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News : Irish Last Updated: Mar 5, 2013 - 9:15 AM

Tuesday Newspaper Review - - Irish Business News - - March 05, 2013
By Finfacts Team
Mar 5, 2013 - 9:11 AM

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The Irish Independent reports that a new deal on Ireland's multi-billion euro debt to the European Union could be struck as soon as today – reducing the pressure for harsh budgets in the years ahead.

European finance ministers will decide today whether to allow Ireland to delay repayment of the money loaned to the country under the bailout by as much as 15 years.

Government sources are cautiously optimistic on the proposal, saying progress has been made but there were "no final decisions yet".

Eurozone finance ministers will consider extending the repayment schedule of the EU rescue loans to both Ireland and Portugal.

The aim is to push out the repayment dates on the emergency loans that Europe gave Ireland as part of its rescue package in 2010.

Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of Eurozone finance ministers, revealed that just such a plan for both Ireland and Portugal will be discussed this morning.

If ministers agree to allow the repayment dates to be extended, it could dramatically reduce the amount of money the Government will have to raise over the next decade.

And it would be another major boost in the bid to emerge from the bailout at the end of this year.

It would be a major coup for the Government and Finance Minister Michael Noonan, coming just weeks after the deal struck on the promissory note debt.

The new proposals deal with a separate tranche of debt – when the country sought an international bailout in 2010, the EU agreed to lend us €40.2bn.

About €16bn of this sum is due to be repaid between 2015 and 2020.

If the repayment date on those loans can be pushed out further, it will save the Government billions in the short term.

And although all the money will still have to be repaid, doing so at a later date means that inflation is on the Government's side – as the loans will be worth less in real terms when the time comes to settle the debt.

If there is an agreement among finance ministers, then the troika of the EU, International Monetary Fund and European Central Bank will be charged with working out the details of the plan.

That will then be presented at a meeting of finance ministers next month in Dublin.

"We intend to discuss the principle of extending the maturities for Ireland and Portugal and if agreement is reached then ask for technical work to be done as quickly as possible," Mr Dijsselbloem said.

"If there was an agreement then we would approach the troika to come up with the best way to deal with extending the maturity on loans," he added.

Department of Finance sources emphasised that a deal had not been agreed yet and it would be 2015 before any benefits are realised.

Earlier in the day, Mr Noonan had said he would be lobbying for an extension on the sidelines of the monthly meeting, to "see where it stands" as regards getting an agreement.

The plan would not see any overall saving for the country, but like last month's promissory note agreement it would ease the financial burden on the State from 2015 onwards.

While light in detail, it could mean stretching the loan period by as much as 15 years.

The State is scheduled to repay €6.3bn of EU bailout funds in 2015, with another €4.2bn set to be paid back a year later. Combined with normal government bonds that are set to mature in those years, the country would have to pay back just under €30bn over those two years to the likes if the IMF, EU and international investors.

Most analysts consider that burden to be too great if the State is to successfully exit its bailout programme by the end of this year.

Getting Ireland successfully out of its bailout programme is seen as vital for the EU politically – which is giving the Government some leverage.

It will allow Brussels to show that the bailout programmes "work" despite criticism that they force austerity at the expense of economic growth.

The Irish Independent also reports that Denmark wants Microsoft to pay 5.8 billion Danish crowns ($1 billion) in back taxes in one of the biggest tax cases in the country's history, local media reported on Monday.

The Danish tax authority is in negotiations with Microsoft over unpaid taxes stemming from the 10.8 billion-crown ($1.88 billion) takeover of Danish software company Navision in 2002, Danish Radio DR said, quoting unnamed sources.

The tax authority claims Microsoft sold the rights to Navision's successful business planning software, now under the name of Dynamics NAV, at below market value to a subsidiary in Ireland, DR said.

As a result the tax authority is claiming 5.8 billion crowns in back taxes and interest from sales of Dynamics NAV, the public service radio broadcaster said.

A Microsoft representative in Denmark declined to comment on the report as did the Danish tax authority.

The Danish government proposed in February to gradually lower the corporate tax rate to 22 percent from 25 percent, while corporate tax in Ireland can be as low as 12.5 percent, depending on the type of business.

A recent U.S. government report said U.S. multinational companies reported 43 percent of their overseas profits in tax havens like Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland in 2008.

The Irish Times reports that shares in Bank of Ireland rose 3.8 per cent yesterday as the bank reported full year 2012 results that contained no nasty surprises for the markets.

Importantly, the bank’s core Tier One ratio of 14.4 per cent and “fully loaded” Basel III ratio of 8.6 per cent were slightly better than most analysts had expected.

The bank’s chief executive Richie Boucher signalled that he does not expect the bank will need new capital when new stress tests are carried out later this year.

The bank also signalled that the flow of owner-occupied mortgage arrears has stabilised. Bank of Ireland posted a loss before tax of €2.16 billion for the year to the end of December 2012, up from €190 million a year earlier.

Operating income declined 9 per cent to €1.88 billion while expenses were flat at €1.63 billion. This had the effect of reducing the bank’s operating profit before impairment changes and the sale of assets to the National Asset Management Agency to €242 million from €413 million in 2011.

Bank of Ireland took a hefty impairment charge on customer loans of €1.7 billion last year, down 11 per cent on the previous 12 months.


It also recorded a charge of €679 million relating to non-core items. This included a €150 million cost for redundancies, losses of €326 million relating to the deleveraging of financial assets and a loss of €69 million from the sale of its Burdale loans.

The bank’s net interest margin fell eight basis points (0.08 of a percentage point) to an average of 1.25 per cent for 2012. However, the bank said this margin had improved significantly in the second half, averaging 1.34 per cent.

Customer deposits rose 6 per cent to €75 billion while wholesale funding was down 24 per cent to €39 billion.

Its loan book reduced by 9 per cent to €93 billion.

The bank shed 1,200 staff via voluntary redundancies in the final two months of last year.

Additional redundancies will be implemented this year, funded by an unused €57 million provision booked in 2012.

The bank said nine out of 10 of its 162,000 owner-occupied mortgages were fully performing. There were 90 repossessions last year by the bank, 284 voluntary sales and 74 properties where possession orders were granted. The bank has also appointed 1,100 rent receivers to commercial properties and is in a legal process on 500 buy-to-let mortgages.

Mortgage arrears 

Mr Boucher said the bank’s mortgage arrears were “reducing” and “stabilising”. He said any debt forgiveness by the bank would be a “cost to someone” and said the issue was “containable” for the bank.

When asked if Bank of Ireland might support a move to put its loss-making tracker mortgages, along with those of its domestic peers, into some form of State-linked special purpose vehicle, Mr Boucher said: “We are not involved in any discussion on moving our tracker book into another vehicle.”

The Irish Times also reports that Ireland received a significant boost in its bid to seek an extension to the maturities of its bailout loans last night after finance ministers of the countries that share the euro currency backed the deal.

Finance ministers from all 27 EU states will consider the issue at a scheduled meeting in Brussels this morning, which is being chaired by Minister for Finance Michael Noonan.

EU commissioner for economic and monetary affairs Olli Rehn said he expected an arrangement to be concluded by next month’s meeting of finance ministers, which is scheduled to take place in Dublin.

Minister for Jobs Richard Bruton welcomed the deal this morning. “The idea is to extend the majority of loans provided by Europe as part of the emergency package.

“If we get an extension of the majority you don’t have to go back to the market and you get a rate on interest that has been fixed and it would be a very good deal for the tax payer”, he said.

Mr Bruton added “the omens have been good” for Ireland’s return to the market and that the deal would help the country’s financial stability and real economy.

The deal could be discussed further today, at another meeting of European finance ministers. While agreement has been reached in principle to extend the maturities, the scope and technical detail of how the extension of maturities will be implemented have yet to be worked out. If agreed by European finance ministers today, it will fall to the bailout troika to devise the technical details of the proposal.

Eurogroup chairman Jeroen Dijsselbloem declined to comment on the scale of the adjustments or whether new conditions would be imposed on Ireland and Portugal as a result of any deal.

Positive discussion 

“It was a positive discussion on adjustments for these two countries. The technical shapes and forms are to be developed by the troika,” he said following the meeting yesterday evening. “It was a positive discussion, with a lot of appreciation for the successful work that has been done in Ireland and Portugal.”

Mr Rehn said the troika would examine “an appropriate and credible extension” of the maturities of the early EFSF and EFSM loans with the view to smoothing the path back to regular market access.

Speaking ahead of yesterday’s meeting, Mr Noonan had said that while Ireland was seeking an average extension of 15 years, this was unlikely to gain support.

Ireland and Portugal requested in January that the maturities of the EU portion of their bailout loans be extended. A combination of EFSM loans, which fall under the remit of the 27-member states, and loans from the euro zone’s EFSF temporary bailout fund comprised the EU’s contribution to Ireland’s bailout in 2010.

Ireland and Portugal are seeking a reworking of the terms on both portions of loans in tandem.

The IMF is not expected to extend the maturity on the portion of loans it contributed at the time.

The average maturity of Ireland’s bailout loans now stands at about 12 years, though the earlier tranches of loans issued had a much shorter maturity.

Ireland has more than €30 billion of bailout loans falling due before 2020, with significant repayment peaks between 2015 and 2018.

Any rearrangement of loan maturities would significantly reduce the State’s funding requirements.

Billions of euro 

Mr Noonan has previously said a lengthening of maturities could bring “significant” benefits over a number of years worth “billions of euro”.

The Government is also pressing for the ESM fund to directly recapitalise the “pillar banks” AIB and Bank of Ireland.

The use of the euro zone’s bailout fund to directly recapitalise banks was discussed at yesterday’s meeting.

The Irish Examiner reports that little or no progress has been made on a jobs training plan put forward last year by the Irish Hotels Federation (IHF), delegates at the IHF’s annual conference, in Killarney, Co Kerry, were told.

The aim is to provide up to 3,000 people with entry-level employment in the sector each year.

But with 64% of hoteliers experiencing difficulty recruiting suitably qualified craft/entry level staff, IHF president Michael Vaughan expressed his frustration at the “lack of engagement” by Government on an initiative aligned closely with its national job creation strategy.

“Our proposal would help stem the issue of long-term unemployment and provide young people, in particular, with possibly their first work experience and a valuable stepping stone in their careers.

“This would have an enormous impact, particularly in rural areas where fewer employment opportunities exist.”

Mr Vaughan said the lack of trained staff was a direct result of Fáilte Ireland’s decision to stop providing this type of hospitality craft training (FETAC levels 3 and 4).

The obvious solution, he maintained, would be for the Government to work with the sector and instruct the new further education and training authority, Solas, and local employment training boards to provide training courses to ensure a sustainable supply of trained workers to fill entry-level positions.

Mr Vaughan said: “It’s a year on since we proposed our jobs training initiative but, unfortunately, nothing has been achieved since then.

“Meanwhile, tourism businesses such as hotels, guesthouses, restaurants, pubs and bars need to replace in excess of 3,000 craft-level workers each year due to natural attrition alone.

“Craft-level training offers a valuable conduit to employment for young adults looking for work in today’s difficult jobs market.

“It’s now time for Ministers Ruairi Quinn and Richard Bruton to address our concerns and put in place a programme to meet our sector’s future training requirements. It’s a wasted opportunity if we don’t act,” Mr Vaughan said.

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