Inside the world of business

Time may turn out to be our best ally

THE RELENTLESS rise of Irish bond yields continues apace despite some half-hearted support from two of the primary dealers in Irish soverign debt.

Nomura has said that Irish spreads over bunds may “normalise”, while Bank of America Merrill Lynch has said that when Ireland returns to the bond markets, it will “most likely” face lower borrowing costs. Small beer indeed. And as NCB has pointed out, very worrying when you consider these are two institutions whose job is to sell Irish bonds. In NCB’s view, it makes the prospect of Ireland having to turn to the European Financial Stabilisation Fund all the more likely. It posits that it may not be such a bad thing as it will at least bring some certainty to the whole issue of Ireland’s funding.

In truth, it’s probably a bit early to throw in the towel, particularly when you consider – as everybody now seems to be falling over themselves to point out – that Irish bonds are pretty thinly traded in the overall scheme of things and current yields may be misleading. Judgment should, at a minimum, be reserved until after the budget.

Time may indeed turn out to be Ireland’s best ally, with signs yesterday that opposition to the German-French proposal to force euro-zone bond investors to foot part of future rescue bills is growing. The decision by EU leaders last month to consider the proposals is seen as the cause of the most recent spike in Irish yields. Eurogroup head Jean-Claude Juncker rowed in behind ECB president Jean-Claude Trichet in warning about the consequences for the borrowing abilities of peripheral states in particular.

Another great unknown on banks' balance sheets

AMONG THE many points made by Morgan Kelly in his opinion piece in yesterday's Irish Timeswas concern at the potential scale of losses yet to be uncovered in mortgage loans held by Irish banks.

Another great unknown is the state of the Irish banks’ commercial loan book. A study undertaken by Vision-net.ie, a company which provides and collates all publicly available information on Irish companies, has given a rare insight into the status of the companies that hold Irish banks loans. Its finding is worrying: some 57 cent of all secured commercial loans in the State are held by Irish companies deemed to be at high risk of business failure.

Vision-net’s study is undoubtedly limited – its terms of references include companies that have already transferred loans to Nama; and it includes only secured loans. Nonetheless, it provides a valuable insight into the possible scale of losses latent in the commercial loan portfolio of Irish banks.

In its latest results, Bank of Ireland reported an impairment charge of €893 million on loans to customers it does not expect to transfer to Nama.

AIB made a provision of €2.3 billion for “impairment of loans and receivables”, which included €1.2 billion related to loans that had been identified for potential transfer to Nama.

While the value of loans outstanding from Irish financial institutions to businesses is available from the Central Bank, what distinguishes Vision-net’s study is that it merges these figures with an analysis of risk profiles of companies.

According to the Financial Regulator, all loan portfolios, including commercial mortgages, are monitored on an “ongoing basis”. Let’s hope this review includes a detailed risk-analysis of each company.

Don't bet on a solution

IN THE latest round of a row between the two, bookmakers are calling for an inquiry into the way Horseracing Ireland (HRI), the sport’s administrator, has been spending its money. HRI wants an increase in betting tax and an extension of the existing levy to internet betting, which is not currently taxed. Its demands are based on the theory that gambling income should be diverted to funding the sport.

The Irish Bookmaker’s Association (IBA) opposes tax increases, and yesterday called for an investigation of HRI spending. The bookmakers say prize money grew by 400 per cent from 1998 to 2008, even though the number of races only increased by one-third. It says an extra marketing spend of €2.1 million over the same period has only grown attendances at race meetings by 14 per cent.

HRI chief executive Brian Kavanagh said the IBA call was a smokescreen to disguise the fact that, while total betting turnover has grown to €4.5 billion from €1.5 billion over 10 years, the tax take has fallen from €68 million in 2001 to €31 million last year, thanks to internet betting.

Taoiseach Brian Cowen has said the Government was committed to ensuring racing is funded. But there has been little sign of movement. A transparent licensing regime, coupled with low corporation tax, could make the Republic a hub for internet betting. However, the Government seems unwilling to go down this route. It is likely that any solution will be unimaginative, satisfy nobody and fail to deal with internet betting on any level.

TODAY

EU commissioner Olli Rehn to discuss Economic Governance in the EU at the Institute of International and European Affairs

PODCAST

Current Account, the weekly Irish Timesbusiness podcast presented by John Collins, takes a look at the business and economic issues of the week with Irish Timesbusiness reporters and outside experts. It is published every Thursday morning.

For regular commentary on business and economic issues visit our blog, Current Account, at www.irishtimes.com/blogs/business

Twitter users can receive links to the latest business news and blog posts by following us at twitter.com/IrishTimesBiz