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News : International Last Updated: Nov 19, 2012 - 9:50 AM


Markets: FBD reports strong performance; US hedge fund manager owns 10% of Irish treasury bonds
By Finfacts Team
Nov 19, 2012 - 9:43 AM

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FBD said in a trading update today that has continued to perform strongly, building on its first half to deliver strong earnings and profit after taxation in the second half of 2012 to date. The firm said it has performed ahead of market guidance, primarily due to the continuation of the first half claims performance in the underwriting business.

FBD Holdings: H2 IMS (interim management statement) raises Operating EPS guidance by 10c to 155-165c; Eamonn Hughes of Goodbody comments  -- "A better than anticipated claims performance in H2 allows FBD to raise its Operating EPS guided range by 10c (+7%) to 155-165c. Our previous 150c EPS estimate lifts to 162.7c. Elsewhere, our gross written premium estimates are unchanged though we raise our net earned premiums.

In addition to the NAV boost from higher operating earnings, the positive H2 short term investment fluctuation versus our previous loss estimate means our year end NAV per share lifts 3% from €7.30 to €7.54. This supports a similar sized increase in our fair value to €11.

FBD is expected to generate a 23% ROE in FY12. We recognise the benign backdrop for large and weather related claims this year and model a higher claims ratio in FY13. However, this still drives a 16% ROE compared with UK and European peers offering 12%. Capital accretion dilutes returns at FBD with a pay-out ratio of just 25-30% compared to peers closer to 50% This provides scope for stronger growth over the medium term (dividend yield of 4% versus c.6%+ average for the peers)."

Economic View 1: A big punt on Ireland; Dermot O'Leary of Goodbody comments - - "The story of one US fund manager’s massive bet on Ireland makes it into this morning’s Financial Times. According to the story, Franklin Templeton increased its holdings to €8.4bn in Q3 and now owns c. 10% of outstanding Irish treasury bonds. In one bond (October 2020), the fund owns over 15% of the issue. The fund started its investment in Irish bonds last summer when yields were in double-digit territory and have clearly performed excellently over that time period.

Along with this investment, Irish domestic banks and the ECB have increased their ownership of Irish sovereign bonds since bond yields reached their highs last summer. As a result, the availability of Irish sovereign bonds in the market has become quite tight. With little in the way of supply, the price movements have undoubtedly been exaggerated. While Ireland’s efforts on fiscal consolidation and competitiveness have increased investor confidence in the country, there is no doubt that this ownership issue has played a role too.

As Ireland attempts its full return to markets over the coming months, its aim must be to broaden its investor base. While it is positive that fund managers have taken a more positive view on Ireland and acted upon it, the concentrated nature of ownership has its pitfalls if it is forced to sell down some of its holdings."

Economic View 2: Greek plan is still wishful thinking; Dermot O'Leary added  - -"Ahead of tomorrow’s special summit on the issue, there appears to be some complacency in the markets about the approval of the next tranche of aid to Greece. From our reading of the various comments from both EU policymakers and the IMF it is difficult to see how an agreement will be reached in the near future at least.

A very fundamental difference of opinion still exists between the IMF and euro area finance ministers. In comments over the weekend, IMF Managing Director Christine Lagarde continued to voice her opposition to the current plan, saying that she wants to "build a program for Greece that is solid, that is convincing today, that will be sustainable tomorrow, that is rooted in reality and not in wishful thinking". There has been a lot of wishful thinking on the issue of Greece over the past two and a half years in our view. The latest plan which will apparently see Greek debt rise to 190% of GDP before falling to 125% in ten years’ time is yet another example. Lagarde’s insistence that official debt is written down first may be unpalatable to the large EU creditors at the current time, but will at least give Greece a chance to successfully return its public finances to sustainability. An honest assessment of the situation was also provided by ECB Asmussen over the weekend, when he stated that Greece will also need aid in 2015 and 2016.

EU finance ministers can continue to throw good money after bad at the situation in Greece. However, it would be much better for everyone if a credible agreement can be reached. Given its record we are not optimistic of such an occurrence."

Progress in negotiations to avert US fiscal cliff buoys sentiment: Conall MacCoille of Davy comments - - "The S&P500 rose 0.5% on Friday (November 16th) but with the Euro Stoxx 50 Pr falling 1.4%. On Friday, US market sentiment was buoyed by some positive signs that Democrats and Republicans may secure agreement to avert the fiscal cliff. So some catch-up for European indices seems likely today, with European stock index futures pointing to gains close to 1% at the open.

Following talks with President Obama on Friday, Republicans conceded that revenue-raising measures will likely form part of any deal. Furthermore, comments over the weekend by President Obama, expressing confidence that a budget deal can be reached, have also buoyed market sentiment, with Asian indices up overnight. With few significant macroeconomic data releases, the market's attention will now shift to the more intractable problem of Greece. EU finance ministers are scheduled to meet on Tuesday to discuss Greece's programme.

Today's US home sales release is expected to be flat at 4.75m in October. Friday's release of US industrial production showed an unexpected 0.4% decline in October, attributed to the disruptive effects of Hurricane Sandy. So both today's existing home sales and tomorrow's housing starts data could also be affected by temporary negative effects from the storms."

Justin Doyle, Investec Bank Ireland, said today:

1.       The same two big issues look set to sway market sentiment this week: the US fiscal cliff and Greece. Fears over the fiscal cliff weighed heavily on markets through much of last week as it became clear just how much ground needed to be covered in reaching a deal.

2.       Nevertheless, the White House, meeting at the end of last week, signalled the real start to talks. It delivered some optimism given the conciliatory tone of post-meeting comments from both sides of the negotiating table.

3.       Closer to home, Greece remains the big headache with Troika talks continuing as Greece continues to push for its €31bn aid payment

4.       There is another Eurogroup meeting on Tuesday but the ongoing disagreement between the IMF and European Commission over the debt dynamics doesn’t look to have eased up, so we are doubtful of a firm conclusion from this meeting.

5.       Finally, note that the US week is curtailed because of the Thanksgiving holiday which sees markets closed on Thursday and close early on Friday too. The Thanksgiving weekend will be bringing various ‘Black Friday’ retail reports, which equity markets are likely to track closely, whether accurate or not.

Asia Markets

The MSCI Asia Pacific Index rose 0.9% Monday -- the most in a month.

Japan's Nikkei 225 closed up 1.43; China's Shanghai Composite Index has risen 0.11%; South Korea's Kospi added 0.93%; Australia's S&P/ASX 200 advanced 0.57% and in Mumbai, the Bombay Stock Exchange's Sensex 30 climbed 0.11%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.82% in morning trading Monday.

The ISEQ  has risen 0.56%.

FBD is up 4.57%.

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 $1.2779 and at £0.8035.

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 closed up 12 points or 1.17% at 1,036 - -  the BDI is down 45.91% in 2012.

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 December 2012 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $87.79 up 87 cents from Friday's close. In London, Brent for December delivery is trading on the International Commodities Exchange at $109.64. 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 almost $22 - - 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 $1,722.40, up $8.70 from Friday'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 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.


© Copyright 2011 by Finfacts.com

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