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reports that Allied Irish Banks Plc, the state- owned recipient of a €21bn
bailout, is easing terms on 2,000 mortgages a month, aiming to clean up its
troubled loan book in time to woo new investors by 2014.
AIB Group: AIB to work through all arrears in 2013, anticipates profits in
2014; Eamonn Hughes of Goodbody adds - -"Reports this morning pick up on comments from
the AIB CEO on mortgages arrears and profit targets. AIB is to contact all
33,000 customers in arrears by the summer with a view to agreeing revised
payments by year end. The CEO does not rule out write-offs in some instances
when the bank evaluates sustainable debt levels. To date, the main approach for
dealing with problematic loans has been to split mortgages or hive off a portion
of a loan that has repayments on hold. AIB had previously flagged it would
tackle 2,000 mortgages a month prior to tackling its most troublesome mortgages
Elsewhere, the CEO has indicated that his primary target is to return the
bank to profitability by 2014. That will allow it to engage materially with
potential equity investors. Margins will be key and whilst they contracted in
H112, they appear to have expanded towards the end of 2012. On the upcoming
stress tests, AIB doesn’t expect another call on capital but has a preference
for postponing the tests to 2014 so banks can focus on resolving bad loans in
the current year.
The AIB CEO has previously flagged his primary objective of returning to
profitability by 2014, though we still envisage the bank making a €0.3bn loss
next year before returning to profits in 2015. However, we would broadly concur
with margins having stabilised in H212 and improving thereafter. We welcome the
developments on tackling mortgage arrears, where we expect provisions to
continue to sequentially improve this year."
Activia, Evian and Belinda French food and beverages group, reported today that
revenues grew by 5.4% in 2012 but fell in Europe.
It said revenues are under stress in Europe where
the company said it will cut 900 jobs in 26 European countries.
Danone said it had expanded in Latin America and
Asia this year European sales were down 3% in 2012 and operating income fell
10%. The company also reported sharply higher tax bills, especially in France.
Justin Doyle, Investec Bank Ireland, said today:
"Global markets were in consolidation mode yesterday following an
uneventful G20 meeting over the weekend and a US holiday yesterday;
The only real mover in the FX space overnight was the JPY, as has been
the norm over the past few weeks. Japanese finance minister Aso told a news
conference last night that Japan had “no intention of buying foreign bonds
through funds” which proceeded to push the JPY nearly 1% off its lows
against the USD earlier yesterday morning;
It also now appears that the much anticipated unveiling of the new BoJ
governor and deputy governor will also happen after PM Abe’s US visit later
this week. Markets were expecting this announcement before his US visit;
ECB President Draghi delivered a speech to European lawmakers yesterday
where he reiterated his point that the ECB will monitor the value of the
euro through its impact on price stability;
The ECB foot soldiers were also out in force with governing council
member Nowotny trying to downplay the stronger Euro by saying the 'exchange
rate is moving in a range we have had before. We have had no special
Then oddly enough he alluded to the JPY by stating “There is a euro
appreciation against the yen but not to a dramatic extent". The euro has
appreciated by just over 35% against the yen in a little over 6 months, no
drama there then. I think Mr. Nowotny may need a refresher course in foreign
Economic View: The lingering uncertainties of the pro-note deal;
Dermot O'Leary, chief economist at Goodbody, comments -- "Uncertainties
continue to linger in the wake of the Irish government’s decision to liquidate
IBRC. Following on from Friday’s comments from both Weidmann and Draghi, the ECB
President confirmed yesterday that the arrangement, which sees Irish government
bonds swapped for the promissory notes at the CBI, will be scrutinised for its
legality under Article 123 of the ECB Treaty. Draghi stated that the ECB only
noted the transaction two weeks ago, but the ECB’s Annual Review will provide
the opportunity to examine the deal in more detail. As we noted last Friday, one
could argue that the transaction is in breach of Article 123, but this could
also be reasonably argued for the previous promissory note arrangement, not to
mention both SMP and OMT.
The other uncertainty surrounds the treatment of certain creditors in the IBRC
liquidation, with the Financial Times reporting this morning that the government
may face a raft of lawsuits from IBRC’s creditors. This should not come as a
surprise to the Irish government, and does not appear to be a major concern,
with Brian Hayes, Deputy Minister for Finance, telling the FT that the
“legislation is “constitutionally sound and legally robust”. The fate of
unsecured senior creditors is the biggest uncertainty at this stage. While
precedent would suggest that unguaranteed senior creditors and depositors would
be repaid in full, clarification on this point has not yet been fully provided
by authorities. Not only would forcing losses in this category of creditor set a
new precedent in Ireland, it would be a new departure in wider European policy
While the benefits of the promissory note deal are clear (see our note last
week for more details), the potential vulnerabilities are not yet at this stage.
Clearing up these uncertainties should be a priority."
Banks: Loan book sales to continue this year at NAMA; Eamonn Hughes and
Colm Foley of Goodbody comment - - "Press reports this morning (Irish
Independent) indicate that NAMA could potentially sell up to €3.5bn of assets
this year. Presently, the agency is in the market to sell two loan portfolios,
an €810m portfolio dubbed Project Aspen and a smaller €350m loan book, called
Project Club. The disposals include commercial property loans secured on
collateral in the Dublin commercial property market.
The article also highlights that liquidators at IRBC have indicated that
reports of an imminent €2bn loan sale are wide of the mark. These loans are set
to transfer to NAMA. Whilst the loan book, Project Delta, has been groomed for
disposal already, the emergency IBRC legislation requires new independent
valuations by the liquidators before it can be marketed or sold which will delay
the sale process.
The move to sell Irish assets will provide greater clarity on valuation in
the domestic commercial property market with a delicate balance required between
transparency and supply. Nevertheless, with interest in all Irish asset classes,
it is anticipated that NAMA will find buyers for the loan books, albeit with
Conall Mac Coille, chief economist of Davy comments: "Yesterday, ECB
President Mario Draghi indicated that in his view the promissory note deal does
not contravene the legal ban on monetary financing by the ECB. Crucially, Draghi
indicated that the Irish Central Bank should bear in mind financial stability
concerns as it sells newly-issued government bonds onto the market. This means
the bonds are unlikely to be sold as Ireland’s secures regular market access or
at yields inconsistent with debt sustainability. So €28bn of affordable
long-term finance for the Irish sovereign has now been locked in.
ECB President, Mario Draghi, told the European Parliament that the governing
council will review Ireland’s promissory note deal later this year. However, Mr
Draghi indicated that in his view, the deal did not contravene the ECB’s ban on
monetary financing. Draghi also indicated several benefits: ELA funding of IBRC
has been withdrawn, and the illiquid promissory notes replaced with government
bonds as collateral.
Furthermore, although he affirmed that the Irish Central Bank should seek to
sell the newly-issued bonds as soon as possible, it should bear in mind
financial stability concerns as it does so. So the bonds are unlikely to be sold
as Ireland’s secures regular market access, compete with planned NTMA issuance,
or at yields inconsistent with debt sustainability. This view is consistent with
the adoption of the OMT programme by the ECB last summer. In short, if
sovereigns are meeting fiscal targets and consolidation programmes, the ECB may
use its balance sheet to contain funding costs. So it appears that €28bn of
affordable long-term finance for the Irish sovereign has now been locked in, be
it from the Central Bank or markets. In the near term, our estimates indicate
that the debt interest savings will be modest, around €200m in 2014 and 2015,
peaking at over €1bn around 2020, and averaging €800m through 2013-2030. This
comprises a 22%, or €5.5bn, fall in the net present value of €27.9bn now held on
the Central Bank’s balance sheet. However, should the Central Bank accelerate
bond sales, these savings will be reduced.
The official Department of Finance estimates indicate higher savings of €1bn in
2014 and 2015. But these estimates conflate true interest savings from extended
ECB funding support with artificial benefits from the liquidation of state-owned
IBRC. Crucially, the €1bn estimate does not include potential capital charges as
IBRC is liquidated. So the true interest savings of extending ECB funding
support are quite modest, just €200m in 2014 and 2015. Perhaps the government
may now stress this point, alleviating calls to relax the fiscal consolidation,
posing less risk of antagonising ECB governing council members, and improving
its bargaining position ahead of negotiations to extend the term of the EU
US markets were closed
Monday for the George Washington’s Birthday/ Presidents Day federal holiday
The MSCI Asia Pacific
gained 0.2% Tuesday.
The Nikkei 225 fell 0.31%;
China's Shanghai Composite Index dipped 1.60%; Korea's Kospi index added 0.20%; Australia's
S&P/ASX 200 rose 0.36% and in Mumbai, the Bombay Stock Exchange's Sensex 30
index climbed 0.69%.
In Europe, the
Dow Jones Stoxx Europe 600 is up 0.60% in morning trading Tuesday.
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.
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.