GERMAN BOOST FOR IRISH HOPES OF RETROACTIVE BANK RECAPITALISATION - Germany has backed the principle of retroactive direct bank recapitalisation for euro zone banks, after the cabinet in Berlin gave the go-ahead yesterday to the European Stability Mechanism's direct bank recapitalisation instrument. The draft Bill now goes to the German parliament for approval. It represents a further positive sign in Ireland's campaign for ESM direct capitalisation for AIB and Bank of Ireland, retroactively, thus relieving the State of some of its investment in the banks, reports the Irish Times. A number of countries, including Germany, have to approve the ESM bailout fund's new direct bank recapitalisation process before it enters into force in November. A German finance ministry statement yesterday made no specific reference to the retroactive application of bank recapitalisation, which is the kind being sought by the Government. However, Berlin sources confirmed this was part of the package agreed, in line with an EU undertaking last month to consider cases where "financial assistance has been provided to ESM members who recapitalised their institutions". The arrangement would allow capital to be replaced "in part or in full with a retroactive application of direct recapitalisation", but says decisions will be taken on a "case-by-case basis by mutual agreement" of the ESM board of governors. A number of countries, in particular Germany, have been cool on the concept of ESM recapitalisations in general, and retroactivity in particular. They have worked to ensure any such decisions at the ESM governing board will require unanimous agreement.
STOCK EXCHANGE AND GOVERNMENT PLAN BOND FINANCE FOR IRISH SMEs - The Irish Stock Exchange (ISE) is working with the Government to create a market in bonds backed by Irish SME debt. It will mirror a new structure pioneered by Germany where mid size companies are now able to bypass banks to borrow through the capital market. "We are working with the Department of Enterprise, Enterprise Ireland and the Department of Finance to see is there a credible - or on what basis could we have - a credible bond market for mid sized enterprises in Ireland," ISE chief executive Deirdre Somers said in an interview with the Irish Independent. Germany's Deutsche Borse has already developed a market that allows investors to buy into securities made up of - and backed by - incoming generating SME debt. The decline in bank lending since the financial crisis is now seen by policy makers across Europe as a long-term feature prompting the need to develop alternative funding models. In Ireland the National Pension Reserve Fund has pumped hundreds of millions of euro into a number of loan funds for SMEs, but with a so far limited impact on real lending. In contrast, the bond market backed by cash from pensions and insurance funds, recovered much faster from the financial crisis than Europe's banks and is now providing debt to countries and large companies at record low prices. Unlike bank loans most bonds do not involve ongoing repayment of capital, something that appeals to business owners keen to retain cash flow. Instead, bonds involve regular payment of interest and a single "bullet" repayment at the end of the borrowing term.
DRIVERS FACE WAIT OVER SETANTA CLAIMS - Thousands of Irish drivers could have to wait months to find out if their insurance claims will be covered by the assets of bust provider Setanta Insurance, a Dáil committee was told yesterday. The Joint Oireachtas Committee on Finance, Public Expenditure and Reform heard that the liquidation of the company, which operated in the Irish market but was regulated in Malta, is in the early stages and could take "two months or so". Setanta went out of business in April, leaving 75,000 Irish policyholders without cover and many out of pocket having already paid premiums. It has now emerged that at least 2,000 drivers have made claims totalling almost €35m, says the Irish Examiner. With indications that the company's liabilities exceed their assets, it is unlikely that all of these claims will be covered by the liquidation of the insurance provider. In response to questioning from Fianna Fáil TD, Michael McGrath, Department of Finance principal officer, Pat Casey said that the numbers were preliminary figures provided by the liquidator and subject to change. "The total is in the region of 2,000 claims but the caveat that [the liquidator] has put in relation to that is that all figures quoted are subject to changes as more info is received," said Mr Casey. The committee also heard that a fund Finance Minister Michael Noonan had previously told the Dáil would be available to third party Setanta claimants may in fact not be open to these drivers.
VINCE CABLE ORDERS REVIEW INTO SELL-OFF OF UK STATE ASSETS - UK ministers have ordered a review into the sell-off of state assets, just days before MPs publish a report that is expected to criticise last year’s privatisation of Royal Mail, says the Financial Times. Lord Myners, former City minister, will lead a panel of experts to examine alternatives to initial public offerings for privatising state assets, as well as whether the process of gauging what investors are willing to pay for shares can be improved. Vince Cable, the UK business secretary, ordered the review before the publication of a report by MPs into the Royal Mail sell-off, which is expected to argue the flotation of the postal service could have achieved better value for the taxpayer. The government sold 60% of the company in October at 330p a share, raising nearly £2 billion. But the shares rose 38% on the first day of trading, prompting a political outcry amid claims that taxpayers had lost out on £750m. The MPs’ report, when published on Friday, is expected to censure Mr Cable for saying the sharp share price increase after flotation was “froth” that would subside within six months. The shares have fallen from their 615 pence peak but were still trading at 470 pence on Wednesday - more than 40% above the price they were sold at.