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News : International Last Updated: Jun 21, 2011 - 9:00 AM

Tuesday Newspaper Review - Irish Business News and International Stories - - June 21, 2011
By Finfacts Team
Jun 21, 2011 - 7:08 AM

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The Irish Independent reports that Finance Minister Michael Noonan was last night hoping a new EU move would help us return to normal borrowing on international markets within two years.

The Government was also cautiously more upbeat about securing a cut in the interest rate on the bailout by the end of next month.

Behind-the-scenes talks between Ireland and France on the interest rate have intensified in recent days, government sources said.

The EU yesterday put a 'firewall' in place to protect Ireland and Portugal from the worsening crisis in Greece.

By making changes to its giant bailout fund, the EU hopes to convince investors to start lending to Ireland again by the end of 2012 or the start of 2013.

Changing the rules of its future bailout funds, the EU put private lenders on the same footing as European governments.

This means both sides will have the same rights to repayment if a country cannot cover all of its debts in future.

Up to now, private investors were concerned that governments would have the first call on repayment funds, so they were not interested in lending to countries already in a bailout for fear they wouldn't get their cash back.

EU finance ministers meeting in Luxembourg also agreed to increase the size of the European Financial Stability Facility (EFSF) to €780bn from the current €440bn.

On top of that, the ministers also made an important change to the future rescue fund.

The so-called European Stability Mechanism (ESM), which will come into force in mid-2013 when the EFSF expires, will not have 'preferred-creditor status' when it helps countries that have already been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.


They hope this important change will help already-bailed-out countries regain access to debt markets.

The changes mean that private investors should now have more confidence in countries like Ireland that have received money from the bailout fund.

The 'preferred-creditor status' was spooking US investors and deterring them from lending to Ireland, Mr Noonan claimed.

"This is very good news for Ireland -- it will help us get back into the markets," he said.

"No matter how well we were doing under the programme, it was blocking us potentially from getting back into the market."

Taoiseach Enda Kenny also welcomed the changes to the ESM as "positive for Europe and not just Ireland".

Meanwhile, eurozone finance ministers gave Greece two weeks from Monday to approve stricter austerity measures in return for another €12bn in emergency loans, piling pressure on Athens to get its ragged finances in order.

After two days of crisis meetings, the ministers effectively issued Athens an ultimatum, saying that the Greek government, parliament and broader society had until July 3 to approve a new package of spending cuts, tax hikes and privatisation measures in order to receive the next tranche of EU/IMF aid.

National Treasury Management Agency (NTMA) chief executive John Corrigan, said that the changes to the EU bailout terms were a "helpful" step for Ireland's return to the international money markets.


The NTMA will try to tap outside investors for cash in late 2012 or early 2013, before the existing EU-IMF loan programme officially ends.

In a further development, the Government was slightly more upbeat last night about breaking the stalemate over the interest rate cut.

French President Nicolas Sarkozy is demanding a hike in our corporation tax for a cut in the bailout interest rate.

But a coalition source said there was now "more progressive engagement" with France on the 1pc interest rate cut on our bailout funds and said Germany was increasingly comfortable with the reduction.

The Irish Independent also reports that minister with responsibility for pensions Joan Burton admitted yesterday her department had major reservations about the new levy on private pensions.

Social Protection Minister Burton acknowledged her department had written to Finance Minister Michael Noonan pointing out the levy could force some company pension schemes to close.

The levy on private schemes has been introduced to fund a jobs initiative, but it could "incentivise or force" some pension schemes to wind up in deficit.

Seven out of 10 defined benefit schemes are in deficit, and the levy would make the funding problems worse, the letter states.

The levy involves a 0.6pc charge on the value of pension funds at the end of June and has to be paid each September. Many schemes will be forced to reduce the pensions of retired members and the pension benefits of those who have yet to retire.


Asked about the letter yesterday, Minister Burton said the levy has implications for her department.

Launching the annual report of the Pensions Board, she said her reservations about it were lessened when it was pointed out the levy would only be in place for four years.

Chief executive of the Pensions Board Brendan Kennedy would not say if he had advised the Government against introducing the levy. "The question of the levy is a question for the Government," he said.

The board, which is the State's regulator for pensions and has a role promoting the provision of pensions, provided technical advice to the Department of Finance on the levy, Mr Kennedy said.

But he refused to say if the board had advised the Minister for Finance on the wisdom of introducing the levy.

However, Mr Kennedy admitted the levy would reduce the value of pension fund assets.

The Pensions Board boss strongly criticised trustees of pension schemes for taking on too much risk with scheme assets.

The average fund had around 60pc of its money in equities and property, exposing schemes to potential losses.

The board said it was more than three years since stock markets crashed, but it had seen no noticeable reduction by Irish pension schemes in their exposure to equities.

The board said that the greatest single risk to Irish pension schemes was investment risk and the failure to manage this risk was the main reason why so many people would have less at retirement then they expected.

The board estimated that 75pc of defined benefit schemes were in deficit with the funding deficit substantial in many cases.

Defined benefit schemes in the private sector traditionally promise half of salary on retirement for those with 40 years' service.

Losses in defined contribution schemes were similar.

The board has relaxed a deadline for schemes to achieve minimum funding standards.

There has been a sharp fall-off in the numbers saving for their retirement.

Last year, 43,400 fewer people were in a pension scheme than in 2009. This brought down to 810,000 the number of people with a pension. But some 330,000 of these people were in the public service.

Asked about plans to reduce the tax reliefs on pensions, Ms Burton said this was a budgetary decision.

But she favours a move similar to the one in the UK where there is a lifetime cap on the size of each pension pot of £1.8m.

The Irish Times reports that global stock markets continued their downward spiral yesterday as euro zone finance ministers delayed the release of €12 billion in aid to Greece and Italy faced the threat of a ratings cut.

Markets were taken by surprise yesterday morning as investors awoke to the announcement that the €12 billion aid package would not be released until the Greek parliament backed a new austerity plan, despite indications late last week from senior European officials that the deal would be endorsed quickly.

The release of the funds, scheduled to take place in July, depends on the Greek government surviving a vote of confidence today.

European shares fell to a three-month closing low yesterday, as the market continued to look for certainty on the Greek issue.

National benchmark indices fell in every western European market. In Paris the CAC slid 0.6 per cent, while Germany’s DAX index fell 0.2 per cent. The FTSE 100 slipped 0.4 per cent, while in Dublin the Iseq closed down half a per cent lower.

Banking stocks accounted for some of the largest losses amid major concerns about their liquidity and funding positions.

Barclays, BNP Paribas, Lloyds and Royal Bank of Scotland all saw significant falls, though traders noted that volumes across the board were extremely low as uncertainty about Greece pushed investors to the sidelines.

Meanwhile, volatility continued on the bond markets.

The extra yield investors demand to hold Italian debt instead of benchmark German bunds widened after Moody’s said Italy’s credit ratings may be cut.

Ten-year Italian yields climbed three basis points to 4.85 per cent after being as high as 4.88 per cent. The yield jumped to 4.94 per cent at the end of last week, the most since March 11th. The spread between 10-year Italian bonds and German bunds widened to 190 basis points after reaching 204 basis points on Thursday, the most since January 11th.

So-called “peripheral” euro zone nations also saw yields on their medium- and long-term debt increase.

Irish 10-year securities yielded 853 basis points more than bunds, up from 843 basis points on Friday. Portuguese 10-year yields rose 24 basis points to 11.15 per cent, while its 10-year spread over bunds climbed 26 basis points to a euro-era record 821 basis points.

Equivalent-maturity Spanish yields were one basis point higher at 5.58 per cent, leaving the spread over German bunds three basis points wider at 263 basis points.

The euro continued to waver yesterday, down 0.8 per cent against the dollar at one point, though it did regain ground during the day. Brent crude oil fell by 82 cents a barrel to $112.39 a barrel, while US oil lost 30 cents a barrel to $92.71 a barrel.

Meanwhile, authorities in Dublin welcomed the announcement that the European Stability Mechanism, the permanent crisis fund that will replace the European Financial Stability Facility from June 2013, will not have preferred creditor status when it comes to loans to Greece, Ireland and Portugal.

The Department of Finance said the preferred creditor clause had been identified as a “significant impediment and risk factor” by default buyers of Irish bonds.

“The amendment is very good news for Ireland,” Minister for Finance Michael Noonan said.

“The change makes it possible now for Ireland to go back into the markets and be sure that there are people there that will lend us money.”

The Irish Times also reports that EBS building society subsidiary Haven Mortgages has reported a €6 million loss for last year despite steps to improve margins.

Haven, the brokerage channel for the building society which is being subsumed into AIB, saw provisions for impaired loans more than treble to €17.3 million over the year.

Despite the rise in impairments, the overall loss was in line with 2009 because of a rise in income from interest.

The company said interest income rose just over 15 per cent to €34.3 million mainly due to increased mortgage lending during 2010 and also because of an increase in mortgage margins.

At the operating level, Haven reported profits of €4.9 million in 2010 before impairments compared to a loss of €2 million the previous year.

The company reduced operating costs in the year to just over €5 million from €7.8 million in 2009.

In a review of the business, the company said the brokerage market now accounted for close to a third of all EBS’s mortgage business. Established in 2007, when EBS finally agreed to deal with intermediaries in the mortgage market, the company said it now had market share of 12.4 per cent compared to about 10 per cent in 2009.

It acknowledged that the market as a whole was contracting significantly. “However, although reducing, it remains an active market,” the company’s directors stated.

The rise in market share “clearly demonstrates Haven’s ability to remain competitive during a very challenging year”.

The company said affordability levels for new homeowners were now at their highest levels in 25 years. Average mortgage repayments had fallen by 48 per cent over the past three years to €639 a month.

However, with directors expecting no economic recovery before 2013, Haven is cautious in the outlook for growth in the mortgage market. “This reduced level of repayments will take time to translate into mortgage transactions and, as a result, the mortgage market in 2011 is expected to be in line with 2010 levels.”

The Irish Examiner reports that the first steps to provide a €1.2 billion state-backed loans scheme for start-up businesses have been announced by Enterprise Minister Richard Bruton.

The annual €400 million fund is set to be up and running by the autumn, according to his department.

Opening an Irish online social networking business yesterday in Dublin, Mr Bruton said a tender notice had gone out to find the company to design the scheme.

The three-year loans scheme will see a promised €1.2bn lent to start-up and innovative businesses. The loans will be given out by banks but partially guaranteed by the Government.

It is estimated the scheme will cost the State around €12m for every full year, based on administration costs and the underwriting costs of guaranteeing the loans. The online notice to design the scheme, launched recently, calls for companies to propose best international practice in how the partial loans scheme can be run.

Such schemes have operated in Chile, Taiwan as well as other European states, the minister’s spokesman said.

The loans scheme was announced as part of the Government’s recent jobs initiative launch.

Thousands of businesses are expected to benefit from the scheme, which is designed to help firms that do not currently qualify for bank loans because they have insufficient collateral to back up their borrowings.

Mr Bruton has previously said the state-backed loans scheme will create 25,500 jobs, 18,500 directly and 7,000 spin-offs.

After a shortlist of five companies are chosen to help design the scheme over the summer, it is expected to be rolled out in October.

Mr Bruton yesterday opened the expanded offices of SkillPages, a high-growth online social networking company which already has one million members worldwide. The company also has offices in Silicon Valley, California.

Chief executive Iain McDonald said: "What we do is connect people with skills to people who need them. If you have a skill, you can create a skill page that’s free. People can find you through searching on Google or through searching on SkillPages directly."

Mr Bruton said yesterday following his trade visit to Silicon Valley, where he met over 20 companies, that he expected some of them to bring jobs to Ireland.

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IMF ties Greek aid to bail-out pledges - -€12bn tranche blocked weeks before due; IMF officials said they had been consistent in their determination that funding must be in place for the next year before they can distribute the next tranche. Both the IMF and European Union are also insisting Greece pass new austerity measures.

Paulson fund loses $500m on Sino stake - - US hedge fund sells holding in forest group; “Due to the uncertainty over Sino Forest’s public disclosures and financial statements, we have sold our stock and await the results of the independent committee’s investigation,” Mr Paulson said in a statement.

Boeing and Airbus call time on duopoly - - Dominance of commercial aircraft market over, says US jet chief; Speaking on the first day of the Paris Air Show, Jim Albaugh, head of Boeing’s civil jet division, made the frank admission as Brazilian, Chinese, Canadian and Russian companies are all set to enter the 100-seater- plus market with jets of their own in the next five years. “The days of the duopoly with Airbus are over,” he said.

Internet suffix scramble looms for companies - - Businesses to bear cost to protect their brands; For a starting price of about $500,000, the Internet Corporation for Assigned Names and Numbers will allow companies and community groups to create customised domain names – such as .canon for the camera maker or .london for the English capital. So-called “generic” domains, putting common words after the “dot” in addresses, will extend the system further.

Bubble 2.0: Inflated expectations of social media - -  For many (apart from the likes of Facebook), the prospects of producing sustainable profits look as doubtful as they did for the dotcoms a decade ago. “You have companies that aren’t profitable, which makes it hard to value them,” says Ryan Jacob, portfolio manager of the Jacob Internet Fund, a specialist US mutual fund. “But they’re growing at much faster rates even than the 1990s. That’s the conundrum.”

Gideon Rachman: Political union cannot fix the euro - - The real problem is political and cultural. There is not a strong enough common political identity in Europe to support the single currency. That is why German, Dutch and Finnish voters are revolting against the idea of bailing out Greece again – while Greeks riot against what they see as a new colonialism imposed from Brussels and Frankfurt.

Market Insight: Last stand in debt crisis will be fought in Italy - - Edward Altman and Maurizio Esentato say the result of the Italian “battle” is not clear. We know that, despite its huge public debt, sluggish economy, ageing population and political uncertainties, Italy enjoys a wealthy consumer and corporate reservoir of capital and perhaps as much as 65 per cent of its outstanding public debt is held by Italian private individuals and institutions.

Steven Rattner: Savour sweet scent of Germany’s success - - For the first time since 1992, fewer than 3m Germans are unemployed, and inflation – the perennial obsession of the descendants of the Weimar Republic – remains muted. Business people buzz with self-confidence and even a subtler version of the arrogance evident before the integration of East Germany drained $2,000bn from the West and gave rise to the phrase “the sick man of Europe”.

Access to the New York Times online is free up to 20 articles per month. For subscription information, click here

Wal-Mart Case Is a Blow for Big Cases and Their Lawyers - - With the dismissal of a lawsuit brought on behalf of 1.5 million women who worked at Wal-Mart, the Supreme Court tightened the rules for how a large group of individuals can join together to sue; In his opinion, Justice Scalia said it was unacceptable to allow employment discrimination lawsuits to proceed as huge class actions when monetary awards would be based on a broad formula per plaintiff, without having an individual assessment of how much each plaintiff had suffered.

Nokia Unveils a New Smartphone  --  Nokia introduced on Tuesday the N9, a sleek, touch-screen smartphone that is designed for one-hand use; The N9, which will sell unsubsidized for the equivalent of about $670 to $760 for 16 and 64 gigabyte models, is no panacea for Nokia, which is well behind in the fast-growing market for smartphones and was leapfrogged in revenue by Apple in the first quarter. Late last month, Nokia issued a second-quarter profit warning and abandoned its 2011 outlook, a move that sent its stock tumbling more than 17 percent.

Op-Ed: Get Radical: Raise Social Security - - With certain adjustments, Social Security could provide up to half the average worker’s earnings; Thomas Geoghegan, the author of “Which Side Are You On?: Trying to Be for Labor When It’s Flat on Its Back,” says: "Right now Social Security pays out 39 percent of the average worker’s preretirement earnings. While jaws may drop inside the Beltway, we could raise that to 50 percent. We’d still be near the bottom of the league of the world’s richest countries — but at least it would be a basement with some food and air. We have elderly people living on less than $10,000 a year. Is that what Democrats want to 'save'?"

Banking’s Moment of Truth  - - Joe Nocera says why banks shouldn’t win the fight over capital requirements; Banks always want capital requirements to be as low as possible, because the less capital they have, the more risk they can take and thus the more money they can make (and the bigger the executives’ bonuses). But so what? Trading some bank profits for a safer financial system is a deal most Americans would take in a heartbeat.

Upending Anonymity, These Days the Web Unmasks Everyone - - Pervasive social media services, cheap cellphone cameras, free photo and video Web hosts have made privacy all but a thing of the past; A commuter in the New York area who verbally tangled with a conductor last Tuesday — and defended herself by asking “Do you know what schools I’ve been to and how well-educated I am?”— was publicly identified after a fellow rider posted a cellphone video of the encounter on YouTube. The woman, who had gone to N.Y.U., was ridiculed by a cadre of bloggers, one of whom termed it the latest episode of “Name and Shame on the Web.

© Copyright 2011 by Finfacts.com

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