Central Bank governor says capital buffers will be carefully monitored
about 13 hours ago
Despite a pick-up in lending, most notably Central Bank governor Philip Lane says Ireland’s credit cycle remains “subdued”.
As a result, he said the bank’s counter-cyclical capital buffers – the mechanism by which the Central Bank’s controls lending here – has been kept at 0 per cent.
However, in a speech to the annual CEO Breakfast Forum, hosted by Business in the Community Ireland, Prof Lane said the buffers were a vital tool in maintaining macro-financial stability and would be closely looked at in the coming years.
“We can activate a counter-cyclical capital buffer (CCyB) by raising the minimum capital ratio for banks during periods of above-normal credit growth and lowering it during periods of below-normal credit growth,” Prof Lane said.
“ This both increases the resilience of banks to unexpected reversals in credit dynamics and could also act to dampen credit cycles and increase both the sustainability of lending and the stability of financial institutions,” he said.
The Governor said a small but increasing number of EU countries had raised the counter-cyclical capital buffer in recent times.
Prof Lane said t macro-financial stability was a necessary pre-condition for the implementation of a meaningful sustainability agenda.
“At both domestic and international levels, this basic lesson has been painfully illustrated by the boom-bust credit cycle during 2003-2009, the European sovereign debt crisis during 2010-2012 and extended post-crisis recovery dynamics that has dominated the European policy agenda in recent years,” he said.
During a crisis, public and private decision makers delay investment plans; crucial resources are diverted while the bandwidth of the political system is absorbed by crisis management.
These acted as barriers to making progress on the sustainability agenda, he said.
“To take an obvious example, the history of the construction sector in Ireland over the last 15 years provides a basic case study of how untamed credit can contribute to severe mis-allocation of resources, across time and across geographies,” he said.
As defaults loom bonds plunge in value and investors with steel stomachs arrive
about 16 hours ago
Venezuela’s Vice President Tareck El Aissami (C) speaks during a meeting with bondholders and their representatives, next to Oil Minister Eulogio del Pino, Economy Vice President Wilmar Castro, Planning Minister Ricardo Menendez and Economy Minister and Vice President for finance at Venezuela’s state-owned oil company PDVSA Simon Zerpa, in Caracas, Venezuela November 13, 2017. Photograph: Reuters
For years, investing in Venezuelan bonds has been a popular play for the world’s largest investors – seduced by mouthwatering interest rates, despite the obvious risks. Now, as the bonds have plunged in value over fears that the Venezuelan government will finally default on its bond payments, many traditional investors are heading for the exits, replaced by a hardier band of funds that specialize in the debts of near-bankrupt nations.
With steel stomachs and having survived numerous Byzantine debt dramas – from Argentina in 2000 to Greece in 2012 – they see Venezuela as the next great debt-restructuring payday.
“It is all about the price,” said Lee C. Buchheit, a debt specialist of 30 years’ standing at the law firm of Cleary Gottlieb Steen & Hamilton. “If you look at the behavior of distressed investors, they wait for the price to hit a certain threshold” – usually 20 cents on the dollar – “and we have now reached that.”
Developments have moved quickly in recent weeks, with a call to restructure, missed interest payments, a default on a power company’s bonds and an inconclusive meeting with investors Monday.
But neither Venezuela’s sovereign debt nor that of its national oil company has been declared in default by creditors, though Standard & Poor’s says the conditions exist for a default. Investors taking the long view still believe that the government will find a way to keep paying what it owes. Their calculation, Buchheit said, is simple: whether the price of the bonds is below what might be recovered through a debt-restructuring agreement or as part of legal enforcement if Venezuela refuses to negotiate.
With the country’s political and social disarray, US sanctions, and recent demands from the government of President Nicols Maduro that bond investors agree to a debt deal, Venezuelan bonds have plunged in price from more than 30 cents to the low 20s. According to the data-gathering firm FactSet, established firms like Goldman Sachs, Fidelity and T. Rowe Price still sit on about $3.5 billion worth of bonds issued by the national oil company Petrleos de Venezuela, or PDVSA. By far, these have been the favorite bonds for foreign investors because the company is seen as the country’s cash cow, with its steady stream of foreign-exchange earnings and its wealth of overseas assets.
But as the Venezuelan economy continues to deteriorate, the risks of owning these bonds have grown significantly. The country’s foreign-exchange reserves have fallen below $10 billion – a level economists say comes close to insolvency – and experts say striking a debt deal will not be easy, especially with an unpopular government and dueling legislatures. And so the selling has begun.
“We have significantly reduced our portfolio in Venezuela over the past year,” said Jan Dehn, the head of research at Ashmore Investment Management, an emerging-market specialist based in London. “This is a slow-moving train wreck.”
For these experts in distress, or vulture investors, it is at this point that they get serious about committing funds. And those who have been through many such situations say Venezuela could become the most profitable of all. That is because many debt disasters occur in small countries in Africa and Latin America with limits on the bonds one can accumulate. And in larger countries like Argentina and Greece, profits were hard to come by as nations drove hard bargains.
Venezuela is a special case for several reasons, debt experts say. Because of sanctions, it has been unable to hire a team of top bankers and lawyers who might help reach a favorable agreement with creditors. The haphazard nature of the government’s tactics was revealed this week when a ballyhooed session with bond investors in the capital, Caracas, produced few attendees and no results. Unusually, the government has asked bondholders to come up with a plan for restructuring the debt. In most cases when a sovereign nation runs out of cash, a debt proposal is imposed on investors. Also, Venezuela’s oil company has lucrative assets in the United States and Europe that holdout investors could try to seize through a lawsuit in a foreign court if the country stopped paying.
Debt financiers also point out that for all its troubles, Venezuela is rich in resources, with the largest proven oil reserves in the world. Many billions of dollars have fled the country but could come back quickly if there was a change in government. While other investors have been selling, Hans Humes, the founder and chief executive of Greylock Capital, a fund that specialises in distressed debt, is looking to add to his positions. A veteran of debt deals in Argentina and Greece, he is contacting like-minded investors to fashion a unified negotiating strategy.
Since it has been just two weeks since Maduro said he would renegotiate Venezuela’s debt, a vanguard of dedicated vulture funds has not yet formed, bankers say. But there is little doubt they are circling. One, in particular, has been David Martinez, a longtime and somewhat mysterious investor in distressed debt who was involved with Argentina and many earlier workout deals. Others, Humes believes, will soon follow.
“Over the next five years, Venezuela will be the best emerging-market story out there – this is a fabulously wealthy country,” he said. “It’s all about mean reversion. We are not looking for Venezuela to become a Switzerland. It just has to stop being Zimbabwe.”
The New York Times News Service
Researcher says incidence here is likely to be significantly lower than in UK
about 17 hours ago
Barista making a coffee. Photograph: iStock
There is no evidence that tens of thousands of workers in Ireland are on so-called “zero-hour” contracts as trade unions are claiming, a senior researcher with the Economic and Social Research Institute (ESRI) has said.
Prof Seamus McGuinness said that, while there are no hard numbers on the incidence or otherwise of zero-hour contracts, it is highly unlikely that Ireland had anything like the numbers in the UK, where the labour market is more deregulated and the activation measures for those in receipt of unemployment benefit more severe.
He was responding to comments by the general secretary of trade union Mandate, who suggested that tens of thousands of workers, across dozens of sectors, were signed to these “exploitative” contracts.
Speaking at the launch of Mandate’s campaign to end “zero-hour” and “if and when” contracts of employment, John Douglas said Government proposals as currently framed contained too many loopholes.
He said that tens of thousands of workers did not know from week to week what hours they will be working and this could result in major fluctuations in their income.
A 2015 study, published by the University of Limerick and using Central Statistics Office (CSO) data, showed that 5.3 per cent of workers in Ireland – around half of whom were part-time – have hours of work that vary on a weekly basis. However, the study provided no evidence of the exact contractual nature of employment – or the degree of variability in hours .
“As is suggested by the authors of the Limerick study, much better data is required if we are to get a complete picture of both the incidence and impacts of ‘if and when’ contractual arrangements in Ireland,” Prof McGuinness said.
He said one possible way of assessing the incidence of zero-hour contracts in Ireland was for the CSO to include a question on them in its quarterly national household survey, which provides the most accurate data on the labour market here.
CSO statistician Brian Ring said, however, that the phrase “zero-hour contracts” covered a number of practices including precarious work, casualisation, changing or irregular hours and low-hour contracts.
“Although these situations can occur with individuals on higher pay, the term is being more frequently used to describe lower-paid workers who feel restrained by the demands of being constantly available and flexible to attend to their work,” he said.
In the CSO’s main labour market survey, he said zero-hour contracts were not directly measured because no single definition exists.
The number of people on zero-hour contracts in the UK hit a record high of 910,000 earlier this year, equating to just less than 3 per cent of the total workforce.
Taoiseach Leo Varadkar has vowed to outlaw zero-hour contracts and prioritise the legislation to do so during this Dáil term.
However, employers group Ibec said the Government’s proposed draft bill on zero-hours contracts was crude and disproportionate.
Inflation now running at 3% in UK, less than had been predicted just two weeks ago
about 18 hours ago
Governor of the Bank of England Mark Carney. Photograph: Epa/Armando Babani
There was some good news for Bank of England governor Mark Carney on Tuesday, as the UK’s inflation rate unexpectedly stuck at its five-year peak of 3 per cent. Had the figure risen to 3.1 per cent, as most City economists expected, Carney would have been obliged to write an open letter to the chancellor, Philip Hammond, explaining why the cost of living was so far adrift of the government’s 2 per cent target.
But there was bad news for the governor too. While Carney has been spared the task of penning an explanatory letter on inflation, he’ll have to spend more time defending the central bank’s shaky record on forecasting – and its decision earlier this month to raise interest rates for the first time in more than 10 years.
Just a fortnight ago, when it raised rates by a quarter of a point from their all-time low of 0.25 per cent, the bank said it expected inflation to break through 3 per cent in October, possibly to 3.2 per cent.
So imagine the City’s surprise yesterday morning when the figure, as measured by the Consumer Prices Index, turned out to be the same again as September’s 3 per cent.
“Red faces all round as UK inflation fails to rise as widely expected – not least by the Bank of England,” was how IHS Markit’s chief economist Chris Williamson put it.
For consumers, the inflation data also contains both good and bad news. The good news is that the Brexit-inspired surge in the cost of living since last year’s referendum – on the back of the fall in the value of the pound – may just have reached its peak. And the immediate post-referendum currency effect will start to work its way out of the inflation calculations by the end of the year.
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Falls in the price of fuel and furniture helped to limit the overall increase in inflation last month. But the bad news for shoppers is that food prices are rising at their fastest rate for more than four years – by 4.1 per cent over the past year – taking them to their highest level since September 2013.
The increases were particularly marked in fruit and vegetables, in fish, meat and dairy, raising the prospect of far more expensive festive fare this Christmas, leaving even less for shoppers to spend on non-essential gifts and treats.
As Stephen Clarke of the Resolution Foundation pointed out, this hurts poorer households hardest, as they spend a far larger proportion of their incomes on essential items such as food.
Unions renewed their demands for something to be done to help the millions of households struggling to survive the squeeze. With chancellor Philip Hammond due to deliver his budget next week, the TUC’s Frances O’Grady urged the government to “stop turning a blind eye to Britain’s cost of living crisis. Household budgets are being stretched to breaking point”, she said.
Green light for Tesco deal
Inflation wasn’t the only surprise in the City yesterday, with retail analysts also caught on the hop by the competition regulator’s decision to grant provisional clearance to Tesco in its £3.7 billion (€4.13 billion) bid for cash-and-carry group Booker.
Tesco’s bid for Booker has been controversial from the start. Even before it was launched in January, it saw the resignation of Tesco’s senior non-executive director Richard Cousins, who was opposed to the deal. Some Tesco shareholders have also voiced their concern at the price being paid.
The multibillion pound Booker move has raised fears among retail experts that it might distract the management team at Britain’s biggest retailer from their primary task of revitalising the core UK supermarkets operation.
Tesco’s sheer size – it still has just under 30 per cent of the UK grocery market – had led most sector experts to expect some conditions would be imposed before the deal would be allowed to proceed. The most likely options were for Tesco to be ordered to sell off its 1,000-strong Tesco Express network or its One Stop convenience stores chain.
In the end, the competition and markets authority has made no such demands, instead saying it believes that competition is strong enough in both the wholesale and retail grocery sectors to protect customers from higher prices or reduced service.
Rival wholesalers and independent store operators have warned the deal could force them out of business. They still have a few weeks to redouble their protests before the competition authority makes its final decision next month. But, barring any serious unrest from Tesco shareholders, or investors in Booker, it looks as though the deal is in the bag for chief executive Dave Lewis and his team.
Fiona Walsh is business editor of theguardian.com
Minister says it is ‘absolutely not’ intention to create tax planning opportunities
Tue, Nov 14, 2017, 19:35
Suzanne Lynch in Washington
Paschal Donohoe: the Minister says the Government will examine the use of the so-called “Single Malt” tax structure that is being used by large multinationals to reduce their tax bill. Photograph: Gareth Chaney / Collins
The Government is to examine the use of the so-called “Single Malt” tax structure that is being used by large multinationals to reduce their tax bill, the Minister for Finance has said.
Speaking in Washington where he is meeting US officials to discuss trade and tax matters, Paschal Donohoe confirmed that certain companies were using the tax structure as a tax-avoidance measure since the abolition of the “Double Irish”.
“I will examine this matter in more detail to see what is the effect it’s having, both in Ireland and within Malta, ” he said. “We have already done work in relation to the spillover effects of tax policy in Ireland on other jurisdictions and this is a matter that, inside the commitments we have within the OECD, that we will examine.”
He said it was “absolutely not” the intention of the Government to create tax planning opportunities for companies that want to reduce their tax bills, noting that the emergence of the new tax device was a result of the “interplay between different tax jurisdictions”.
“It is a very strong example of why corporate tax reform needs to be done in a co-ordinated manner, across the European Union and globally, because much of the difficulties that have developed in relation to global taxation happened because of the interplay between the tax regimes in different jurisdictions,” he said.
As reported in The Irish Times, aid agency Christian Aid has highlighted the fact that tax advisers are now pointing clients to the “Single Malt” arrangement which encourages companies to divert profits to countries with which Ireland has a double taxation agreement but which have a very low corporate tax rate such as Malta.
Mr Donohoe said that no contact had been made with Malta to date on the issue.
The Minister was speaking during a four-day visit to the US where he is meeting senior political figures in Washington, including White House budget director Mick Mulvaney and treasury undersecretary David Malpass, to push the case for Irish-American trade.
US tax reform
He travels to New York on Wednesday where he is due to meet several US companies with interests in Ireland, including JP Morgan Chase, Citi Bank and financial software company Fenergo.
Mr Donohoe’s visit coincides with a key week for tax reform in the US, as both houses of Congress race to advance their tax reform plans before next week’s Thanksgiving recess. A vote in the House of Representatives is expected as early as Thursday, with US president Donald Trump due to visit Capitol Hill on Wednesday to help secure agreement.
Among the changes under consideration are a cut in the US corporate tax rate to 20 per cent, though the senate plan favours delaying this until 2019, as well as a one-off tax on overseas profits to encourage repatriation.
Survey finds 53% blieve current status quo is best for local firms
Tue, Nov 14, 2017, 17:51
A majority of key business leaders believe the best possible outcome for the North is to remain in the single market and the customs union post Brexit, according to the Chartered Accountants Ulster Society.
A survey undertaken by the society found that 53 per cent of business people believe the current status quo would be best for local firms while a large majority (53 per cent) consider potential new tariffs and non tariff barriers to be one of the biggest future threats to Northern Ireland.
The results of the survey also highlighted that 28 per cent of business people would like the North to be granted special status in any new post Brexit arrangements.
According to the Chartered Accountants Ulster Society most business people that they surveyed – 86 per cent – believe that Brexit presents more threats than opportunities for Northern Ireland.
The Chartered Accountants Ulster Society also found that less than a third of firm they spoke to had started preparing for Brexit.
Pamela McCreedy, chair of the society which represents over 4,500 chartered accountants in Northern Ireland, said: “Whether you are for or against Brexit, we have seen that the period of uncertainty that we’re going through is crippling for local business. It’s vital that our business leaders and political leaders work together to find a way through instability.”
Report on world’s money shows number of millionaires up 22%, impacted by Trump and Brexit
Tue, Nov 14, 2017, 16:22
The world’s richest people have seen their share of total wealth increase from 42.5% at the height of crash to 50.1%.
Millennials were the big losers this year as the planet’s richest 1 per cent increased their share of the world’s wealth to more than half.
According to the Credit Suisse Research Institute’s 2017 Global Wealth Report, by 2022, the global number of millionaires is projected to rise by 22 per cent, from 36 million today to 44 million.
In terms of ultra-high net worth individuals, emerging economies accounted for 6 per cent of the segment in 2000, but have claimed 22 per cent of the growth (24,500 adults) since then. China alone added an estimated 17,700 adults, or 15 per cent of the total.
The report records an upsurge in the number of Forbes billionaires below the age of 30. Despite this, the data point to a “millennial disadvantage” due to tighter mortgage rules, growing house prices, increased income inequality and lower income mobility.
This year’s report also examines millennials and their wealth prospects. The data point to a “millennial disadvantage” due to tighter mortgage rules, growing house prices, increased income inequality and lower income mobility.
The report said the “difficult start and adverse market conditions” experienced in their early adult years will “most likely limit” their wealth acquiring prospects.
The generation was not only hit by capital losses from the global financial crisis, but faced first-hand the subsequent unemployment, increased income inequality as well as higher property prices, tighter mortgage rules, and a considerable rise in student debt.
The overall global outlook for millennials, however, is that not only will they experience greater challenges in building their wealth in the future but will also continue to face greater wealth inequality than previous generations.
The US continued its unbroken spell of gains since the financial crisis, adding $8.5 trillion to the stock of global wealth, which is half of the wealth generated globally over the 12 months to mid-2017.
Comparing wealth gains across countries, the US was restored to its usual first place, with a gain five times the rise recorded by China ($1.7 trillion) in second place.
China’s wealth is estimated at around $93.6 trillion, equivalent to 33 per cent of total global wealth. The US contributes the highest number of members of the top 1 per cent global wealth group, and currently accounts for 43 per cent of the world’s millionaires.
“So far, the Trump presidency has seen businesses flourish and employment grow,” said Michael O’Sullivan, chief information officer for International Wealth Management at Credit Suisse.
“Though the ongoing supportive role played by the Federal Reserve has undoubtedly played a part here as well, and wealth inequality remains a prominent issue,” he added.
Stability in Europe enabled wealth growth of 6.4 per cent across the continent. Germany, France, Italy, Spain made it to the top ten with the biggest gains in absolute terms.
The euro zone’s total wealth of $53 trillion in 2017 is comparable to the total wealth of the US at the end of the 1990s.
The UK market recovered after losses caused by the Brexit vote last year but the outlook “remains uncertain”. Wealth per adult rose 2 per cent when valued in sterling, although it fell 1 per cent in US dollars.
Due to Brexit and the expected depreciation of the British pound, the UK is projected to reduce its stock of wealth by 0.9 per cent in the next five years, when expressed in US dollars.
Ten years from the onset of the global financial crisis, global wealth has grown by 27 per cent, according to the report.
However, it has been the world’s richest people who have seen their share of total wealth increase from 42.5 per cent at the height of crash to 50.1 per cent in 2017, or $140 trillion.
In the 12 months to mid-2017, global wealth grew at a faster pace than in recent years, with mean wealth per adult reaching a new record high. Switzerland is still the global leader in terms of wealth per adult.
Over the same period, total global wealth rose at a rate of 6.4 per cent, the fastest pace since 2012 and reached $280 trillion, a gain of $16.7 trillion.
This reflects widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year.
The report notes that the world’s 36 million millionaires comprise less than 1 per cent of the adult population, but own 46 per cent of household wealth. There has been an upsurge in the number of Forbes billionaires below the age of 30.
Since 2000, the number of millionaires globally has increased by 170 per cent, while the number of ultra-high net worth individuals has risen five-fold, making them by far the fastest-growing group of wealth holders.
By 2022, the global number of millionaires is projected to rise by 22 per cent, from 36 million today to 44 million. While the number of ultra-high net worth individuals will likely increase by 45,000 to reach 193,000 individuals.