Inside The World Of Business
Taoiseach’s Bloomberg appearance won’t help AIB
IT HAS been a tough few weeks for the banks. Funding pressures continue ahead of a hefty refinancing on the second anniversary and the expiry of the blanket guarantee in September. The sovereign debt crisis has shut off the bond markets to the potential for raising unguaranteed bonds.
Allied Irish Banks (AIB) and Bank of Ireland are being subjected to further stress tests as part of an EU-wide confidence-building measure in the European financial system.
Last week, the National Asset Management Agency (Nama) failed to differentiate between the good and the bad participating institutions when lambasting them for passing on incorrect information on the level of income-generating property loans last year for its draft business plan.
Then yesterday Taoiseach Brian Cowen went on Bloomberg Television in New York to repeat the Government’s view that AIB may need further State funding to meet new capital targets. AIB “may need some help, but we will provide that,” Cowen told the newswire’s In Business television programme. “They have to sell some of their assets that are non-core.”
The Taoiseach reiterating the Government’s position on the bank – which is 18 per cent State-owned as it stands – will hardly help the bank’s plan to raise €7.4 billion off its own bat.
AIB dropped around 2 per cent or two cent, to 91 cent, valuing the bank at €802 million, a little over a tenth of what the bank is trying to raise. It also emerged yesterday that Italian bank UniCredit and UK lender HSBC had withdrawn from the race to buy AIB’s stake in Poland’s Bank Zachodni, one of several assets AIB is offloading to raise capital.
It must be frustrating that, more than three months after the Government’s “Big Tuesday” recapitalisation announcement, life isn’t getting any rosier for the banks.
Market about to hang up?
The threat by Standard and Poor’s to downgrade Eircom is just the latest sign that the debt market appears to be running out of patience with the phone company.
It is over a year since the appointment of Paul Donovan as chief executive and six months since Singapore’s STT assumed control. Since then Eircom has announced plans to dip its toes in high-speed broadband but has given no real indication as to how it hopes to cut costs and make an inroad into its mountain of debt.
The silence has clearly troubled bondholders and hence the rather shirty comment from S&P that its actions reflect the absence “to our knowledge, of any specific measures taken to date to remove likely future covenant pressure”.
A certain caution on Eircom’s part is understandable given the various constituencies with which it has to deal and the enthusiasm many of them have shown in the past for taking offence. In particular, it has to keep the Communications Workers Union and the Employee Share Ownership Trust on board. Then there is the regulator and the Government.
This goes some way to explaining the not-very-demanding deadline of October that has been set for tying things up with the unions. Presumably lenders can expect to hear something at that stage. Meanwhile, rumours of job cuts on a massive scale fly and bondholders fulminate.
Testing the patience of your employees is one thing but testing that of your bondholders is another. Eircom seems happy to play this rather dangerous game, claiming last week that it is servicing its debts and is well within the terms of its loans.
Presumably it takes the view that the hammering its bonds have received to date, marked down to B-, means there is little more to lose by keeping bondholders hanging on the line a bit longer.
Showing the way
Mason Hayes + Curran have demonstrated once again that Irish law firms do not disappear in a puff of smoke once they share some basic financial information with their clients and other interested parties.
According to managing partner Emer Gilvarry, the firm held turnover at €36 million last year despite cutting fees. Salaries were cut by between 5 and 10 per cent, but disclosing whether all this resulted in a profit for the firm was a step too far for Gilvarry.
However, the limited information disclosed by Mason Hayes + Curran stands in contrast with the obsessive secrecy of its peers. And it appears to have done them little harm, with the firm having established itself as the sixth-largest according to a list published by the Lawyer magazine earlier this year, which caused quite a stir when it claimed Arthur Cox was the 14th largest European law firms.
The list, which excluded the larger global law firms, put Cox’s turnover at €105 million, followed by McCann FitzGerald (€100 million) Matheson Ormsby Prentice (€95 million), AL Goodbody (€85 million) and William Fry (€61 million).
Not surprisingly, none of the big firms was very interested in talking about such an appalling invasion of their privacy, but were happy to rubbish the survey in private claiming the figures were wildly inaccurate.
Interestingly, the figure the Lawyer put on Mason Hayes + Curran’s turnover turns out to have been spot on.
Today
US microchip giant Intel reports second-quarter figures after US market close.
British Airways holds its annual general meeting, with shareholders hoping for some a positive update on the industrial conflict at the airline.
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