HOW WILL BUDGET 2014 AFFECT THE BANKING SECTOR? - The dust is continuing to settle on this week's Budget which could have a profound effect on the country's banks. Between a banking levy and a hike in the rate of tax on interest earned on deposits, Budget 2014 was not particularly favourable to the financial services sector.
However, Peter Brown, founder of the Institute of Financial Trading, says the provision announced in the Budget that will allow for a removal of the limit on the amount of deferred tax assets that can be written off against future profits will help. But he believes the levy will be an onerous imposition on the banking sector that is struggling to make profits.
"The banks are struggling with customers in trouble on one side and on the other side their customers are being charged heavily to make up the shortfall. We need strong banks to support growth in the SME sector. Any levy is not a positive thing. It will be charged out on the good side of the balance sheet," Peter Brown explains.
Mr Brown also points to the increase in the tax rate on the interest on deposits announced in the Budget as another blow to the sector. "The real danger of the DIRT increase is that we are in a low interest rate environment. The net return after DIRT will be lower than the rate of inflation. That will force depositors to look at different asset classes," Peter Brown explains. "The difficulty for banks is that they need deposits. They're still dependent on short term cash from the ECB. They are not back in the interbank market to any great extent, so deposits are crucial."
He says that raising interest rates on deposits was not an option for banks because of their exposure to tracker mortgages. "If you raise interest on deposits, it will become unprofitable," he concludes.
MORNING BRIEFS - Google's share price came within striking distance of the $1,000 mark in after hours trade last night after its quarterly results beat Wall Street's expectations. The stock hit $960 following what analysts said was a strong, but by no means spectacular set of results. Consolidated revenue of $14.9 billion was recorded for the third quarter. Average cost-per-click - the price that marketers pay Google when consumers click on their ads - was down 8%, but the amount of clicks was up over 25%, outweighing the fall in ad price. Mobile is also performing particularly well with Google reporting that 40% of its traffic to YouTube, which it now owns, occurs on mobile devices. Two years ago, that was only 6%.
*** China also reported better than expected growth in the third quarter of 2013. GDP in the third quarter from the world's second biggest economy came in at 7.8%. That keeps it on track to meet its 2013 growth target of 7.5%. While it is better than most big economies, it would still represent China's slowest growth in 23 years.
*** Chinese computer maker Lenovo is not commenting on reports that it has expressed renewed interest in acquiring mobile phone company, Blackberry. Lenovo has entered into a non-disclosure deal to examine BlackBerry's books, but it faces regulatory obstacles if it bids for all of the company and is likely pursue just parts. Blackberry has been linked with a string of potential buyers from private equity firms to rival technology companies.
*** The second biggest holder of Irish bonds has reduced its disclosed holdings three years after swooping in on the eve of the bailout. Daniel Fuss's Loomis Sayles & Co reduced its Irish debt holding by over 30% in August, according to figures compiled by Bloomberg. Some of those who dipped their toe when the market was at depressed levels are reaping some of the benefits now.