Inside the world of business
Echoes of Anglo in Belgian bank?
IS DEXIA going to become Belgium’s version of Anglo Irish Bank? It certainly hasn’t been good for Belgian bond yields. According to Bloomberg the extra yield, or spread, that investors demand to hold Belgian two-year notes instead of similar German securities has jumped almost 20 basis points since September 27th, when Fitch Ratings lowered its viability rating on Dexia to b+, or “highly speculative”, citing a deterioration of the bank’s access to funding.
And on Friday, Moody’s put Belgium’s own ratings under review citing, among other things, the possible cost of supporting Dexia. And that was before the rescue agreed over the weekend.
The issue does not appear to be the €4 billion that the Belgian government will pay for the bank’s consumer-lending unit. What caught the market’s eye yesterday is the decision by the Belgians to guarantee some €60-odd billion worth of the bank’s debts, something that has real resonance with Ireland’s catastrophic decision of September 2008.
The comparisons, however, seem a little overblown and the spreads on Belgian bonds over German bunds are comfortably below Spanish and Italian spreads, never mind Irish ones.
Dexia, for all its troubles, is not exposed to a crashing property market or run by an ethically challenged management and neither does its largest customer clandestinely own a 30 per cent stake. A comparison with Irish Life & Permanent is arguably more apt. IL&P, like Dexia, was heavily reliant on market funding rather than its own deposits to fund lending. And like Dexia it was shut out of the market because of fears over the size of its bad debts.
The solution is pretty similar as well. The good bits are being sold off now and the remainder will be run down or sold off over time under government ownership.
Belgium would appear to be able to stand behind Dexia, but where the comparison with Ireland does have some validity is the capacity of the state to stand behind more than one bank, or the whole Belgian banking system if it comes down to it.
The IMF-EU-ECB troika begin discussions with Government in latest quarterly review of bailout programme progress
Greencore has 30-40% of UK sandwich market
HAVING GIVEN the green light to the acquisition of Uniq by Greencore more than two weeks ago, the UK Office of Fair Trading yesterday issued the full text of its decision. It does not believe the merger “has resulted or may be expected to result in a substantial lessening of competition”.
Following the merger, the parties’ combined share of the British sandwich market will be between 30 and 40 per cent. According to the OFT, the merged entity will continue to face significant competition from players such as Northern Foods, Samworth Brothers and Adelie, while also facing competition from the sale of sandwiches prepared in-store.
The fact that Greencore and Uniq were not each other’s closest competitors – as both supplied different retailers – was also a factor in the decision.
While staff at Greencore’s HQ in Santry prepare themselves for the move across the Irish Sea, the company is beginning the latest stage in its diverse corporate history at a tough time for the consumer foods industry.
Yesterday Dutch bakery group CSM issued a profit warning due to weak consumer spending and higher raw material costs, while last week’s warning from Premier Foods also highlighted the difficulties facing the industry.
Tesco’s disappointing results last week, which revealed a surprise fall in UK sales, will inevitably have implications for suppliers, with companies like Greencore likely to face tough negotiations on price as they try to get their product on the shelves.
While Greencore’s results have been solid – its sales grew by 8 per cent to €440 million in the six months to March 25th this year – it is operating in an environment facing significant headwinds.
Joining up with Uniq might just be the kind of consolidation the company needs to maintain the competitive edge it has built up in the UK sandwich market over the past number of years.
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