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Mario Draghi, ECB president, at the special meeting of EU finance ministers which agreed on common Eurozone bank supervision under the control of the ECB, Brussels, Dec 12, 2012.
Justin Doyle, Investec Bank Ireland, said
"They just keep on giving. The US Federal
Reserve last night announced further expansion of their balance sheet while
at the same time linking that expansion with lower unemployment and
Moving away from the usual timeframe
guidelines, the Fed taken the novel approach of saying rates will stay at
current low levels if the Fed inflation projections stay below 2.5 percent
over the next year or two and “at least as long” as unemployment remains
above 6.5 percent. Fed forecasts don’t see unemployment below 6.5% until at
Reaction has been fairly muted with US
equity markets closing flat on the day and European markets looking to
perform similarly. In Asia the Japanese Nikkei closed over 1% on the day
with JPY and the NZD the only significant movers in the currency space."
Glanbia Co-op approves share sale:
Liam Igoe of Goodbody comments - -
"Glanbia Co-op yesterday approved the rule change that permits the co-op to
reduce its shareholding in the plc below the current 51%. After registration
with the Register of Friendly Societies in the coming weeks, the co-op will place 3% of its shareholding in
Glanbia plc on the market, while the 7% spin-out to its members is expected to be completed
The motion was carried by 84% of the total members voting and by 79% of the
active dairy farmers, from whom a 75% majority was also needed. There was some dispute in
relation to whether, so called, A2 members such as recently retired dairy farmers, were
eligible to vote.
According to the Irish Farmers Journal this morning, however, the Glanbia
chairman confirmed that had they been excluded from the first vote two weeks ago,
approval would still have been attained by over 79%. Finally, a motion was also passed which
means that a 66% majority will be required in the future (not 75%) if the Co-op’s ownership
were to fall below the new threshold (set at 38% versus 41% as it will be after the 3%
placing and 7% spin-out).
The approval by the Co-op is a positive move for Glanbia, assuming there is
not any successful legal challenge to the outcome, as it will alleviate potential
barriers to raising capital on the market should it need to fund future growth in the
Economic View: A welcome move in the direction of a banking union; Dermot
O'Leary of Goodbody comments -- "Given the gulf in opinions that existed on the
next steps towards a banking union between the various countries involved, the
latest agreement struck in the early hours of this morning by European finance
ministers can be seen as a pleasant surprise. In line with the conclusions of
the October European Council summit, this should now pave the way for adopting
the legislation by the end of the year.
Under the proposals the ECB will have direct responsibility for euro area
banks with assets of more than €30bn or a fifth of national output in a
particular country. The plans also set out that at least the biggest three banks
in each country will be under ECB supervision. March 2014 is set out as the
earliest possible date at which the ECB will take over supervision of these
banks. In terms of the banks involved, the FT reports that between 150 and 200
French banks will be involved, but most of Germany’s retail banks will be
excluded and remain under the control of the domestic regulator. This was the
compromise that always appeared likely. In Ireland, all of the functioning
covered banks will be under ECB supervision.
The plan for a banking union, agreed in June, was heralded as the policy
measure that would break the loop between the sovereign and the banking system.
There are gradual moves in this direction and last night’s decision is the
latest. These proposals are likely to be approved by European leaders over the
next two days. Importantly, the question of “legacy assets” is not mentioned in
the statement. These moves may be enough to ensure burden-sharing in the euro
area in the next banking crisis. It remains to be seen whether it applies to the
United Drug FTSE 250 inclusion confirmed: Dónal O'Neill of Goodbody
comments -- "FTSE last night released the constituent list for inclusion into
the FTSE indices at the upcoming index review on December 21st. As widely
expected, United Drug will become a member of the FTSE 250 index with a free
float weighting of 100%.
As we understand, United Drug will be a member of the retail sub-index, which
is presumably as a result of its revenue exposure to retail pharmacies. This
change has been anticipated by the market and has seen a significant increase in
average daily traded volumes of the stock in recent weeks. Despite this, we
would expect the buying pressure to persist into the index change on Friday
Bank of Ireland Subordinated debt issuance: Eamonn Hughes and Colm Foley
comment -- "In a surprise move yesterday, BOI looked to sell €200m of
subordinated bonds in an issue that appears to have been oversubscribed by 3-4x
with the bank raising the issue to €250m given the interest. This is the first
subordinated issue by an Irish bank since the financial crisis. The 10 year Tier
2 bond (bullet payment) carries a 10% coupon and follows the recent €1bn ACS
Whilst not cheap, the issue of subordinated bonds indicates that investors
are continuing to look favourably on the gradual improvement in the Irish banks.
Given the surprise nature of the issuance, there is likely to have been some
form of reverse order enquiry aspect to the transaction. The coupon on the bonds
compares to the coupon on the government’s preference shares of 10.25% and our
long term cost of equity of 11% for the bank. However, on the latter, with no
income return in prospect for the foreseeable, we discount our fair value
multiple at 20% per annum out to the achievement of low teens ROEs (2017)."
Irish finance minister indicates deal on promissory notes now likely:
Conall Mac Coille of Davy comments - - "Attending the Ecofin summit of EU
finance ministers, Michael Noonan indicated that a deal on Ireland's promissory
notes is now likely and the government does not expect to make the next €3.1bn
payment in March. The remaining negotiations seem to surround legal obstacles,
perhaps suggesting that the ECB's €27bn of lending to the Irish government (via
IBRC) will be reformulated in such a way as not to breach the ECB's legal ban on
primary financing of euro-area sovereigns.
Overnight, the Federal Reserve decided to replace
Operation Twist, swapping short-term securities for longer-dated bonds, with
outright QE. The $45bn of QE per month announced was in line with expectations,
and in addition to existing plans to purchase $40bn of mortgage-backed
securities. This means that the Fed's balance sheet will expand sharply from
around $2.8 trillion to close to $4 trillion, 25% of GDP, by the end of 2013.
Furthermore, for the first time the Fed explicitly linked plans to keep interest
rates on-hold to the labour market, indicating that rates will not rise until
unemployment falls to 6.5%, as long as projected CPI inflation remains below 2%
on the two-year horizon, and inflation expectations remain unchanged."
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.
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
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.
reports that for the
first year since the futures were created, Brent crude is poised to overtake
West Texas Intermediate (WTI) oil as the world’s most-traded commodity.
trading in Brent jumped 14% to average 567,000 contracts in the year to November
20 compared with all of 2011, while WTI fell 17% to 575,000, according to data
from the ICE Futures Europe exchange in London and New York Mercantile Exchange
compiled by Bloomberg. The number of Brent futures changing hands has exceeded
those for WTI every month from April through October,
the longest streak since at least 1995.
Brent, produced in the
North Sea, is gaining favour among traders because of its role as the benchmark
for energy prices from Saudi Arabia to Russia. Prices have climbed 34% in the
past two years, reflecting everything from war in Libya to the embargo on Iran.
WTI, the main grade in the US, has risen 9% as the nation, which prohibits crude
exports, has struggled to clear a glut at Cushing, Oklahoma, the delivery point
for Nymex futures.