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News : International Last Updated: Feb 27, 2012 - 9:37 AM


Markets: G-20 urges Europe to expand rescue fund; Kingspan reports 2011 pre-tax profits of €77.76m; HSBC reports 2011 profit of $21.9bn
By Finfacts Team
Feb 27, 2012 - 9:21 AM

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Finance ministers and central bankers from the Group of 20 leading developed and emerging economies, meeting in Mexico, Feb 25/26 2012.

Finance ministers and central bankers from the Group of 20 meeting in Mexico City at the weekend signalled an agreement to expand the Eurozone's rescue fund via the IMF, but only if Europe strengthens its firewall first.

European leaders on Thursday and Friday this week plan to discuss combining the temporary European Financial Stability Facility (EFSF) bailout fund with a permanent facility, the European Stability Mechanism (ESM), which will be launched this summer, to create a combined €750bn fund that could backstop struggling economies such as Italy and Spain. However, Germany has hinted it wishes to delay a decision. Today the Bundestag will vote on the second Greek bailout that was agreed by finance ministers last week.

The expansion of the rescue fund "will provide an essential input in our ongoing consideration to mobilize resources" to the International Monetary Fund, the G-20 officials said in a joint statement Sunday.

Kingspan, the building materials supplier, today reported pre-tax profits of €77.76m for the year to the end of December 2011 and the company said the growth in demand for greater energy efficiency will drive continued global growth in its insulation solutions.

The company reported that revenues grew by 30% to €1.55bn, including results from acquisitions. Kingspan recommend a final dividend per share of 6.5 cent. The total dividend for 2011 was up 10% to 11 cent, the company said.

Goodbody's Robert Eason  commented:"Kingspan has reported EBIT of €91m for the 12 months to end Dec-11 (+35% yoy), which is ahead of our forecasts of €83m and beat management guidance given in November of €82-85m. Adjusted EPS (based on diluted no. of shares) was also 9% ahead of our estimates at 39.2c. At a divisional level, better than expected performances from Insulated Panels (helped by a stronger top-line), Environmental & Renewables (reflects one-off contract win in France with good margins) and Access Floors (continues to surprise on the upside, despite declining sales) more than offset a weaker than forecast outturn for Insulation Boards.

While management notes the uncertain economic backdrop and that in recent months markets have weakened in the Benelux and Ireland, it has seen improving trends in the key markets of the UK and US. Furthermore, given the “recent level of bidding activity and our pipeline”, management expects to deliver growth in the first half, albeit at a slower pace.

Taking into account the weather impact in Q4, we see circa 3% upside to FY12 forecasts. Overall, this is a comforting set of results and a reassuring outlook, which highlight why we believe Kingspan should be a core holding for any portfolio."

HSBC, the global bank, today reported a profit of $21.9bn for 2011, a rise of 15% on 2010 and the biggest profit for 2011 announced by a Western bank so far. However, the profit includes a $3.9bn gain on the value of the bank’s own debt. Excluding that, pre-tax profit fell by $1.2bn to $17.7bn as a strong performance in emerging markets was offset by a sharp rise in costs.

Economic View: ECB LTRO II the highlight of the week; Dermot O'Leary, chief economist at Goodbody comments  -- "Following the resounding success of the first auction in December, the second Long-Term Repo Operation (LTRO) from the ECB will take place this Wednesday. There is a relatively wide range of estimates in the market, with consensus settling on European banks taking up €470bn in the operation, close to the €489bn in liquidity provided in December.

The success of the first LTRO can be measured by the fact that the euro-zone avoided a significant credit crunch as banks were allowed roll over maturing bonds and also provided a boost to sovereign debt markets. Sovereigns are also likely to benefit from the second auction. However, the real goal of the second auction this week will be whether the money will find its way into the real economy in the form of increased credit supply. Such a preference was expressed by ECB President Draghi in comments in Mexico yesterday. It remains to be seen whether this will occur, but the actions of the ECB since December have played a significant role in calming markets and thus reducing the odds on a sharp downturn in the euro-zone economy in 2012, with a mild recession now likely.

The ECB’s actions have also been beneficial to Ireland and the Irish banking system. Rate cuts have been directly passed on to the majority of borrowers (those on tracker mortgages), while a more stable funding situation (for the next three years in any case) should mean that the recent stability in deposit trends should continue."

Treaty ratification crucial for return to bond markets, but fiscal compact sorely lacking IMF proposals on risk sharing: Conall Mac Coille, chief economist at Davy comments  -- "Ireland has little choice but to adopt new treaty, which will enshrine two fiscal rules in Irish law

The Irish government intends to ratify the new European fiscal compact treaty by end-March.

The key innovation in the new treaty is a commitment to enshrine two fiscal rules in Irish law: Ireland's structural budget deficit must adhere to a limit of 0.5% of nominal GDP, and debt must be reduced to 60% of GDP.

Ireland has little choice but to adopt the treaty given that ratification is a pre-condition for securing future ESM funding.

Structural budget deficit target of 0.5% is a poor choice

The structural deficit is an abstract economic concept that cannot be observed with certainty.

For example, the IMF estimates that Ireland ran a structural budget deficit of 5.4% of GDP in 2006, whereas the EU Commission estimates that Ireland ran a surplus of 2.2% the same year.

Markets are unlikely to derive confidence in fiscal policy from budgetary targets they cannot observe.

Treaty does not go far enough; IMF proposals that could have preserved Ireland's creditworthiness are not included

The fiscal compact would have had no bearing on the collapse in Ireland's public finances had it been adopted at the inception of the euro. Ireland adhered to the Stability and Growth Pact rules prior to the collapse of the construction sector.

However, the IMF has proposed mutual insurance mechanisms for the euro area that could have preserved Ireland's creditworthiness.

Ireland should actively advocate the IMF's recommendations, not least because they highlight that the sovereign has borne too high a cost in recapitalising banks and deserves additional support from Europe."

ECB Succeeds in Reducing Liquidity Risks: Erik Fishwick, Head of Economic Research, CLSA tells Russell Jones, Global Head of Fixed Income Strategy at Westpac Institutional Bank that he believes the ECB has succeeded in restoring health to a dysfunctional money market and expects the LTRO to reduce liquidity risk for European sovereigns:

Asia Markets

The MSCI Asia Pacific Index slid 0.9% Monday.

Japan's Nikkei 225 fell 0.14%; China’s Shanghai Composite Index added 0.30%. South Korea's Kospi index dipped 1.42%. Australia's S&P/ASX 200 declined 0.92% and the Bombay Stock Exchange Sensex 30 index in Mumbai dropped 1.81%.

Asia benchmarks

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.42% in early trading Monday.

The ISEQ is down 0.46% in Dublin.

Kingspan has risen 1.50%.

European Benchmarks

Irish Share Prices

Irish Stock Market Capitalisation by Company

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3424 and at £0.8464.

For live currency updates, check the right-hand column of the Finfacts home page.

The US dollar fell to $1.6038 per euro on Tuesday, July 15, 2008 - an-all time record.

Commodities

The Baltic Dry Index, a measure of shipping costs for dry commodities, hit an all-time High of 11,771 on the 21st of May, 2008. From that time it reversed and on the 5th of December, 2008 it hit a low of 663 - - close to a 1986 low.

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 last week, the BDI rose 12 points or 1.70% to 718 - -  the BDI plunged a full 70% from its recent mid-October peak of 2,173 to an all-time low of 647 on February 3.

Freighter Oversupply Weighs on Shipowners and Banks - - Jan 26, 2012: The New York Times says vessels bought during the global commodity boom are only now being delivered, putting pressure on the European banks that financed the purchases.

The skyscrapers and immaculate beaches of Singapore's seaport look out on one of the world’s largest parking lots: mile after mile of empty cargo ships, as far as the eye can see.

Similar fleets bob at anchor, with empty cargo holds, off the coasts of southeast Malaysia and Hong Kong. And dozens of newly built ships float empty near the giant shipyards of South Korea and China, their owners from all over the world reluctant to accept delivery during one of the worst markets ever for the global shipping industry.

As recently as six weeks ago large freighters that can carry bulk commodities like iron ore or grain were fetching charter rates of $15,000 a day. Now, brokers and owners say, the going rate is $6,000 a day. If any customers can even be found.

Crude oil for February 2012 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $108.91 down 86 cents from Friday's close. In London, Brent for February delivery is trading on the International Commodities Exchange at $124.43. The North Sea benchmark accounts for two-thirds of the global market.

The margin between the US benchmark WTI (West Texas Intermediate) used on the New York Mercantile Exchange and Brent is over $15 - - The Globe and Mail says that for the past 10 months, Canadian producers - - whose prices are tied to WTI - - have been taking steep discounts for their oil compared with international crude prices that are benchmarked against North Sea Brent, which can be shipped more readily. In the past, WTI tended to trade at a small premium to Brent, because it is easier to refine.

That spread hit a peak of $28.08 (US) on Oct. 14, but has fallen dramatically since then. After plans for more pipeline capacity at Cushing, Oklahoma, the differential narrowed.

Gold spot price

The spot price of an oz of gold is trading in New York at $1,769.80 down $3.80 from Friday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 6.

Check out our new subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

It's a simple fact that in the prevailing economic climate, the provision of high quality content cannot be sustained through advertising alone. 

Business executives who put a premium on time and value high quality information, should use our service.


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