S&P DOWNGRADE COULD RESULT IN HIGHER BORROWING COSTS - International credit ratings agency Standard and Poor's downgraded Ireland's banking system yesterday over concerns that weakness in the economy will make the number of problem loans here increase.
John Finn, of risk management consultancy Treasury Solutions, says that S&P said it had revised the opinion of economic and banking industry risk here. He says the agency related that to the size of the credit risk, which it estimates is about €36.7 billion over the next three years. This in turn means that the banks' capital will be severely impacted. Mr Finn says that a downgrade in a credit rating for a bank generally means higher borrowing costs for that bank. He says that in a market where there is very little competition between the banks, it is highly probable that those costs will be passed on to companies and non-tracker rate mortgage holders. He says that markets already believe that mortgage rates will probably go up in the first quarter of 2010 because margins in Irish banks are lower than their international peers. When added to the forecasted ECB rate hike by the end of the year, the prospect of higher interest costs for companies and mortgage holders is very real.
As a country, the S&P downgrade does nothing for our international image, Mr Finn says. He adds that the country has an uphill task to climb and says that NAMA can not come soon enough. He says the National Asset Management Agency will crystallise the losses and identify the amount of capital that the banks will need.
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TRADE PATTERNS STABILISING - The number of passengers travelling on ferries into and out of Dublin Port last year grew by 18% and the number of tourist cars grew by 24%. Last year was, in fact, the best year for ferry tourism at Dublin Port since is was set up in 1997. Dublin Port handles almost half of Ireland's imports and exports. These stabilised towards the end of last year, but trade was down. Total throughput fell by 10.5%, and containerised trade was down 10%.
Michael Sheary, chief financial officer at Dublin Port, says that competitive offers from ferry companies as well as the port's own low tourism price policies, make Dublin Port the most attractive for accessing the UK markets. He also says that additional sailings have been put on the Dublin routes and he says that tourists who drive their own car to a destination tend to stay at that holiday destination longer, therefore spending more money in the local economy than their airline counterparts. He says the positive message from the trade figures released today is that the downward trend being experienced by the company from mid-2009 came to a half in the second quarter of 2009. Since last April, monthly throughput at Dublin Port has been a very steady 2.2 million tonnes per month. He points out that over the past quarter, trade was at a par with the same time in 2008, with December actually showing an increase.
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MORNING BRIEFS - In a trading statement this morning, Tullow Oil says its revenue for last year is expected to be about £570m sterling, down nearly 18% on the year before. The fall, it says, is due to lower sales volumes and the significant reduction in realised commodity prices during the year. It says it spent £690m in 2009 on development, appraisal and exploration activities and that it will spend almost a billion this year. Tullow has also announced an equity placing of just over 80 million shares, which is about 10%of its share capital, to provide medium term growth capital.
*** McInerney Holdings today released a trading update for the year ending 31 December 2009. It said it completed a total of 756 housing units in Ireland, the UK and Spain last year, down from 1,359 units built in 2008. The group continued to experience challenging trading conditions in the UK and Irish housing markets as weak consumer sentiment and lack of access to mortgage availability constrained demand.
*** The bankers are back at Davos this year for the world Economic Forum, but the talk is of reform and restructuring, with politicians, regulators and central bankers setting the framework for discussions. Disputes over how best to reform the global financial system are set to dominate. The forum is also publishing a report on how to redesign the 'global financial architecture'. French President Nicolas Sarkozy is likely to add to the pressure on banks in a keynote speech today. Sessions on banking reform are expected to see clashes between bankers and regulators.
*** Swedish car company Saab is being sold to Dutch luxury carmaker Spyker. Spyker, which has not made a profit in six years, sold 43 cars in 2008. It is paying $74m in cash for Saab, and current owner General Motors will also get $326m worth of preferred shares.
*** On the currency markets, the is trading at $1.4064 cents and 87.21 pence sterling.
