious impact on the industry. According to the Irish Hotels Federation (IHF), the hotel sector is particularly dependent on working capital due to the seasonal nature of the industry.

The IHF’s Paul Gallagher warned that the withdrawal of working capital facilities in December would be “catastrophic”. He also highlighted the fact that other banks will be reluctant to take on new customers, particularly when asset securities will continue to be held by Bank of Scotland (Ireland).

Business representative groups from across the board expressed concern about the impact of the closure on Irish businesses.

It is estimated that up to 20 per cent of the bank’s 175,000 customers are business customers. While there is no specific breakdown of Bank of Scotland’s market share in terms of business accounts, research by Isme estimates that the bank has a 5 per cent share of SME customers.

Isme’s Mark Fielding said the closure would lead to a further deterioration in competition for SME lending. Both Isme and Chambers Ireland expressed concern about the ability of SME customers to secure credit from other financial institutions.

There was a mood of muted resignation among Bank of Scotland (Ireland) employees yesterday as they left their workplace on St Stephen’s Green.

One 25-year-old said there had been a breakdown of trust between bank and employees as workers had been assured in February that there jobs were safe.

“It’s hard to believe them [now] when they say that our jobs are safe for two years.”

Some workers complained that they had first heard the news through the media.

The 36 workers who lost their jobs immediately were told of the job cuts by management yesterday morning, while the remaining 800 staff were told of the news via a conference call.

Opposition politicians yesterday claimed that the bank’s exit from Ireland was an indictment of the Government’s economic and banking policy.

Labour Party finance spokeswoman Joan Burton said other foreign retail banks operating in Ireland were anxious to curtail their activity here, despite assurances from the Government that the banking situation is under control.

Fine Gael deputy spokesman on finance Kieran O’Donnell called on the Minister for Finance and the Financial Regulator to make a full statement about when they learned of the bank’s intentions.

Asked about the withdrawal of the bank from the Irish market, Minister for Finance Brian Lenihan said that there had been too much lending in the Irish economy, and the cost for any foreign bank pulling out would be met by the shareholders of that bank.

The Irish Times also reports that newspaper sales fell in the first half of the year, with all Irish-published daily titles and Sunday newspapers listed in the latest “Island of Ireland Report” from the Audit Bureau of Circulations (ABC), recording lower circulation.

Figures released yesterday by the ABC show that sales of The Irish Times fell 7.6 per cent between January and June this year compared to the same period in 2009.

The circulation of The Irish Times now stands at 105,742, down 8,746 copies compared to 114,488 in the first half of 2009. Sales of the newspaper fell 1.1 per cent compared to the second half of 2009.

The ABC report shows that the Irish Independent’ s average circulation fell 4.8 per cent to 144,896, down 7,308 copies on the circulation of 152,204 recorded in the first half of 2009.

Sales of the Irish Independent fell 3.3 per cent compared to the second half of 2009.

The number of “actively purchased” copies of The Irish Times, which excludes bulk sales and discounted copies, was 91.9 per cent. The percentage of the Irish Independent’ s sales that were actively purchased was 87.1 per cent.

On average, the tabloid edition of the Irish Independent accounts for almost two-thirds, or 64.8 per cent, of its sales.

Sales of the Irish Examiner fell 7.3 per cent to an average circulation of 46,687 during the period, down 3,659 copies year-on-year from 50,346.

Among the evening dailies, the Evening Herald’ s circulation dropped 5 per cent to 67,657, losing 3,530 copies, with its weekend edition falling 2.3 per cent to 40,933.

Cork’s Evening Echo recorded a circulation of 22,288, down 7.9 per cent.

The Sunday market was also hit by falling sales, with the highest percentage decline recorded by the Sunday Tribune. The newspaper’s circulation fell 17.2 per cent to 54,400 from 65,727, down 11,327 copies on the first half of 2009.

The Sunday Business Post saw its circulation decline 14.1 per cent to 49,637 from 57,783, down 8,146 copies.

The Sunday Independent’s circulation fell 2.5 per cent to 265,455 from 272,174, losing 6,719 copies year-on-year.

The Sunday World remained the paper with the highest circulation in the Republic, selling an average of 267,130 copies during the period.

However, this circulation was down 3.7 per cent or 10,374 copies on the same period in 2009.

The “Island of Ireland Report” does not include British newspapers that publish Irish editions. However, separate ABC figures show that the Irish edition of the Sunday Times recorded a circulation of 111,640 in the first half of the year, down 4.2 per cent or 4,901 copies.

The Irish editions of the Sun , the Star and the Mirror all declined.

Almost all weekly Irish-published regional titles experienced declines in their circulation year-on-year.

The Irish Farmers Journal’s circulation in the first half of the year was 70,064 copies per week, down from 71,084 in the same period in 2009.

The Irish Examiner reports that investment group One51 has the capacity to more than double its share value and could either float or sell its environmental services division in the next couple of years, according to one stockbroking firm.

Shares in the Philip Lynch-led business are currently trading at a price of €1.90 on the so-called grey market.

The business has significant shareholdings in a variety of Irish companies, including shipping business Irish Continental Group (ICG), financial services provider IFG and renewable energy specialist NTR.

A detailed update report on the group, published by Bloxham Stockbrokers, suggests that the business’s share price could actually increase to between €3.13 and €4.23.

This depends on the realisation of investments and non-core assets over the medium term and the continued development of ClearCircle, the group’s re-branded environmental services division.

Bloxham’s Paraic Quinn said: "We value One51 on a sum-of-the-parts basis given the four distinct divisions [environmental, infrastructure, food/distribution, renewable energy] and varying degree of control that exists for different businesses.

On this basis, we arrive at a valuation range of between €3.13 and €4.23 per share, which represents considerable upside from the current €1.90 level."

The valuation doesn’t technically mark an upgrade from Bloxham, as the broker didn’t have a previous forecast on the company.

Bloxham’s report also highlights the favourable position of One51’s current banking facilities and its near €57m in cash reserves.

"While debt pay-down is a priority for the group in 2010, its financial position allows it to continue to take advantage of potential opportunities which may arise," added Mr Quinn.

One51 — which has already added, via acquisition, to its environmental services division this year — recently reported EBITDA of €26m for the first half of 2010, up by 14% on a year-on-year basis.

Nevertheless, the group came under recent pressure from a group of disgruntled independent shareholders to re-focus into a dedicated cleantech business and dispose of non-core investments, such as its stakes in ICG and IFG.

The group failed, however, to gain representation (which would have included former Beamish & Crawford head, Alf Smiddy) on the company’s board at its recent annual general meeting.

"The overriding rationale of introducing ClearCircle as a single recognisable brand forms part of the group’s plans for an IPO or trade sale of its environmental services operations in the next 18-24 months," Bloxham said in its report.

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