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News : International Last Updated: Oct 9, 2012 - 11:35 AM


Markets: Aer Lingus says wind-up of pension scheme would give current staff 4% of expected benefits
By Finfacts Team
Oct 9, 2012 - 9:52 AM

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Christine Lagarde, IMF managing director, and Mario Draghi, ECB president, at the Eurogroup meeting, Luxembourg, Oct 08, 2012.

Aer Lingus said in a statement to the stock exchange on Monday evening that it believes that the current funding position of the Irish Airlines (General Employees) Superannuation Scheme (IASS) is unsustainable and must now be addressed by the IASS Trustees.

Aer Lingus said it "understands that the IASS funding shortfall as at 31 May 2012 was approximately €748m on the current statutory Minimum Funding Standard basis. Irish pension legislation mandates priority over IASS assets for pensions in payment. As such, had the IASS been wound up on 31 May 2012, current employees and their beneficiaries not yet in receipt of a pension would have received approximately 4% of their expected IASS pension benefits. Aer Lingus believes that such an outcome would be extremely damaging for the group, its employees and shareholders."

Last week, trade unions said that Aer Lingus would have to provide up to €200m, and the state-owned DAA (Dublin Airport Authority) would have to pay €130m to resolve the deficit.

The airline is proposing to freeze the current IASS scheme and cut risk by investing in bonds whose cash flows "broadly match" the IASS obligations. It said approach would deliver higher pensions than on a wind-up of the IASS, but would be at the sole discretion of the scheme's Trustees.

Aer Lingus stressed that it would make no financial contribution to the IASS beyond its regular contributions - - which would cease when the IASS was closed to future contributions. However, Aer Lingus "is prepared to put in place arrangements to improve the likely future pensions of affected IASS members provided the balance between costs and benefits is in the interests of all parties including shareholders."

Statement

Economic View: Further delays in Ireland’s bank debt deal; Dermot O'Leary of Goodbody comments - - "For all the lobbying efforts over recent weeks by Irish officials and politicians, the issue of Ireland’s bank debt failed to make it on to the discussion table at last night’s Eurogroup meeting. While Irish finance minister Michael Noonan continues to cling to the spirit of the conclusions of the June 29 euro leaders’ statement, it appears that the timetable for tangible implementation continues to get pushed out.

While the statement of the Dutch, Finnish and German finance ministers put paid to any hopes of a deal involving the ESM, it was hoped that a deal involving the promissory notes in IBRC could be thrashed out sooner. That is still the hope but Michael Noonan appeared to push that timetable back in comments last night too: 'The political timetable is to get a new arrangement n the promissory note by March'”. He went on to say 'But it would help me doing the budgetary arithmetic if something could be arranged - - or a statement of intent could be achieved - - before the budget'. We are not sure how a statement of intent would help the budgetary arithmetic but it certainly would help from a political perspective given the political capital spent hailing June 29 as a game changer for Ireland.

It is still also unclear whether legacy debt will be included in any banking union arrangement, with Noonan suggesting last night that the 'legacy' phrase in the Helsinki statement referred to insolvent institutions 'no longer functioning as banks.' Such an interpretation would put AIB, Bank of Ireland and permanent tsb in the eligible category but confusion still reigns on this one.

Whether a deal is struck by December or March next year does not have significant implications for debt sustainability, but from a market perspective the continued drifting of deadlines can be seen as a negative. It is patently clear that Ireland is way down the list of priorities in the euro area, which is understandable given that 'Celtic comeback' happening in Ireland!"

IMF lowers global growth forecast to 3.3% in 2012: Conall Mac Coille of Davy comments  -- "Stock indices fell yesterday (October 8th): the Euro Stoxx 50 Pr declined 1.4% and the S&P 500 was down 0.4% at the close. With EU finance ministers discussing Greece's bailout programme and developments in Spain, demand for risk assets was weak yesterday. Overnight, Asian stocks rose despite the news of sharp downward revisions to the IMF's global growth forecasts. Equity index futures indicate small gains for European stocks at the opening of markets this morning. Speculation that additional stimulus measures from the Chinese government are likely has for now offset any negative impact on sentiment from the IMF’s new forecasts.

The IMF has cut its global GDP growth forecast to 3.3% in 2012 and 3.6% in 2013, pressing both EU and US governments to take the requisite policy steps to resolve the European debt crisis and ensure that the US fiscal cliff in early 2013 does not derail growth. Specifically, the IMF has recommended that Spain should be able to recapitalise banks without adding to its sovereign debt, clearly indicating that the ESM should be used with respect to legacy assets of the financial crisis. The IMF expects US GDP growth to slow marginally, from 2.2% in 2012 to 2.1% in 2013. Euro area GDP is expected to contract by 0.4% in 2012, with only a marginal 0.2% recovery in 2013.

Overnight, the British Retail Consortium measure of like-for-like sales showed 1.5% annual growth in September, well above expectations for a 0.2% decline. The RIC’s House Price Balance also beat expectations at -15% in September, up from -19% in August. Together, these releases suggest that the 0.2% contraction in consumer spending in Q2 2012 may reverse in the third quarter. Both UK industrial production and trade exhibited a sharp bounce-back in July, suggesting that the extra bank holidays in June temporarily pushed down on GDP. So the industrial production and trade releases for August later today should reinforce the view that, following a 0.4% contraction in GDP in Q2, UK GDP should rise sharply in Q3."

US Markets

In New York Monday, the Dow fell 26 points or 0.19% to 13,584.

The S&P 500 fell 0.35% and the Nasdaq dropped 0.36%.

Asia Markets

The MSCI Asia Pacific Index ex-Japan rose 0.4% on Tuesday.

Japan's Nikkei 225 closed down 1.06% following a holiday on Monday; China's Shanghai Composite Index rose 1.97%; South Korea's Kospi dropped 0.14%; Australia's S&P/ASX 200 gained 0.52% and in Mumbai, the Bombay Stock Exchange's Sensex 30 Index climbed 0.26%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is down 0.33% in morning trading Tuesday.

The ISEQ is up 0.07% in Dublin.

CRH has dipped 0.89%; Aer Lingus is down 2.73%.

European Benchmarks

Irish Share Prices

Key Index Performance Statistics

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.2925 and at £0.8069.

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 Monday this week the BDI closed up 8 points or 0.91% to 883 - -  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 November 2012 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $89.56 up 23 cents from Monday's close. In London, Brent for November delivery is trading on the International Commodities Exchange at $112.24. 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 at $21 - - 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 $1,772.20, down $3.30 from Monday's close in New York.

Gold had hit a record high of $1,921.05 a troy ounce on Sept 06, 2011.

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.

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