VERY LITTLE CHANCE OF ZOMBIE BANKS GETTING WELL - The recession will be over within a year, but financial institutions will not stop taking risks. That is according to Edward Kane, the man who coined the phrase 'Zombie Bank' in the 1980s. He is a professor of Finance at Boston College, and is in Dublin to take part in the Infiniti international finance conference at Trinity College this week.
Professor Ed Kane says pressure for reform of the financial system will evaporate, as large banks use their political clout to stave off regulatory change. He says the idea of a zombie bank is to explain the dangers of providing financing for institutions that have no net worth of their own. He says if the stock is almost worthless and the only value for the stock comes from the fact that the Government is supporting it, they are attracted to the wrong kind of projects. He says that instead of lending to people who have good projects - small businesses who need a little help to get through their inventories and survive these tough times - they want to lend to something that has just a small chance of a great payoff. They are not concerned by the fact that when calculated by the rules of finance it is a losing proposition.
The Professor says he wishes the financial world had changed more in the last 20 years. He says it has changed in ways designed to hide the loss of net worth - they do not want to confess as to the hole in their balance sheet because then the government would have to treat them differently. He says they want to pretend that if they can just get a little more money from the government, they can ride this recession out. He says, however, it is very unusual for a zombie bank to get well.
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MORNING BRIEFS - Sports broadcaster Setanta could be forced into administration later this week having failed to make certain payments due on television rights. According to weekend reports, Setanta has 1.2 million customers, but needs 1.9 million to break even. It shares the contract with ITV to screen FA Cup matches, and it also shows Barclays Premier League and Scottish Premier League matches. The business was set up in 1990 by Irishmen Michael O'Rourke and Leonard Ryan.
*** Australian retailer Harvey Norman which has 14 Irish stores, has reported pre-tax losses of €4.3m at its Irish businesses last year, compared with a profit of over €800,000 the year before. A directors' report says economic conditions continue to be tough and challenging here, and that is expected to continue in the short to medium term. Last year, the Australian boss of the chain, Gerry Norman, said that 'Ireland is a disaster' for business.
*** The rate of decline in the building industry sped up last month, according to the Ulster Bank Purchasing Managers Index, but the components measured are off their low points. The index, which is designed to measure the the overall performance of the construction sector, shows that while activity continues to contract, that the worst point has passed. New orders are at their highest level since April last year, and and constructors sentiment is the highest its been in a year.
*** Later today 200 workers at the Beru electronics plant in Tralee will be told if their jobs are safe. Beru was set up in 1986 and makes components for the car industry. It is thought the company will look for a small number of voluntary redundancies.
*** Oil fell towards $68 a barrel this morning, falling from a seven-month high above $70 on Friday as the American dollar strengthened.
*** On the currency markets, the euro is trading at $1.3988 cents and 87.79 pence sterling.
