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News : International Last Updated: Feb 19, 2013 - 11:20 AM


Markets: AIB chief promises more Irish mortgage restructuring; Danone to cut 900 jobs
By Finfacts Team
Feb 19, 2013 - 11:16 AM

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Bloomberg 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 thereafter.

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."

Danone, the 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 developments.';
  • 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 exchange."

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 too.

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 valuation haircuts."

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 bailout loans."

US Markets

US markets were closed Monday for the George Washington’s Birthday/ Presidents Day federal holiday

Asia Markets

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%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 is up 0.60% in morning trading Tuesday.

In Dublin, the ISEQ  is up 0.06%.

CPL is up 2.47%.

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 $1.3333 and at £0.8607.

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 fell 6 points or 0.80% to 747 - -  the BDI is up 6.87% in 2013.

Crude oil for March 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $95.46 down 43 cents from Friday's close (markets were closed Monday). In London, Brent for February delivery is trading on the International Commodities Exchange at $117.36. The North Sea benchmark accounts for two-thirds of the global market.

Bloomberg 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.

Daily 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.

Gold spot price

The spot price of an oz of gold is trading in New York at $1612.00 up $2.20 from Friday's close (markets were closed Monday) 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.

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