Cantillon:If the Basel Committee's decision to loosen its liquidity buffer requirements is likely to assist Irish banks, of potentially greater significance is the decrease in the cost of funding that the banks are starting to benefit from.
In November, both Bank of Ireland, led by Richie Boucher, and AIB successfully tapped the markets by raising €1 billion and €500 million respectively.
In what was the first unguaranteed issuance by an Irish bank since 2010, Bank of Ireland paid investors in its covered bond issuance a coupon of 3.125 per cent.
It was widely perceived to be a milestone event in the recovery of the Irish banking sector, but the bank still paid significantly more than the 1 per cent it could have paid to borrow from the European Central Bank.
Since then, however, the yield on the bond, or the cost of borrowing to Bank of Ireland, has narrowed, falling to 2.499 per cent yesterday, down from a high of 3.235 per cent. While overall market sentiment has improved since then, the fall in yield is also likely due to how well Bank of Ireland is now being perceived in the markets. For example, the Z-spread, which is a measure of credit risk, on the bank’s covered bond has fallen from a high of 273 basis points, down to 196 basis points.
Similarly, AIB paid a coupon of 2.7 per cent to raise €500 million back in November, but the yield on this deal has since narrowed to 2.55 per cent, while its Z-spread has fallen from a high of 255 down to 202. With the National
Treasury Management Agency also hoping to test the market with its first syndicated deal since 2010, the new year is already showing signs of a tentative return to normality for the financial markets.
Betdaq deal a sound bet for Ladbrokes
It has been clear for some time that Ladbrokes has been losing the race for online market share. And, for almost as long, that it saw the purchase of Irish betting exchange Betdaq as one of the ways of catching up.
After a year or so of speculation that a marriage between the two was imminent, Ladbrokes announced yesterday that it is in talks with the Dermot Desmond-controlled Betdaq, although it warned that it was not certain that an agreement would result.
The business that Ladbrokes is in talks to buy for a reported €37 million is very different from a conventional online bookmaker.
Betdaq is a betting exchange, which is a platform that matches clients who want to bet on a certain outcome at particular odds with someone else willing to offer those odds on that outcome.
This means that customers can bet on a particular result in the normal way, or they can lay it, that is, offer odds against it.
The exchange makes its money by taking a commission from whoever wins.
They were seen as revolutionary when emerging at the start of the century, but now are an accepted feature of the industry. And it looks like their market has matured.
To attract new customers, Betfair, the dominant player with 90 per cent of the market here and in Britain, has begun offering a conventional bookmaking service alongside its exchange.
The fact that the dominant betting exchange player is seeking to grow outside that market suggests that there may not be much headroom left.
If that is the case, why is Ladbrokes interested in buying it?
Ladbrokes, has, like others in the sector, lost customers to Betfair.
A large constituency of punters see betting exchanges as offering better value.
Betdaq gives it the means to start winning them back, which of course, is much the same as winning new customers in the first place.
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