It was the week that the real possibility of Brexit finally started to hit the business world and the financial markets.
Day after day came new warnings of the consequences of Brexit – both here and in the UK. Meanwhile investors in the financial markets, who had previously taken a reasonably relaxed view of the whole thing, suddenly began to get very edgy.
Sterling weakened again as a result. It now takes around 79p to buy €1, up from 76p a few weeks ago. As for what might happen to the UK currency in the event of a Leave vote, well, you can take your pick of the forecasts which are many and varied.
Most, understandably, feel that sterling will weaken. But there are complicating factors too. One is that a Brexit would be seen as bad for the euro zone, and this might lead to the euro weakening as well, leaving the US dollar as a potential gainer. And then there are the implications for US and UK interest rates. One thing for sure is that Irish officials feel that the immediate risk posed by Brexit would likely be a sharp fall in sterling and its impact on exporters, particularly SMEs who would typically not have hedged their exposure.
Bond investors also started to seriously weight up the risk of Brexit. A slight to safety pushed German 10-year bond yields into negative territory by the middle of the week, though they had edged back up to the heady heights of a zero return by Friday.
Peripheral markets see-sawed. Irish 10-year bond interest rates rose on Tuesday and again on Thursday, breaching the 0.9 per cent level at one stage, before easing back on Friday as some calm returned to the markets.
There is no certainty about what would happen to bond rates in the event of a Brexit. Irish analysts feel that our bonds could be vulnerable to some more selling in the run-up to the referendum or the immediate aftermath of a leave vote.
After that, however, the outlook is uncertain. The strong performance of the Irish economy and the presence of the ECB as a big buyer in the market for bonds should protect Irish borrowing costs to some extent.
The NTMA, which raised six-month borrowings at minus 0.22 per cent during the week, has no need to go back into the markets anytime soon, as it has already raised €5.5 billion of the €6 billion to €10 billion it said it would raise in long-term borrowings this week. It is likely to sit and let the dust settle if there is a leave vote. Much like the rest of us. ¨
MICROSOFT’S daring move to acquire LinkedIn for $26.2 million (€23.2 billion) in cash earlier this week took investors by surprise. But there are solid reasons for the acquisition, even if analysts fret about the high price being paid.
Microsoft’s offer of $196 a share represented a 50 per cent premium to LinkedIn’s previous closing price and is inclusive of the professional networking website’s net cash.
It marks Microsoft’s biggest investment by far and plays into chief executive Satya Nadella’s plan to reinvent the lumbering tech giant.
Buying LinkedIn gives Microsoft access to the world's biggest professional social network, which the technology giant will be looking to exploit by integrating it with core products such as Office and Outlook.
Given Microsoft’s patchy record at managing major strategic acquisitions such as Skype, however, it remains to be seen just how successful this strategy will be.
Analysts are also unsure of why Microsoft is paying so much for a company that has been in freefall in recent months and why it is opting to raise debt to pay for the deal, when it has enough cash to buy LinkedIn four times over.
Whether the deal works out for Microsoft remains to be seen but for LinkedIn founder Reid Hoffman, it’s certainly a connection request he’ll have been happy to have accepted. His net worth jumped by more than $800 million after news of the acquisition was announced.
APPLE began the week by using its annual worldwide developer conference to highlight what’s coming next for its mobile and desktop software.
But it was back in the news on Thursday for a different reason when Minister for Finance Michael Noonan told Bloomberg he expected the European Commission to decide on the company’s tax dealings with Ireland next month.Or at least that this was the gossip and speculation in Brussels .
Initial findings by the commission in 2014 said that Apple’s Irish tax arrangements were improperly designed to give the iPhone and iPad maker a financial advantage in exchange for jobs in the country.
JP Morgan analysts estimate Apple could end up having to pay a $19 billion (€16.7 billion) in back taxes if, as expected, the commission rules against it.
However other sources suggest that given how politically hot the whole thing is, the final amount could be an awful lot lower. Either way, Ireland is likely to appeal any decision to the European Court of Justice.
Whatever the final decision from the Commission is, however, the verdict will once again bring unwanted publicity for both Apple and Ireland.
DEALS continue aplenty in the property world. Final offers of up to €85 million came in from four parties for four-star Gresham Hotel on Wednesday.
The bidders – Spain's Riu Hotel Group, private equity firms Cerberus and Apollo, and investment banking giant Goldman Sachs – are expected to have to wait until next week to learn who has won. Goldman Sachs is bidding through Irish hotel company Tifco.
Meanwhile Dundrum Town Centre is set to come under the equity ownership of UK property group Hammerson and Allianz soon, as talks with the centre's owner Joe O'Reilly's chartered land are at the final stages. Hammerson and Allianz, which paid €1.85 billion last year for a portfolio of National Asset Management Agency loans to developer Joe O'Reilly's Chartered Land, has said it aimed to complete a consensual deal to take control of the underlying assets this summer. The portfolio also included loans attached to 50 per cent stakes in the Ilac and Pavilions shopping centres in Dublin .
THE British House of Commons continues to draw in the heavyweight business leaders for a public grilling.
Last week it was Sports Direct’s Mike Ashley who admitted paying staff less than the minimum wage. This week it was Topshop owner Sir Philip Green, as Westminster held a public wake for BHS.
During a rancourous London parliamentary hearing , Green promised not to “run away” from the plight of BHS workers facing cuts to their retirement incomes. The chain collapsed in April, 13 months after Dominic Chappell, a former bankrupt, bought it for £1. However, Green insisted the £571 million unfunded liability in the pension scheme was “resolvable”.
Occasionally Green appeared to lose his cool, but mostly was in command. He acknowledged it had been a mistake to sell BHS to Mr Chappell, but he sought to paint himself as a diligent businessman who had made an error. He struck a similar penitent note as that of Ashley last week. Neither appearance improved the tarnished image of Britain’s corporate elite.
