Inside the world of business
Noonan plan offers window of hope for struggling banks
THE BANKS have already absorbed €46 billion to fill the holes left by years of reckless property lending.
There is another €10 billion earmarked under the EU-IMF deal that was postponed by the last government. But that is taken as a given. And then there is a further €25 billion in a contingency fund in the €85 billion EU-IMF bailout.
The Central Bank’s capital and liquidity stress tests – the results of which will be announced on March 31st – should tell us how much more the banks will need to meet loan losses and capital targets. It’s a cliche to say something as complex as this has many moving parts. But it has. It has the added difficulty of having many parties moving the parts.
Three key figures to be determined are higher capital targets, the exact scale of loan losses and the pace and quantity of asset sales to “right-size” the banks.
We know the first. The second will be higher than expected (taking account of larger mortgage losses including buy-to-let bad loans). The third may not be known for some time. The first two are non-negotiable. But the third is the issue of most concern to the Government.
Force through asset sales in a distressed market flooded with excess assets dumped by banks and you will blow a few more large holes in the banks that need filling.
Minister for Finance Michael Noonan has made it clear to our external lenders that the State cannot afford further bank losses beyond the €10 billion, even though they are now likely.
Yet, to tackle the problem – and to make sure the ECB and Central Bank are repaid the €187 billion they’re owed by Irish lenders – the banks need to shrink in size.
A deadline of the end of 2013 has been set to sell assets, though the Central Bank knows this will be a tall order and that it will have to be adjusted along the way.
Time will help but how much are Brussels and Frankfurt willing to give? Setting up a long-term funding line outside the ECB, as proposed by Noonan, would help.
Mixed messages
DURING THE election campaign this newspaper contacted the Fine Gael strategist Frank Flannery to ask him about a plan apparently being put together by a group of senior business figures.
A source involved had said they were coming up with ideas that might assist Ireland’s economic recovery and that some of the ideas would be available to the political parties in the course of the campaign.
When contacted, Flannery said: “Oh, you know about that. I’ll get someone to get back to you.” No one did and when Flannery was contacted again later that day, he said he had no idea what the reporter might be referring to, and suggested the newspaper would be better off pursuing matters that had some truth in them.
The group's Blueprint for Ireland's Recoverywas privately circulated this week and its details have now been published. Flannery is named in the report as one of the members of the group, as are other people mentioned to Flannery when he was contacted.
While aspects of what were put to him were incorrect, Flannery’s response when contacted was evasive at best, misleading at worst. Ironically a section of the report covers “Communicating with Our Citizens” and encourages positive engagement with the media. Opening better lines of communication with the media might be a good place to start.
Into the east?
CONTRARY TO reports here and elsewhere this week PCH International, the Irish tech company which handles supply chain operations for major tech companies, has not confirmed a floatation in Hong Kong this October. PCH, headed up by Corkman Liam Casey who spends most of his time at the company’s Chinese base, has asked us to point out that “a listing in Hong Kong is one of a number of options which the company is considering to raise finance for expansion”.
Reports from the Ireland Day at the New York Stock Exchange said PCH’s floatation would value it at $400 million (€287.8 million), but in fact that’s the revenue that the Irish multinational turned over in 2010. Accounts for its holding company Amekab are likely to be filed at the Companies Office soon confirming that figure. That’s quite a result for a company that reported revenue of $152.6 million in 2009 and posted profits of $1.4 million.
Casey has never made any secret of the fact that a flotation in Asia is a possibility for the company which operates in China. In the meantime, PCH has no problem securing funding from top tier venture capitalists. The $26 million investment from Triangle Peak Partners, a Californian private equity firm that focuses on technology and energy, and Salt Lake City-based investor Cross Creek Capital, which was revealed late last year, should be shortly landing in its bank account.
TODAY:
St Patrick’s Day – Irish Stock Exchange remains open.
Results: Danisco; Heidelberg Cement; Lufthansa; SIG.
Indicators: EMU construction output (January); US consumer price index (February), Philadelphia Fed manufacturing survey (March), industrial production (February) and leading indicators (February).
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