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News : International Last Updated: Mar 24, 2014 - 3:06 PM


Markets: Draghi says Irish banks have 'issues' to address; Credit Reviewer says banks risk-averse with SMEs
By Finfacts Team
Mar 24, 2014 - 2:59 PM

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Contrasting times Source: Ian Bremmer, Eurasiagroup

Mario Draghi, ECB president, has said Irish banks still have "outstanding issues which still require to be addressed."

He referred to the need to complete "restructuring and reforms", addressing the "still very large stock of non-performing loans" and "ensuring the viability of all nationalised banks."

“Resolving these issues will be crucial in order to ensure the emergence of a sound banking sector that will support the domestic economy in the coming years,” Draghi wrote.

Draghi made the comments in a letter to Michael McGrath, Fianna Fáil's finance spokesman.

Eurozone recovery prospects brighten as France returns to growth

China's manufacturing dipped to eight-month low in March

Global Tech Cluster Rush: More failures than successes likely - Part 1

John Trethowan, the Credit Reviewer, today published the 13th report [pdf] of the Credit Review Office. The report shows that 55 % of appeals have been found in favour of borrowers and this has resulted in €21.6m credit being made available to SMEs and farms, "helping to protect/create 1,725 jobs."

Commenting on the report the Michael Noonan, finance minister, said: "Ensuring that SME’s and famers have access to credit is a key priority of the Government. Financing Growth is one of the three key pillars in the Medium Term Economic Strategy 2014-2020 and with SME’s  employing over half of the workforce and two thirds of all new jobs being created by start-up companies, it is essential SME’s and Entrepreneurs are supported and encouraged.  The Credit Review office has a big role to play and in Budget 2014 I increased to €3 million the size of loan refusals the office can review.”

I would encourage any SME or Farm refused credit to contact the Credit Review Office  on 1850 211 789 or send us an email at info@creditreview.ie

John Trethowan gave a spin-free response saying the SME lending market has become more concentrated due to the exit of foreign banks. As a result, remaining banks have engaged in lower-risk lending as a result, he says, which may not meet the needs of the real economy.

Conall Mac Coille, chief economist at Davy, commented - - "Goods exports to Russia accounted for €87bn last year, less than 5% of total Eurozone exports.

However, Europe’s larger countries have significant exposure to Russia, particularly in energy markets. Many German exporters do business in Russia and the country imports 30% of its gas supplies from Russia. All in all, Russia ranks as Germany’s seventh-biggest market. Goods exports from Germany to Russia amounted to €36bn last year, largely in machinery and motor vehicles, while imports were €40bn, 72% oil and gas. Given the escalation of events in Ukraine in recent days, the prospect of further sanctions on Russian citizens and business with interests in Europe cannot be ruled out in the near future, impacting trade and financial flows to Europe’s largest economy – particularly in the traded goods sector.

The PMIs and EC sentiment surveys later this week may provide the first signal of the impact, if any, of the crisis on activity in the eurozone. The Ifo business surveys in Germany, also due later in the week, will be watched closely for any further dip in sentiment following the fall in the ZEW investor sentiment index last week."

Banks: Moodys retains Irish banks on negative outlook; Eamonn Hughes and Colm Foley comment - - "On Friday (after the market close) Moodys published its “Banking Outlook; Ireland” retaining the sector on outlook negative. The outlook is primarily driven by the extremely high level of problem loans. In addition, notwithstanding additional provisions post the Central Bank assessment, Moodys believes the system is still exposed to tail risk and has limited capacity to deal with any further deterioration considering the low level of profitability being generated by the banks. Moodys notes that whilst early arrears will continue to decline, the improvement in asset quality will be slow.

The banks could also be asked to set aside additional provisions to deal with legacy assets in the ECB stress tests which may impose stricter valuations and assumptions than the Irish Central Bank review in December. Finally, Moodys anticipates the transition to full implementation to new capital rules will also pose headwinds, with the operating environment to remain challenging for 12-18 months.

Back in December, Moodys downgraded its baseline credit assessment of AIB and BOI by two notches apiece which drove a one notch downgrade of their deposit ratings and the senior debt ratings. The drivers for the downgrade were ongoing asset quality challenges and the closely related risk for bondholders from the ECB stress tests.

Both of the main banks reported recently showing a stabilisation in credit quality metrics. Our base case view is that the banks have adequate capital for the upcoming ECB stress tests and that whilst the operating environment is challenging, Irish bank profitability (among the two main banks) is returning probably relatively quicker than modelled by Moodys. We also note that collateral values currently are improving probably faster than noted by Moodys."

Economic View: Focus is on the Fed; Dermot O'Leary, chief economist at Goodbody, comments - -  "Following an initial jolt in the immediate aftermath of the latest FOMC statement, markets have been relatively relaxed since then. What appeared to surprise most was the specific time-frame that the new Fed Chair put on a hiking of interest rates following the full tapering of the Fed’s asset purchases. There was also some surprise that expectations for hikes in the Fed Funds rate were increased modestly by FOMC members. These forecasts now put the Fed Funds rate at 1% by the end of 2015 and 2.25% by the end of 2016. On both counts, these are only modest changes, so markets should not be too riled by these latest developments in our view.

That will not stop markets parsing every last word of Fedspeak over the coming week, with no fewer than seven Fed speakers to take to the podium over the course of the week. This follows three Fed speakers over the weekend, with varying views on policy. Firstly, the lone dissenter at last week’s FOMC meeting (Kocherlakota) reiterated his dissent, stating his belief that the Fed should be communicating more aggressively its commitment to returning inflation to the 2% target. Fed hawk Fisher stated that the current highly accommodative stance may be promoting excessive risk-raking, while dove Bullard merely tried to calm market jitters about tightening by saying that Yellen’s statement on the timing of a considerable period was simply in line with that surveys of market participants had suggested.

The key issue here is that the Fed is readying the market for tighter policy because it sees signs that the economy is in a sustainable upward trajectory. If these circumstances change then the Fed will alter its course. The next key data point is next week’s employment report, although with weather still impacting, it may be some time before we get a clear picture."

US Markets

In New York Monday, the Dow rose 45 points or 0.27% to 16,348.

Both the S&P 500 slid 0.29% and the Nasdaq slipped by 0.98%

US benchmark updates

Asia Markets

The MSCI Asia Pacific Index rose 1.1% Monday.

Japan's Nikkei 225 added 1.77%; China's Shanghai Composite gained 1.98%; South Korea's KOSPI advanced 0.55%; Australia's S&P/ASX 200 climbed 0.17% and in Mumbai, the Bombay Stock Exchange the S&P BSE India Sensex Index increased 1.38%.

Europe Markets

In Europe, the Dow Jones Stoxx Europe 600  is off 0.29% in mid afternoon trading Monday.

In Dublin, the ISEQ  has slid 0.72%

Ryanair is off 0.50% -- the airline today announced 7 new routes from Dublin -  - to Basel, Bucharest, Cologne, Lisbon, Marrakesh, Nice and Prague. The airline also added more flights on 21 business routes as it grows to over 1,000 flights per week.

European Benchmarks

Irish Share Prices

Euribor Rates

AIB Daily Report

Bank of Ireland Daily Report

Currencies

The euro is trading at $1.3780 and at £0.8357.

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 May 21, 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 3.11%, to 1,619 points, Bloomberg report.

On Friday in London the BDI closed down 22 points or 2.36% to 1,599.

The index rose by 220% in 2013 to 2,237.

Global rebalancing — the tanker scrapyard index?

Crude oil for May 2014 delivery is trading on the Chicago York Mercantile Exchange (CME/Nymex) at $100.19 up 73 cents from Thursday's close. In London, Brent for April 2014 delivery is trading on the International Commodities Exchange at $107.45. 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 $1,317.50 down $18.50 from Friday's closing - - the gold price fell 28% in 2013, the biggest annual plunge since 1981.

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

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