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Finance Magazine - October 2008 Issue

Ireland’s credit crisis - Where to from here? Ireland’s banking industry is at a crossroads
Irish banking, whose history stretches back to the 1700s, now faces its biggest crisis ever. Whether there will be a recognisable ‘Irish’ banking industry at the end of it will depend on the will of the industry, its customers, and the other major stakeholder, the state. The task will not be easy either; the restoration of a healthy banking industry will have to be achieved against a backdrop of negativity on the part of the public, and the difficulties that will arise from the transferance of these pressures to politicians, and public sector employees, which include the Regulator, and bodies such as the Central Bank and the Revenue Commissioners. The economic outturn in Ireland, and internationally, will also be critical, indeed decisive. In this issue we outline several of the factors that will impinge on the future, in plotting a roadmap back to sanity.
Bonds a strategic buy
Bonds are currently at historically cheap levels and may offer investors a good strategic buy. Donal O’Mahony of Davys says, ‘Corporate debt globally is now at unprecedentedly cheap levels, relative to both corporate equity and sovereign bonds. Implicit default expectations will not come close to realisation in the investment grade area (industrials and financials) leaving credit as a strategic buy, albeit with forced de-risking by leveraged players threatening even further spread widening in the near term.’
The home grown roots of Ireland’s credit crisis
Ireland’s over exuberance with housing credit was signalled in this publication and elsewhere as long ago as the mid 1990s – yet the boom continued, with the worst excesses (and what will be the source of the real long term problems) occurring only in the past four years to end 2006. Back in February 2000, William Slattery, a former deputy head of Banking Supervision in the Central Bank of Ireland published an article which was headlined: ‘Property price fall of 30-50 p.c. possible if credit growth not curbed’. The article caused a considerable stir at the time, and Slattery (subsequently head of Financial Services Ireland, and today chief executive of State Street, which employs some 2,000 people in financial services in the IFSC) spoke about it in various radio and television interviews. We re-publish that article again in this month’s issue (page 8). It speaks for itself.
Property price fall of 30-50 p.c. possible if credit growth not curbed (FINANCE: February 2000)
The article said: 'Predictions are being made of 20 per cent growth in property prices this year. Irish households are borrowing like never before. In the US, private debt has risen to 130 per cent of GNP and is seen as unsustainable. William Slattery says the same is true in Ireland in relation to property'.
Valuation of commercial property in turbulent times
Valuations in Ireland’s currently frozen commercial property market are problematic, and much clearly depends on them. Frank O’Neill describes the current situation regarding valuations in both investment property and in development land - the two areas of greatest importance to the banking system currently.
Banking system was operating from a fundamentally sound base, PricewaterhouseCoopers chiefs say
‘The Irish financial system is operating from a fundamentally sound base. One of the key things the Irish Regulator did about a year ago was to change the liquidity requirements for Irish banks - effectively raising the liquidity levels - and this has helped to insulate Irish banks from the current problems. This was a very positive development and has been very helpful in the current times,’ says Chand Kohli, head of PricewaterhouseCoopers’ banking and insurance practice.
Ireland’s regulatory regime has held up well, say banking system investigators
PricewaterhouseCoopers has been retained by the Department of Finance, The Financial Regulator and the Central Bank to provide a qualitative assessment of the balance sheets of the Irish banking system, and, in this interview, FINANCE spoke with the firm’s senior partner Ronan Murphy, and head of its banking and insurance practice Chand Kohli on the quality of financial regulation, and issues after the credit crisis, as it will affect the financial services industry, and the overall business market for the firm, and for Ireland Inc.
Irish financials - after the credit crisis
All has changed for Irish financial institutions and the future of finance is more unclear than we have experienced in a generation. Eamonn Hughes looks at what the future holds for Irish financials and what the post- credit crisis banking landscape may look like for financial institutions.
Better treasury and reduced cost
During times of change flexibility is important, says Eddie Forgarty, and a ‘managed treasury’ facility could be the answer to some companies’ treasury functions.
Treasury landscape post-2008
In the first of a three part series on the current hottest topics in corporate treasury, this month focusing on Forex, we look at the importance the treasury function plays in credit crisis management. The treasury function is experiencing the impact of a volatile and fast-moving market - and the repercussions could prompt fundamental changes going forward.
Forex volatility likely to remain high
When the dust settles in the market, the banking landscape will be reshaped leaving a financial industry that is likely to be safer, but a lot less lucrative for shareholders, says Criona Fitzgerald.
Diverging fortunes for the euro
David Powell assesses the impact of fluctuation in the euro, US dollars and sterling – and its effect on the Irish business community.
Uncertain market for exporters and investors
Taking an active approach to the management of all foreign exchange market exposures is critical in limiting adverse impact on Irish exporters and investors, according to Simon Barry.
The damage to Ireland Inc by postponing key infrastructure projects
The public private partnership (PPP) model has been very successful in delivering a range of projects on time and to budget, writes, Donal Murphy. Failure to complete key projects or major delays under the NDP would widen the infrastructure gap between Ireland and other countries. In light of this, the PPP model offers certainty to Government.
New challenges for the hedge fund industry
Karen Jennings considers the new prohibitions upon the short selling of certain securities, the possibility of increased regulation for the hedge fund industry and the challenges faced by it
Pension investment solutions in uncertain markets
Stephen Byrne offers some solutions for those considering investing in a pension
In memoriam: Paul Tansey, by Ken O'Brien
Paul was first and foremost an economist. Secondarily he was a journalist. Journalism to him was a means, certainly not an end. It was the means through which he communicated his training in economics, and, my, how much he believed that Ireland needed what he had learned.
Exposure draft SORP for authorised funds
The proposed changes to the current SORP are both positive and constructive focusing on the needs of investors and preparers of financial statements, says Barry Winters.
China - targeting a new superpower
During the Summer, the Olympics showcased China’s stature on the world stage. Then, while financial crises dominated world news, with particular focus on the problems on Wall Street, China was busy making positive strives in other domains with news of the nation’s first space walk. Here Brian Daly takes a look at China’s reforms in the tax arena, and considers whether the Chinese and Irish tax frameworks give Ireland an opportunity to play a part in China’s economic success story.
Budget 2009 - The Right Medicine?
Provided the changes announced by the Minister are followed up with the necessary cut-backs on the spending side, and provided the assumptions regarding economic growth which underpin the Budget figures do not prove unduly optimistic, the Budget could turn out to be what was needed in the circumstances, writes Brian Daly.
R&D credits - some good news for financial services companies
Given the turbulent times that the financial services industry is currently experiencing, it is perhaps surprising to discover that a potentially large tax refund may be left unclaimed by financial services companies who are, unknown to themselves, engaged in Research & Development (‘R&D’) activities that could qualify for a generous tax credit. With the ‘cash is king’ mantra becoming more important for all businesses, we would expect the uptake of the R&D Tax Credit to increase significantly over the next few years. Damien Flanagan highlights the opportunities for financial services companies particularly in light of the Minister’s announcements of increased incentives in this area in the Budget.
Master of education
As CEO of the not-for-profit Institute of Bankers in Ireland, Dr. Anthony Walsh’s remit spans both commercial and educational. Walsh is passionate about education and believes the scale of investment in education by financial institutions in Ireland has been a key driver for the growth and success of the industry in the last decade.
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