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The audience listens as President Barack Obama delivers remarks on the economy at Cuyahoga Community College in Parma, Ohio September 8, 2010.
Irish Bonds:
The National Treasury Management Agency (NTMA) held an auction of Irish Treasury
Bills today . Two Treasury Bill lines were offered in the auction with
maturities of five months and seven months and a target issuance range of €400m
to €600m.
Total bids were received for €2.761bn. It was decided to issue a total of €400m;
€150m of 5 month Bills and €250m of 7 month Bills.
The weighted average annual interest rate was
1.925% for the 5 month bill and 2.19% for the 7 month bill.
The spreads on
Irish and Portuguese bonds today were 371 basis points (3.71%) and 353 basis
points respectively over the 10-year German bund. The Irish yield had reached
385 points on Tuesday.
Ireland: Bloomberg
reports as a 12-year-old boy, Brian Lenihan learned
Latin during the summer to win a place at James Joyce’s alma
mater, Belvedere College in Dublin.
Almost four decades later, that 1971 spirit is evident as
Ireland’s finance minister fights to save his country’s
economy and its banks, while staving off pancreatic cancer.
“I don’t know how he kept going but he did,” said
Mary O’Rourke, Lenihan’s aunt, Latin teacher and a former
enterprise minister. “That goes back to the little boy of
12 learning Latin, a strange task and a strange language. If
he sets himself a task, he’ll do it. The odyssey is
beginning again.”
"We are being punished
because we have exposed our dirty linen on the banking front," Irish Finance
Minister Brian Lenihan told CNBC Thursday. "We've made no secret of it":
Irish 10-year yield halts upward rise following government
announcement on Anglo: Davy economist, Aidan Corcoran, commented
-- "The upward pressure on the Irish 10-year bond yield eased
following the government announcement on Anglo, although it still
finished a touch higher on Wednesday than on Tuesday, at 5.991%
versus 5.983%. Ireland's experience with the debt markets has shown
that transparency can be a two-edged sword, but the increased
clarity on Anglo's fate will surely soothe markets once the news has
been digested. Tomorrow's NTMA issue of between €400m and €600m of
short-term (six- and eight-month) bills will provide another insight
into market reaction. However, repeating the fall over the last two
six-month bond issues from 2.458% on August 12th to 1.978% on the
26th may be difficult, given the recent negative data flow.
The release tomorrow of the August CPI index will give some
indication of consumers' take on the economic outlook, with the fall
in consumer confidence, according to the KBC/ESRI index, pointing to
a weakening but still present recovery in consumer demand. Consumers
outside Ireland are as relevant to the Irish recovery as the
domestic consumer, and the picture there has grown less buoyant of
late. Germany may not be a key importer of Irish goods and services,
but it is the presumed engine of the European recovery, so the 2.2%
fall in imports in July from June was unwelcome news yesterday, as
was flat industrial production over the same months.
Consumers like to bemoan inflation, but a return to consumer
inflation in Ireland will help to reduce the real value of debt
facing Irish households. Somewhat paradoxically, this could in turn
encourage spending, aiding the nascent recovery."
Dermot O’Leary, chief
economist at Goodbody stockbrokers, talks to CNBC about the cost to Ireland of
restructuring Anglo Irish. “Looking at yesterday’s announcement, it’s a small
step, and the giant leap will come in October when we get the estimates of the
cost of the overall bailout of Anglo Irish,” O’Leary said.
Economic View: Anglo future becomes a little clearer, Goodbody chief
economist, Dermot O’Leary, comments -- "The Government went at least some of the way to improving the transparency
around the future of Anglo Irish Bank last night. The bank will be split into
two: (i) a Funding Bank (FB) will hold all deposits, with NAMA bonds on the
asset side, and; (ii) an Asset Recovery Bank (ARB) which will hold all of the
remaining loans (after NAMA transfer) and this will be funded by all of the bond
holders and the FB. The ARB’s function will simply be to work-out the assets
over time that maximises the return to the taxpayer. The latter sounds very like
NAMA to me!
Given that we knew from leaks in recent days that the government preferred a
wind-down, does the news last night change anything? In some respects it does.
While the ARB will be run down over time, the FB will not. This is important for
two reasons: (i) it creates a distinct new entity for deposits (both existing
and potential) that reduces the risks of a mass outflow, that was likely in the
immediate aftermath of an announcement of the winding-up of the institution,
and; (ii) it alters the risk structure of the old Anglo (or the new ARB).
Finance Minister Lenihan is publicly quoted as saying that this does not affect
bondholders, but it does break the link between depositors and bondholders
ranking “pari passu” with deposit holders should the realised value of the
assets be lower than expected. The Department has also stated in relation to
subordinated debt holders that it will continue to examine appropriate burden
sharing arrangements.
Where the last night’s announcement falls short though is in relation to an
estimate of the final cost to the state of crisis at the bank. As has already
completed with the two main banks, the Central Bank will now complete an
assessment of its loan book and report back by early October on its findings. It
is only then that the estimate of the final cost will be known. The market
reaction was quite positive, but it is likely to take some time for the
information to be fully digested given the unusual process involved. It’s a
small step forward, but the giant leap will be when we get an estimate of how
much it will cost the Irish state."
”It’s a horrible
number…last month was quite a good month,” Alan Clarke, UK economist at BNP
Paribas told CNBC after the release of weaker-than-expected July UK trade data:
US Markets
In New
York Wednesday, the Dow rose 46 points or 0.45% to 10,387.
The S&P
500 rose 0.64% and the Nasdaq gained 0.90%.
Asia Markets
The MSCI Asia
Pacific Index climbed 0.8% Thursday.
The Nikkei 225
added 0.82%; China's Shanghai Composite dipped 1.44%; Australia's S&P/ASX 200
Index gained 0.99% and India's Sensex Index
advanced 0.75%.
Japan's finance minister affirmed the threat of yen-selling
intervention alive Thursday, saying authorities "are conducting various
simulations" to curb the currency's strength.
He made the remarks in the Diet after attending a new,
high-level meeting of policy makers and private-sector experts, where he said
the yen was an issue of discussion. The panel, which includes Bank of Japan Gov.
Masaaki Shirakawa, was launched Thursday by Prime Minister Naoto Kan and will
meet regularly to coordinate and implement policies to put Japan's economy back
on track to long-term health.
In
Europe, the Dow Jones Stoxx 600 is up
0.24% Thursday.
The
ISEQ has risen 0.21% in
Dublin.
CRH is
off 0.15%; Elan is up 0.87%; AIB has risen 1.72%; BoI fell 1.29%.
Elan (Reduce, Closing Price $4.61): Investor proposes four new board members; Goodbody's Ian Hunter comments - - "In a public conference call yesterday, an Elan shareholder who, over the past
number of months, has raised a range of corporate governance-related issues,
proposed four new candidates to be considered for nomination to the Elan board.
In response, Elan noted that it is always 'open to and appreciates investor
feedback' and that the 'Nominating and Governance Committee of Elan's Board of
Directors will take the names of all proposed candidates for our Board under
advisement.'
Management commissioned an independent enquiry on corporate
governance-related issues back in May, which is due to report to the Board on
the 15th of September (next Friday). Despite this, the company is under pressure
both from within the Board (as reported earlier in the week) and from certain
shareholders, as evidenced yesterday. Although such issues will have little
impact on the day to day running of Elan, we look for them to be resolved as
soon as possible, to return investor focus back to the progress of Tysabri, EDT
and the company's drug pipeline."
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 Thursday, July 15, 2010, the index fell for the 35th
straight session, by 9 points, or 0.537%, to 1,700 points,
Bloomberg report.
On Friday July16th,
the BDI rose 20 points or 1.12% to 1,700 to break the 35-session losing streak;
on Wednesday this week, the BDI
rose 57 points or 1.95% to 2,975.
The spot price of an oz of gold is trading in New York at
$1,253.30, down $2.10 from Wednesday's close.
Irish Financials: Anglo Irish –
Funding bank and recovery bank; Goodbody's Eamonn Hughes commented --
"The government yesterday announced the splitting of Anglo Irish into a Funding
bank and an Asset Recovery bank. The former will be a specialist deposit bank,
fully capitalised, while the latter will focus on working out Anglo’s loans not
transferred to NAMA. See economics section above for a bit more detail on the
proposal. However, for the banks, there are a number of points of interest.
Firstly, this procedure appears to be a means to stabilise the €23bn of
depositors at Anglo where the fear was that deposits would flow when formal
announcements around a wind-down materialised. Tuesday’s extension of the
guarantee probably staggered some of these flows a little longer, but the
announcement yesterday may give depositors further comfort, stripping them out
into another state bank. As such, we wonder whether this could see Anglo Irish
less aggressive in the deposit space than in the wind-down or good bank
proposals. In addition, one wonders whether there is a similar solution in store
for Irish Nationwide, though it may be a bit more complicated with the mortgage
book.
Secondly, we still haven’t quite resolved the ultimate extent of losses at
Anglo, with the government indicating a decision by October (the Central Bank
will make the determination). So for the moment, there is no change there,
though we note domestic bond yields were broadly unchanged yesterday after the
announcement. However, a final cost determination on Anglo is one of a number of
points on which the market seeks clarity, hence impacting wholesale funding
costs for the banks.
Sticking on the topic of funding costs, we note the speculation that BOI may
consider migrating some of its €50bn short term deposits out of the state
guarantee scheme at the end of September notwithstanding the extension until
December, confirmed by the CEO last night according to this morning’s media.
However, the position is regarded as been fluid and determination of the final
cost for Anglo in October may ultimately have a bearing on the decision.
Clearly, having recapped itself, BOI is best positioned of the banks to consider
such a proposal though working out the precise impact is difficult given the
bank is likely to find itself paying higher rates on the un-guaranteed deposits.
However, simplistically, presumably the move is being considered because it is
actually cheaper - however, material - and it signals to the market the bank is
moving along the road to normalisation."
