Business Irish

Wednesday 21 March 2018

Emmet Oliver: Ireland's reputation not decided by media, Brian

Taoiseach Brian Cowen grows more cantankerous and irritable by the day, accusing the financial media of a "pervasive negativity" about the economy.

Of course he exempted the foreign media from his homily and no government minister goes out in public these days without a copy of the 'Financial Times' Lex column tucked under their arm, such is the effusive praise for Cowen, Lenihan & Co emanating from that quarter, that is, up until this week.

Unfortunately, the 'Financial Times' or even Moody's (who threw the Government a few consolation crumbs this week) don't buy bonds and that is where the most negative signals about the Irish economy are coming from these days, not from the poisoned pens of the fourth estate.

Ireland is still borrowing long-term money at ruinous rates of over 5.5pc, far higher than even Spain or Portugal, regarded as the two eurozone economies (after Greece) most likely to default.

A bond auction this week which raised €1.5bn was oversubscribed alright, but the yield the NTMA was forced to cough up on 10-year money was sobering for a Government hoping for a change in sentiment (and pricing).


The so-called "pervasive negativity" of the Irish media is not what decides bond yields. They are decided based on risk and there is plenty of risk still attaching to Ireland, even if a recovery, technically, is under way.

As Moody's pointed out, Ireland's core "financial strength" has been hugely degraded and there is still no final bill for the bank rescues, with Anglo Irish Bank, Allied Irish Banks and even Irish Nationwide far from completely fixed.

There is also the fallacy about NAMA. While clearly an asset management scheme was needed, the Government can't expect a free ride from bond buyers when it ploughs ahead and spends €40bn buying up bank assets of uncertain value and provenance.

The ESRI this week made a simple, but telling point, that until NAMA shows that it can reasonably wash its face, the cost of borrowing for Ireland will remain high, to reflect that risk.

"Because of the large size of the NAMA balance sheet and the fact that its liabilities are guaranteed by the State, the inevitable uncertainty about the eventual return (or cost) of these investments is affecting the cost of borrowing," said the think tank.

Any company raising money will be judged, at least at the margins, on its contingent liabilities and also on its future cash flows. Uncertainty over either is going to be reflected in its financing costs.

Countries are no different. In fact Ireland is having to pay almost €1bn a year at present in interest on the €20bn of cash the NTMA has borrowed for emergency situations.

This may seem unjust to some observers (including stockbrokers trying to sell Irish stocks and Irish bank bonds) but it cannot be any other way.

The long-term debt position of Ireland, though likely to stabilise at manageable levels, is still not clear.

Small peripheral economies don't tend to get the benefit of the doubt when their balance sheets are being scrutinised by outside investors who have many alternatives.

That is not being "pervasively negative", that is just being factual.

Central Bank guarded on €11.5bn to Anglo

The Central Bank is one of the most secretive bodies in the country. Nobody can view the minutes of their meetings -- even months after they've taken place -- and it's extremely difficult to know what financial institutions they are providing money to at any time.

In that context, the current governor, Patrick Honohan, looked rather uncomfortable answering questions last week about the €11.5bn facility provided to Anglo Irish.

Whatever the reasons for providing it and whoever approved it, it was done very "carefully'', said Honohan. Queries relating to how such a distressed bank will make good on the €11.5bn was batted away with a wave of the hand by Mr Honohan. "I don't think it's of very much practical importance,'' he said rather irritably.

Both the government and Anglo said any impairment of this colossal sum would be covered under the €22bn of state capital already earmarked for Anglo. So that is the end of that then?

Not really. Questions still remain over how the money was funded by the Central Bank, but Honohan wasn't willing to discuss that last week, simply confining himself to a cryptic comment that the ECB did not provide the facility to Anglo.

Share price is loser of One51 in-fighting

Those shareholders not participating in the One51 bunfight -- and there are some -- must have mixed feelings looking on at the spectacle.

While the rebel group, led by Gerry Killen, are ventilating some important issues, the loser as ever, when activist shareholders mobilise, is the share price.

The grey market price has plunged 61pc since late 2008 and now stands at a humbling €1.75, despite the belief by brokers that it should be somewhere near €4.30.

The in-fighting can't be helping and, to be fair to the Philip Lynch-led team at the firm, margins have been held at extremely healthy levels despite the economic calamities which have afflicted Ireland and the UK.

With a ragbag of assets, from scrap metal to plastics to ferries to hazardous waste, valuing the business is extremely difficult, with Davy slapping a price tag of €661m on One51 in May.

The share price is trading nowhere near those levels, which gives ammunition to the rebel group.

At one point there was talk of One51 being floated, or at least IPO-ing its environmental services division, but this will have to wait in the current trying circumstances.

If a float ever happens, disclosures to shareholders simply must improve. While there is no legal requirement as of today, the company must go beyond just disclosing that total directors' remuneration reached €4.4m last year.

The salary of Mr Lynch as chief executive needs to be disclosed, otherwise shareholders can have no idea whether he is being over or under-rewarded for performance.

While next week's agm will involve lots of dirty linen being aired in public and a consequent hit to the share price, that short-term pain may yet produce long-term gain.

Irish Independent

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