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News : International Last Updated: Sep 18, 2013 - 8:19 AM


Markets: Microsoft to hike dividend and buyback $40bn worth of shares
By Finfacts Team
Sep 17, 2013 - 4:02 PM

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The Wall Street Journal reports that Microsoft said that its quarterly dividend will rise by 5 cents to 28 cents per share, a 22% increase from the prior payout. The software giant also announced a new stock buyback program of up to $40bn, saying it replaces a prior $40bn repurchase plan that was set to expire Sept. 30.

The Journal said current investor angst springs partly from the efforts of Steve Ballmer, the outgoing chief executive, to take Microsoft in a new direction. He wants to shift the company from a focus purely on software that is downloaded onto personal computers or on corporate computing networks, into something of a hybrid of rivals Apple Inc. and Google Inc.

Microsoft is refashioning more of its software for the "cloud." The company also is set to expand its homegrown computer-hardware business into smartphones with the addition of Nokia and its 32,000 employees.

About 300,000 Barclays customers are to get unexpected windfalls of hundreds of pounds as a result of a £100m sterling paperwork error by the British bank.

From next month affected customers will receive refunds of interest paid on personal loans - in some cases extending back five years - with an average payout of more than £300.

Barclays said an error on minor technical issues with customers' statements and arrears notices, such as failing to properly record when someone changed a repayment date.

That resulted in the bank being in breach of the Consumer Credit Act (CCA), forcing it to refund any interest paid since the mistake was made.

Economic View: Primary surplus targeted by Minister Noonan: Dermot O'Leary, chief economist at Goodbody comments - - "Irish Finance Minister Michael Noonan appeared to move the goalposts somewhat yesterday in comments regarding the on-going debate about Budget 2014. The Minister laid out the case for a primary budget surplus for 2014. Although he did not mention a specific number, the Irish Times suggests this morning that the Minister believes that a negligible primary surplus will not suffice. Although the achievement of such a target was already implied in the Government’s previous forecasts, its explicit mention very much moves the focus on to both the economic forecasts for next year and the September Exchequer Returns to find out how much room the government may have.

According to the April Stability Programme Update, containing the most recent set of government forecasts, the interest bill for 2014 is estimated at 4.9% of GDP, meaning that a general government deficit of 4.8% must be targeted to get to a primary surplus. At that time, the government was forecasting a budget deficit of 4.3% of GDP. A “non-negligible” primary surplus could be assumed to be 0.4%, implying a budget deficit target of 4.5% of GDP. With economic growth forecasts likely to be revised downwards, this is likely to give the government only a small room for manoeuvre on the fiscal consolidation targets, possibly in the range of €200m-€300m.

Given the Minister’s comments yesterday, the debate over the coming weeks is likely to focus on the size of the primary surplus that is targeted. However, the government will only know this when forecasts are finalised. From a market point of view, the achievement of a primary surplus sufficient to stabilise the debt level would send out an important message."

Bank 1: Lloyds share sale will get investors thinking about position of other banks; Eamonn Hughes and Colm Foley of Goodbody comment - - "UKFI, which owns the UK government’s stakes in the UK banks, sold a c.6% stake (£3.2bn) in Lloyds overnight at 75p in an accelerated book-building process. The government’s stake reduces from 38.7% to 32.7%, with commitments of no further sales for 90 calendar days. A possible retail offering is on the cards in H114. The shares closed at 77p yesterday, 1.4x their end 2013 TNAV and the 75p placing price is just above the alleged 73.6p at which the UK government breaks even on its investment.

Whilst share sales generate increased supply, the market is likely to be enthused about reducing state ownership. The sale of the Lloyds shares was flagged earlier in the summer but will no doubt get investors thinking about shares in government owned banks across Europe and/or capital raising exercises. In Ireland, the government owns 15% of BOI and 99.8% of AIB. On the former, we anticipate that BOI may consider a capital raise in Q4 (November IMS might be appropriate timing) as part of a process to pay down its government owned preference shares. At this stage, we would expect the State to retain its shareholding in BOI should it look to undertake a capital raising exercise, though will clearly be watching with interest in the Lloyds process.

Contrary to recent speculation that the Irish State’s breakeven point on its BOI investment is 23c, we believe it is in the high-20s. At AIB, the breakeven point is higher again. Nevertheless, the objective of the government’s intervention previously was to avert a collapse of the banks, so selling at a profit shouldn’t necessarily be a pre-requisite."

Banks 2: Danske Bank CEO is replaced; Eamonn Hughes and Colm Foley of Goodbody add - - "In a surprise move yesterday, the Danske Bank CEO was replaced. In the job for only 19 months, the board cited requiring an executive with more banking experience as its reason for getting rid of the former Maersk executive.

The move may herald a bout of cost cutting to deliver on improved returns, but may also accelerate plans already put in place around key strategic initiatives. On this point, Danske has been looking to run down its non-core Irish loan book which was likely to be on a piecemeal basis, with the intention that by end 2014 it would be substantially reduced.

The change in CEO may generate some speculation that the pace of deleveraging of the non-core loan books, including Ireland, may accelerate given that any new CEO looks under pressure to deliver sooner rather than later. That may mean more loans/properties for sale quicker than envisaged. This is of potential interest to our nascent REIT industry.

Ryanair Stansted deal to drive cost savings: Dónal O'Neill of Goodbody comments  -- "Ryanair announced yesterday a long-awaited deal with Stansted Airport owners, MAG, which will see it grow from 13.2m passengers in 2012 to over 20m by 2019/2020. The growth will begin from summer 2014 and will deliver lower costs (undisclosed) and more efficient operations in return for volume increases.

Ryanair will base 43 aircraft at the airport, up from 37 currently and will add four new routes, bringing the total to 120. The deal will last for 10 years and we expect passenger numbers at the airport grow by c.1m in each the first five years which should account for up to 25% of all Ryanair’s growth in the period to 2019.

This deal has been expected by the market since MAG bought Stansted Airport in January this year. While there is no disclosure on cost savings, we believe it is fair to assume, given RYA’s track record, that the sheer volume of passenger growth is accompanied by meaningful cost benefits.
This deal will not change Ryanair’s guided growth profile as Stansted had always been identified as a key target for additional capacity. We remain positively disposed to the longer term investment case for Ryanair as its market share and earnings power continues to expand, supported in the near term by cash distributions and share buybacks. BUY."

Commenting, Justin Doyle, Investec Bank Ireland, said:

1. Fed Decision In Focus: The US Dollar is trading closing to a four week low against the Euro this morning as market participants await the outcome of the Federal Reserve’s policy meeting which starts today. It is widely anticipated that they will announce a modest reduction in its bond buying stimulus, with QE3 purchases down to $75bn from $85bn a month.

2. Yellen the New Favourite to Succeed Bernanke: Federal Reserve Vice Chair Janet Yellen is now in poll position to replace Ben Bernanke when his term ends in January next year. Larry Summers, considered by many to be Obama’s top pick for the post, withdrew his application as it was thought that too many democrats opposed his nomination. Markets now believe that there could be a more gradual approach to tightening monetary policy as Janet Yellen is a well known policy dove compared to Summers who is perceived to be relatively hawkish.

3. Sterling Comes Up against Strong Resistance: The pound is trading flat against the single currency but there is a raft of economic data out of the UK this week. Much of the focus in the UK will be around the retail sales figures on Thursday which if strong should push sterling higher. However, before that we have inflation data later this morning and Bank of England minutes tomorrow.

Minister of Finance indicates Budget 2014 adjustment may fall below planned €3.1bn: Conall Mac Coille, chief economist at Davy, commented - - "Stock indices rose on Monday: the Euro Stoxx closed up 1.0% and the S&P500 0.6%. The news that Larry Summers had withdrawn from the race to be the next Fed President was interpreted by markets as increasing the likelihood of easy monetary policy. The Irish Minister for Finance has indicated that his primary goal is to achieve a primary budget surplus in 2014. This raises the possibility that the Budget 2014 adjustment may fall below the €3.1bn originally planned given that Ireland looks set to beat its deficit target in 2013.

Minister of Finance indicates Budget 2014 adjustment may fall below planned €3.1bn

Stock indices rose on Monday: the Euro Stoxx 50 closed up 1.0% and the S&P500 0.6%. The news that Larry Summers had withdrawn from the race to succeed Fed President Ben Bernanke was viewed positively by markets, with other candidates perceived as more likely to maintain easy monetary policy. US Treasury bond yields fell 9 basis points to 2.8%. The dollar also fell on the news, losing half a cent against the euro, trading close to $1.335.

Sentiment also benefitted from the diminishing likelihood of military action against Syria. US manufacturing output rose by a robust 0.7% on the month in August, up 2.8% year-on-year. This follows the news that Chinese industrial production growth accelerated to 10.4% in August and the broad improvement in global PMI surveys for manufacturing. So yesterday’s US data are a welcome sign that the global cycle in manufacturing output is turning up.

UK CPI inflation for August, to be released this morning, is expected to fall to 2.7%. Weak nominal wage growth close to 1% and the fall in the British Retail Consortium measure of shop price inflation to -0.5% suggest underlying price pressures are weak. However, with markets pricing in rate rises for late 2014, any upward surprise could increase the pressure on new Bank of England Governor Mark Carney’s forward guidance policy.

Yesterday, Irish Minister for Finance Michael Noonan indicated that his primary goal for Budget 2014 is to achieve a primary surplus in 2014. This suggests there may be room for a smaller budget adjustment than the €3.1bn originally planned. Media reports suggest a €2.8bn adjustment is now envisaged.

Ireland’s latest April 2013 budgetary projections are for an overall deficit of 4.3% of GDP in 2014 and a primary surplus of 0.5%. However, exchequer returns up to August suggest that Ireland is likely to beat its 7.4% deficit target by around 0.5% of GDP, creating some room for flexibility heading into 2014. However, the Department of Finance’s Budget 2014 deficit projections will be heavily reliant on the 2013 Q2 GDP release this Thursday (September 19th) and the October exchequer returns. Both of these releases could materially change the outlook for the deficit in 2014."

US Markets

In New York Tuesday, the Dow is up  47 points or 0.30% to 15,191.

The S&P 500 added 0.24% and the Nasdaq advanced 0.20%.

Asia Markets

The MSCI Asia Pacific Index dropped 1.5% Tuesday.

Japan's Nikkei 225 fell 0.65%; China's Shanghai Composite dropped 2.05%; Korea's Kospi index fell 0.39%; Australia's S&P/ASX 200 added 0.06% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index climbed 0.17%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600 fell 0.23% in mid-afternoon trade Tuesday.

In Dublin, the ISEQ is up 0.30%.

Merrion Pharmaceuticals has risen 11 cent or 28%..

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 $1.3343 and at £0.8396.

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, the BDI rose 15 points 0.92% to 1,651.

Global rebalancing — the tanker scrapyard index?

Crude oil for October 2013 delivery is currently trading on the Chicago York Mercantile Exchange (CME/Nymex) at $105.85 down 85 cents from Monday's close. In London, Brent for October delivery is trading on the International Commodities Exchange at $112.16. The North Sea benchmark accounts for two-thirds of the global market.

Finfacts, July, 15, 2013:  US West Texas Intermediate oil benchmark jumps in July - - margin between WTI and Brent falls.

Gold spot price

The spot price of an oz of gold is trading on the CME in Chicago at $1,313.10 down $4.80 cents from Monday's closing.

Gold had hit a record high of $1,921.15 a troy ounce on Sept 06, 2011.

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