The Irish Independent reports that investment bank Goldman Sachs could be paid as much as €7.8m for advising the
Government on the upcoming recapitalisation of Ireland's banks, Finance Minister
Michael Noonan has confirmed.
Goldman's big pay day was revealed in an answer to a parliamentary question
from Sinn Fein finance spokesman Pearse Doherty, who asked for details on the
professional fees linked to July's €24bn recapitalisation.
AIB, Irish Life & Permanent (IL&P) and the National Treasury Management
Agency (NTMA) had previously declined to give details of their fees to this
newspaper. BoI has publicly said it expected to pay about €150m for its €5.35bn
The information provided to Mr Doherty sheds more light on the professional
fees bonanza behind the industry-wide recapitalisation, and includes details on
spends by IL&P, AIB and the NTMA as well as more information on BoI's spend.
Mr Noonan told Mr Doherty that the NTMA had appointed London investment
banking giant Goldman Sachs as corporate finance advisers to evaluate the banks'
"Fees of up to €7.8m may be payable depending on the completion of
transactions and performance," Mr Noonan added, stressing that Goldman was
appointed "following a competitive tender evaluation".
An NTMA spokesman declined to comment on the extent of Goldman's fees. The
recapitalisation brief represents the second recent NTMA appointment in favour
of Goldman, which also advised on Anglo's plan to take over Quinn Insurance. As
well as Goldman, the NTMA is also forking out for a legal panel to evaluate the
banks' recapitalisation plans, Mr Noonan confirmed.
The panel, which includes A&L Goodbody, Arthur Cox and Matheson Ormsby
Prentice, was appointed following a "competitive tender process" and offers
"significantly discounted fees" to the NTMA banking unit.
The Finance Minister said AIB had so far spent "circa €6.25m" on its
recapitalisation efforts. "AIB's capital raising is not complete so further
unquantified fees will be incurred," he added.
IL&P, meanwhile, has spent €2m on "lawyers, investment advisers and
"There will be further significant amounts due in relation to the Initial
Public Offering/disposal of the life assurance company and other banking
business," Mr Noonan added.
The sale of Irish Life Assurance could trigger fees in the tens of millions,
market sources say.
The Central Bank, meanwhile, has already confirmed it paid €30m to advisers
to carry out the stress tests which set the level of the bank recapitalisations.
The Irish Independent also reports that Irish government debt is at risk of being cut to 'junk' status by ratings
agencies for the first time ever, analysts said last night.
The warning comes after Portugal's government rating was cut to junk on
Tuesday, prompting a furious response from European leaders.
Moody's cut Portugal's government debt rating four notches on Tuesday, from
Baa1 to Ba2. The Ba2 rating is "sub-investment grade", commonly known as junk.
It makes Portugal the second European government bond issuer to lose its
investment grade status.
Moody's said it made the cut because it was now more likely that Portugal
would follow Greece into a second bailout if it couldn't get back into the
markets to borrow in 2013.
If that happens there is also a bigger chance that private sector lenders
would be forced to play a role in the new bailout, Moody's said.
Analysts said the same concerns would hit Irish debt ratings.
"If Moody's applies the same rationale to Irish debt then they will come to
the same conclusion," said Brian Barry, a market analyst at Evolution Securities
In April Moody's cut Ireland's credit rating to Baa3, just a single notch
above junk, and said it was keeping the Irish on "outlook on negative".
That view was echoed by Cathal O'Leary of NCB Stockbrokers in Dublin.
"If not re-entering the public funding markets has significance for a
sovereign's rating, then clearly if our view proves correct, Ireland will suffer
an imminent downgrade," he said.
Last night Moody's refused to comment on any plans to revise its Irish
rating, but said in an email to Bloomberg News that: "In the different ratings
assigned to European periphery countries, we continue to differentiate
significantly in terms of the credit profile."
The yield on Irish two-year government bonds hit an all-time high of 14.69pc
and the cost of buying insurance to protect against a default also hit a fresh
The yield on Portugal's two-year bonds was even harder hit, rising to 15.88pc
from the previous day's 12.335pc. The yield, or cost of borrowing, shot up as
bond investors unable to own poor quality bonds were forced to dump their
Moody's said Portugal's rating was cut partly on fears that the country will
not meet its bailout agreement targets. Meanwhile, Ireland is hitting all of its
European Commission President Jose Manuel Barroso said the ratings cut so
soon after Portugal signed up to its bailout deal was "fuelling speculation in
German Finance Minister Wolfgang Schaeuble demanded a limit on what he called
an "oligopoly" by rating agencies.
Meanwhile, Germany last night signalled for the first time that Europe should
not go to extremes to avoid seeing a technical default.
"If a debt downgrade to selective default is not avoidable then the question
is can we limit the period of this rating event to a very short period of time?"
Germany's Deputy Finance Minister Joerg Asmussen said yesterday.
Mr Asmussen made the comments in a TV interview. He also pushed a German plan
for a buyback of Greek government bonds or a swap of old bond for new as a
scheme to get private sector involvement in the second Greek bailout.
That plan had been dumped in favour of a French alternative which is
currently being discussed by banking sector executives at talks in Paris.
But Mr Asmussen said the French plan for banks to re-loan money to Greece at
higher interest rates after it is repaid is too bank friendly and leaves Greece
with a bigger repayment burden.
The Irish Times reports that Germany is trying to revive plans for a Greek debt swap as Europe battles to
find a way of ensuring private creditors take part in a new bailout for the
The development comes weeks after Berlin withdrew its proposal in light of
warnings that it would result in a default rating on the debt. An alternative
French initiative emerged last week, but it is now subject to a similar default
warning even though it was softer on financial institutions.
Euro-zone officials are known to be examining whether such ratings could be
viewed as “temporary” if they are reviewed immediately afterwards on the basis
that the position of investors was guaranteed.
This is still seen to be a step too far, and euro-zone finance ministers
resolved at the weekend that the ultimate solution should not involve a
selective default. Such a manoeuvre would be viewed as inherently risky, with
unpredictable market consequences.
However, a well-placed European official said discussions were under way to
assess whether default ratings might be imposed “only for a day” and lifted
immediately afterwards on the basis that there was no haircut on the investors’
The key element of uncertainty was the likely response of markets.
“One can try to predict but it’s not something we can forecast with accuracy,
what the reaction would be at this point,” the official said.
Central to the discussion is whether any such action would trigger payouts on
credit default swaps, a form of insurance against sovereign default. The
authorities do not want to go down that road for fear of prompting contagion in
Still, it is acknowledged that these talks may provide a new opening for the
debt-swap plan first mooted by German finance minister Wolfgang Schäuble.
A further consideration is that the authorities are no longer pushing for a
deal next week. With no agreement likely before September, sources say this
might provide a new opportunity to advance the debt-swap proposal.
Mr Schäuble saw potential to produce a “quantified” private-sector
contribution to a new Greek bailout by urging banks which hold the country’s
bonds to swap them for new paper with maturities seven years longer.
Credit-rating agencies made clear their distaste for the plan, saying it
would result in a credit event. Berlin relented, but it now sees scope to revive
the proposal as a result of a negative assessment of the French initiative by
“The model put forward by some French banks is still a good base for
discussions and we are currently working on this,” German deputy finance
minister Jörg Asmussen said yesterday.
“But since rating agencies have signalled that they will consider modalities
[such as] the French proposal as a selective default – that means a rating event
– we can also put other options like a bond exchange on the table.”
German chancellor Angela Merkel wants to maximise the private creditor
contribution to a new Greek bailout to ensure political support for the
endeavour within her own government.
The more banks contribute to the new bailout, the less guarantees would be
required from euro-zone governments.
Although German institutions agreed in principle last week to participate in
a bail-in scheme similar to the French plan, there was disappointment in Berlin
that their likely contribution would be no more than €3.2 billion.
Mr Asmussen said the French plan may involve incentives for private creditors
to participate which were “too clear”. While work was under way to amend the
proposal, he said other options including the bond swap would also be
“First, one has to look how can one modify the French proposal in a way that
it is still attractive to financial institutions,” he said.
One key element of the equation was the interest rate that Greece paid
because higher rates had more negative implications for its debt sustainability.
If a “rating event” was not avoidable, however, Mr Asmussen said it should be
limited to a short period.
“Then the question is, ‘can we limit the period of this rating event to a
very short period of time?’. This is the key: what can we do to limit this
period to probably a few weeks or even days?”
Private investor support: French and German plans for Greece
Germany and France are behind the main plans to enlist private investor
support for a second Greek bailout.
Details of the German plan are sketchy, but German finance minister Wolfgang
Schäuble set out his thinking in letter last month to his fellow ministers.
“The process has to lead to a qualified and substantial contribution of
bondholders to the support effort,” he wrote.
“This can best be reached through a bond swap leading to a prolongation of
the outstanding Greek sovereign bonds by seven years, at the same time giving
Greece the necessary time to fully implement the necessary reforms and regain
There are two options to the French proposal, which is considered softer on
investors but is now the subject of a default warning from Standard & Poor’s.
The first, which is the more detailed of the two, would see French
institutions invest at least 70 per cent of the proceeds of their maturing Greek
bonds in newly-issued 30-year Greek government bonds.
They would bear interest at 5.5 per cent plus a margin equal to the
percentage of real annual growth of the Greek economy, capped at 2.5 per cent
and floored at 0 per cent.
Athens would be required to apply a portion of the issuance proceeds to the
purchase of zero-coupon 30-year “AAA” -rated bonds issued by one or more
sovereigns or European agencies, with the principal and interest from such debt
calculated to repay in full the principal amount of the new 30-year bonds.
In the second option, French institutions would invest at least 90 per cent
of the proceeds of their maturing Greek bonds in newly-issued five-year Greek
The Irish Times also reports that Greece will decide to leave the European Monetary Union (EMU) but Ireland has
a good chance of “staying the course”, a British commentator on monetary affairs
David Marsh, co-chairman of the monetary think tank Official Monetary and
Financial Institutions Forum, told a Dublin audience that Ireland had done the
right thing in facing up to its problems early. The country was “taking its
medicine”, although he believed it was only about half-way through this process.
Addressing an event at the Institute of International and European Affairs,
Mr Marsh said Ireland had a very good chance of staying the course and “coming
out as a member of the new euro”, which he believes is likely to be a much more
He envisages that the EMU is likely to be a “less forgiving, less pleasant
place to be” with more fiscal rules.
Mr Marsh, a former European editor of the Financial Times , advised
Ireland to forge alliances with countries such as Sweden and Denmark to
strengthen its position in Europe.
He believes Greece will leave the EMU, although this will be as a result of a
sovereign decision rather than a “diktat” from Europe. One or two other
countries might also “find it in their better interests” to leave the single
currency, though “not right away”. In the event of a Greek departure,
ring-fencing would be necessary to prevent a domino effect from spreading to
He went on to describe the growing gulf between what he referred to as debtor
and creditor countries.
“Creditors have less and less certainty they will be repaid,” he said. “Those
that are lent to feel increasingly embittered. They feel the conditions are
increasingly onerous and driving them into a spiral of debt-deflation.”
He argued that the euro – which he described as the most emblematic and
important European project since the second World War – as originally conceived
had come to an end.
He said the EMU’s one-size-fits-all approach meant interest rates descended
to German levels. Instead of using low interest rates in a “wise way”,
governments “let rip” and decided to go on a “long drawn-out binge”, fuelling
consumer booms and speculation in areas such as property.
Mr Marsh said although the UK was not part of the single currency it had been
affected by the fallout because it carried out a significant amount of trade
with the EMU area.
The Irish Examiner reports that Enterprise Minister Richard Bruton has launched a consultation period to
gauge industry and consumer views on how best Government can regulate the
grocery goods sector.
Interested parties will now have until September 1 to communicate their views on
the proposed statutory code — aimed at guarding against unfair practices in the
grocery sector — to the minister.
The announcement, made yesterday, comes after a report by economic consultant
John Travers found that the sector couldn’t agree on a voluntary code of
Minister Bruton said he was disappointed by the lack of agreement on a voluntary
code, but added that the new code of practice will aim to benefit both industry
players and consumers alike.
"Regulation by government should always be a last resort. Where regulation is
imposed it should be forensically designed to avoid unnecessary costs on
consumers and business, and I’m determined to ensure a fair balance," he said.
Mr Bruton said that job growth and value and fairness for consumers will be the
key priorities of the new regulations.
"My job is to protect consumers and enhance employment across the entire
economy," Mr Bruton said.
He added: "Prices are already too high in this sector, and consumers deserve
choice and the chance to buy high quality products at keen prices."
The Minister’s words were broadly welcomed by industry representatives. The
Irish Farmers’ Association (IFA) said that the new regulations will have to
provide more fairness for indigenous food producers too.
Meanwhile, Retail Ireland — the IBEC-affiliated representative body urged the
Minister to hold off issuing any code of practice until the EU finishes its own
review of the wider European grocery sector, "and then align Irish practice with
any European standards that may emerge".
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Europe lashes out over downgrades - - German minister calls for break-up of
ratings oligopoly; More worryingly, Italian 10-year yields jumped above 5 per
cent for the first time since November 2008. Contagion to Italy could threaten
the entire euro project because of the size of its economy.
Schäuble presses case for bond swap - - Berlin seeks rethink over Greek
assistance; German politicians have started a new push for Greece’s creditors to
agree to a one-off swap of their sovereign bonds for paper with longer
maturities but private-sector bondholders said it would not gain traction.
Murdoch investors take fright - - News Corp head denounces hacking but
stands by UK boss; Cameron announced separate enquiries into the original police
investigation of phone hacking in 2006 and the behaviour of the press but gave
no indication of their precise remit, composition or timing. He condemned
the News of the World’s conduct as “absolutely disgusting”. “I’m sure
everyone in this House, indeed this country, will be revolted,” he said.
Facebook and Skype in video hookup - - Zuckerberg responds to Google’s new
social network; “I think the driving narrative for the next five years isn’t
going to be about wiring up the world,” said Mr Zuckerberg, who last week
said the new launches would be “awesome”. “It’s about what kind of cool stuff
are you going to be able to build, what kinds of social apps can you build now
that you have this social infrastructure,” he said. He also confirmed
Facebook’s latest user numbers – 750m active users
SEC in China audit deal push - - US regulators seek inspection rights;
The board and SEC last year launched reviews looking at companies with stock
trading in the US that had most of their business operations overseas. Many of
those companies are based in China and entered the US through reverse mergers, a
process whereby they obtained stock listings by acquiring a publicly traded
Sebastian Mallaby: US power requires economic sacrifice - -
Looking into the future, the pendulum seems almost certain to swing back. Even
if the US were to maintain military spending at a constant share of its own GDP,
the nation’s shrinking weight in the world economy would cause its share of
global spending to decline to 39 per cent by 2015.
China’s crossroads It is time to act on call for democracy - - Indeed, members of the political class in Beijing talk casually of the “100
families” that control the country’s politics, military and the commanding
heights of the economy. In a private conversation, the scion of one of these
families lamented the current state of political affairs and the lack of brave
policy initiatives. “When the eunuchs are running the country then the
dynasty is nearing its end,” this person said.
Closed encounters: Manufacturers turn to complex supply chains
- - A closed supply chain is a highly integrated set of networks in which
many of the technologies being applied are developed at least partially by the
company orchestrating the system. A large proportion of the components made by
key suppliers are unique to the final product.
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President Looks for Broader Deal on Deficit Cuts - - President Obama, who
will meet with the bipartisan leadership of Congress on Thursday, wants to move
well beyond the $2 trillion in savings sought earlier; Senator Bernard Sanders,
independent of Vermont, urged the president not to yield to Republican demands
to reduce the deficit by cutting hundreds of billions of dollars from Medicare,
Medicaid and other domestic spending. He said that “the president has got to
demand that at least 50 percent of deficit reduction come from revenues,”
including higher taxes on the wealthy and large corporations.
Chinese Investment Buoys U.S. Companies - - Chinese investment has been a
lifeline for some smaller American companies, like Stephen C. Kircher’s Solar
Power Inc., which got a $33 million investment;
While there is some concern that political tensions could get in the way, the
investment money is a huge opportunity for American businesses. The following
four small businesses, already the beneficiaries of such investments, illustrate
the aims of Chinese investors and the benefits that American companies can take
from them — including rescue from a very tough economy.
Taxes and Billionaires - - Nicholas Kristof asks are Congressional
Republicans really just trying to protect ordinary American businesses or
billionaire fund managers? This carried interest loophole benefits managers of
financial partnerships such as hedge funds, private equity funds, venture
capital funds and real estate funds — who are among the highest-paid people in
the world. John Paulson, a hedge fund manager in New York City, made $4.9
billion last year, top of the chart for hedge fund managers, according to AR
Magazine, which follows hedge funds. That’s equivalent to the average per capita
income of 184,000 Americans, according to my back-of-envelope calculations based
on Census Bureau figures.
Building Boom in China Stirs Fears of Debt Overload - - Frenzied construction in cities like Wuhan belies signs that
development financed with borrowing by local governments could undermine China’s
The Murdoch Style, Under Pressure - - Line-skirting has always been part of
doing business for Rupert Murdoch, but a voice-mail hacking scandal poses a new
type of threat to News Corporation’s image; Over all, revenue from the
publishing division of News Corporation accounted for only 17 percent of its
revenue in the last nine months. In that time, cable network programming
accounted for 61 percent, and film, which includes the 20th Century Fox studio,
was 20 percent.