Inside the world of business
Default not an option for the bank with a future
The decision of AIB to make whole the owners of the €1.5 billion worth of unsecured bonds that matured yesterday scratched at the barely healed wound that is Anglo Irish Bank’s honouring of its unsecured debt.
There is however a difference. Anglo Irish Bank or Irish Bank Resolution Corporation as it is now called has no future – or should have no future – while it is Government policy that AIB will survive. It is the second pillar of the twin pillar strategy being pursued by the Government and the hope is that in time the State will be able to sell down its stake. The case for honouring its unsecured debt is thus a stronger, but no less palatable one. Another difference is that there is some clarity as to who are the beneficiaries of the Irish taxpayers’ generosity.
According to Bloomberg the holders of the bond repaid yesterday include Schoellerbank, Deithniki Mutual, ING, Landesbank Berlin, Guipuzocoana, Banco Espirito Santo, Lombard Odier, Union Investment, CB-Accent, Sopaf Capital, Danske, Scottish Widows, Invercaixa, Fidelit, UBS, MG Gesto, Finvalor, Threadneedle and Julius Baer.
Bloomberg assembled the list from public filing and various other sources. The 20 or so names account for less than 2.5 per cent of the debt outstanding – much of it is now held by hedge funds – but it is presumably indicative of the sort of institution holding Irish bank bonds before the crisis.
Interestingly enough only one of them, Landesbank Berlin, is a German institution, but 15 of them are euro zone institutions.
While this does not support the claim that the German banks are heavily exposed to the unsecured debt of the Irish banks, it does lend credence to the notion that a default by Irish banks on their unsecured debt would – or at least would have in 2008 – sent shockwaves through the euro zone banking system.
Precautions must be taken while supporting small business
The publication of the credit guarantee scheme bill is long overdue.
Ireland is anomalous in not having such a scheme in place – despite tetchy rules around state aid, most EU countries operate some flavour of credit guarantee scheme for small businesses. The UK, for example, has some form of scheme in place since the early 1980s.
Under the new legislation, the Irish State will provide a 75 per cent guarantee for loans, with the aim of facilitating up to €150 million of additional lending per annum to SMEs.
But while moves to improve the financial position of small businesses should be welcomed, it is also worth keeping in mind the level of risk being taken on by the State, which is effectively underwriting the loans of private enterprises.
Some may argue that the State has already provided a similar service for the banks on a colossal scale by guaranteeing the country’s bank debt – why should small and medium sized businesses not receive similar help?
Nevertheless, it is essential that precautions are taken to ensure that only viable, innovative, or employment-intensive businesses are supported by the scheme. After all, careless lending to unviable industries was one of the root causes of Ireland’s financial problems.
The Government appears to be sensitive to the issue. Minister for Enterprise Richard Bruton has spoken of the need to balance taxpayer risk with a duty to help small businesses, rightly highlighting the indirect gains to the economy that will arise from increased economic activity and enterprise if the scheme is successful.
That the Government has moved to introduce the new Bill, despite the delays, should be welcomed.
But rather than a once-off the new Bill should be part of a longer-term Government strategy to support the SME sector.
Just last month the British government unveiled an innovative new guarantee scheme, by which it provides banks with up to £20 billion of guarantees to issue unsecured debt, which enables banks to borrow at a cheaper rate. Businesses can then borrow from banks at 1 per cent lower than the usual rate.
Such innovative thinking and evidence of long-term commitment to helping the SME sector should be something that is emulated here.
"We are continuing to increase the clock speed of the company"– Nokia chief executive Stephen Elop shows a gift for understatement as the phone maker issues yet another profit warning
Co-op in need of unifying force
It’s not quite how the Irish Co-operative Society (ICOS) may have wanted to mark 2012, the year designated by the UN as the International Year of the Co-op. Just over a year after his appointment as chief executive of the organisation, Tom O’Callaghan (36) resigned last week to pursue interests in the private sector.
Widely perceived as a “modernising” force from outside the organisation, Mr O’Callaghan’s appointment was warmly welcomed last year as heralding a new phase for a movement that is often perceived as being too rooted in the past.
But the initial optimism that surrounded his appointment soon gave way to acrimony and in-fighting at the organisation, with splits emerging within the ICOS board itself over the last few months.
The irony is of course painfully obvious. The fact that a movement built on the values of co-operation, partnership and collectivisation, has become tangled up in a web of divisiveness and conflict is concerning.
More significantly, the Irish co-operative movement is entering a crucial phase in its history.
While ICOS represents a range of co-operative enterprises, its dominant members are the country’s dairy co-ops. Over the next 32 months these dairy processors need to prepare for the abolition of milk quotas in 2015, which will allow Ireland to dramatically increase the production of milk for the first time in 30 years. Unity, and at the very least, dialogue between Ireland’s various co-operatives is essential.
Members will be hoping that ICOS company secretary Séamus O’Donohoe will be ready and willing to step up to the plate.
TODAY
Jorg Asmussen, an executive board member of the ECB, speaks at the Institute of International and European Affairs in Dublin
You can get the latest news each business day at
[ irishtimes.com/businessOpens in new window ]
or by following us on Twitter at
[ twitter.com/IrishTimesBizOpens in new window ]
.
We also have a Facebook page at facebook.com/IrishTimesBizwhere you can read the latest business headlines, blog posts and reader polls.
