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Banks nationalised, ESB privatised and Aer Lingus to endure a hard landing

1 Sell Spanish bank shares short

For three years after the Spanish property bubble burst in 2006 the main Spanish banks seemed immune from the downturn. While some of the regional savings banks got into difficulty, the major Spanish banks, Santander and BBVA, were apparently unaffected.

Not anymore. Both banks reported much higher third-quarter loan loss provisions than expected. This almost certainly means that the huge reserves that have up to now protected the large Spanish banks from the property bust are running out.

With 1.5 million unsold homes, the Spanish property market resembles our own. Will 2010 be the year that the Spanish banking system goes the way of its Irish counterpart?

2 AIB and BoI will both end up in state ownership

The share prices say it all. Between them AIB and Bank of Ireland are worth a mere €3.2bn. This compares to the €7bn in fresh capital that the Government has already pumped into the two main banks and, even on the Government's own figures, they will receive an implicit gift of €3.6bn when Nama overpays for the €40bn of bad loans it is taking off their books.

With Nama likely to crystallise further loan losses, AIB and Bank of Ireland are going to need more capital soon. With the state already holding warrants to purchase 25 per cent of the shares of both banks at prices well below the current level, this makes it inevitable that both main banks will be majority state-owned sooner rather than later. Even at their current depressed prices, AIB and Bank of Ireland shares are still dear.

3 Sell all stock in UK retailers

This week, bellwether UK retailer Marks & Spencer reported its first sales increase in years. Does this mean that the worst is over for UK retailers? Almost certainly not.

The UK VAT rate went back up to 17.5 per cent at the beginning of this month and, with the British public finances in an even worse state than our own, the new British government, regardless of which party wins, is virtually certain to push it up even further to 20 per cent after next May's general election.

4 Glanbia to merge with Dairygold

The dairy sector had a terrible 2009. Expect the agony to continue in 2010.

With milk quotas set to be scrapped by 2015 there is more pain to come for dairy farmers and processors.

Still, it's an ill wind that blows no good. With the Irish dairy processing sector plagued by chronic over-capacity, the crisis might finally be the trigger for some much-needed rationalisation -- good news for Glanbia, the largest Irish diary processor.

5 IL&P to demerge, Irish Life to be taken over

Last month IL&P shareholders voted to approve a new corporate structure designed to allow it to offload its troubled Permanent TSB mortgage banking subsidiary. Shorn of the Permo, IL&P's rump life and pensions business, Irish Life, suddenly starts looking a lot more attractive.

Still the market leader in Ireland and with its value remaining artificially depressed by the economic downturn, don't be surprised if the suitors come calling for Irish Life as soon as the demerger goes through.

With the Permo uncertainty dragging down the IL&P share price, now could be the time to buy.

6 Aer Lingus will at last be broken up

Last week Ryanair said it was "highly unlikely" to make a third bid for Aer Lingus unless the Government agreed to sell its 25 per cent stake. In practice it may not have to.

With Aer Lingus running out of cash at an alarming rate the very survival of the former state-owned airline is now in doubt. This could see the Aer Lingus short-haul business dropping into Ryanair's lap and the Heathrow slots going to Willie Walsh's BA.

7 Government to privatise VHI, Bord Gais and ESB

With public finances as tight as a drum and most of the banking system set to be nationalised, the Government will be desperate to raise a few bob from asset sales.

With its remaining 25 per cent Aer Lingus stake now worth just €91m, this means that the Government will have no choice but to flog off most of the remaining semi-states.

8 CRH will make a major acquisition

Last year new chief executive Myles Lee sprung a surprise €1.2bn rights issue. However, contrary to expectations, he failed to use the money to fund a major acquisition in 2009.

With CRH announcing this week that 2009 pre-tax profits would be down 55 per cent on 2008 and the rights issue having boosted the number of shares by almost 30 per cent, Ireland's largest industrial company desperately needs to do a major deal.

Don't expect the rights issue money to remain burning a hole in Lee's pocket for much longer.

Sunday Independent