Inside the world of business

Hodgkinson spooks  the bondholders

FORMER HSBC banker David Hodgkinson got a warm welcome from the AIB shareholders at the bank’s egm this week, despite his having no particular good news for them.

The welcome from the market has been less effusive, with the bank’s subordinated bonds recording their biggest drop in six months. However, it was more what Hodgkinson didn’t say rather than what he did which spooked the bondholders.

While he went to some length to point out that the Government was “explicit” that senior bondholders are vital to the bank’s future, he made no mention of the subordinated bondholders.

The subordinated bondholders quickly put his comments together with the fact that the bank will be 90 per cent owned by the Government by Christmas and that the subordinated bondholders in State-owned Anglo Irish Bank are in line for a 80 per cent haircut and started selling the bonds.

Whether it was his intention or not Hodgkinson has prepared the ground for a crowd-pleasing burning of the AIB subordinated bondholders. Whether or not the bank decides to go ahead with it will no doubt depend on a number of factors, the most pertinent being the consequences for the bank’s ability to raise debt in the future.

Given that the Government’s current plan is to keep the rump Irish business intact and in time sell down its stake, then the prospect of the AIB subordinated bondholders having to endure anything more than a gentle toasting still seems remote.

Still shooting the messenger

MAYBE IT was the emerald tie being sported by Aer Lingus chief executive Christoph Mueller, but there was undoubtedly an air of the “green jersey” about yesterday’s Ibec chief executives’ conference.

The event was as much about projecting a carefully constructed image of Ireland to the international media in attendance as an opportunity to have a frank and open discussion about the current state of Ireland’s economic and business landscape.

Despite the collective backslapping, some genuinely positive and valid points were made by contributors: the fact that Ireland is rapidly restoring the competitiveness it lost during the boom years; and the resilience of the export sector (though the impact of possible currency movements continues to be hush-hushed) are to be welcomed and are clearly a silver lining amid Ireland’s economic woes.

One of the few comments to elicit spontaneous applause from the audience came during the morning panel’s discussion of the domestic media. Northern Foods executive Garry Walsh’s criticisms of the Irish media were met with rousing applause from the floor.

That the media, like any other facet of society, is, and should be, open to criticism, goes without question. But at a time when yields on Irish government bonds are hitting record and unsustainable levels, and, as the Financial Times starkly reminded us yesterday, Ireland has the highest budget deficit relative to GDP in the European Union, if the best our business leaders can do is to blame the media, we could be in even more trouble than we think.

Yesterday’s event had echoes of the Farmleigh summit 14 months ago. Then, too, we were urged to look at the positive aspects of the Irish story. More than one year on, Ireland’s economic situation is infinitely worse.

Yesterday’s upbeat assessment is all well and good, but the real question is whether the impressive rhetoric will be matched by reality.

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The European Central Bank holds its regular governing council meeting in Frankfurt