Tag Archives: Allied Irish Banks

Belgium Joins The PIIGS: And Then They Were Six

Those hoping for a euphoric reaction to the weekend bailout of Ireland must have been disappointed today. Even Italy, which many had started to regard as no longer a PIIG, matched its record wide. Contagion fears have certainly not been assuaged; if anything, they have become more heightened.

“And the rate at which Belgium is widening means that we may have to find a new derogatory acronym.”

Gavan Nolan

The Markit iTraxx SovX Western Europe index surged to another record wide and the two Iberian sovereigns broke the record levels that they hit last week.

Ireland’s funding needs for the next two years seem to have been settled by the bailout, albeit at a less than generous average rate of 5.8%.

And the fact that bank senior bondholders won’t be sharing the burden before 2013 has been welcomed by the markets, if not by the Irish people.

But the political risk remains ahead of the December 7 budget, Gavan Nolan at Markit Credit Research points out.

“The consensus seems to be that the coalition government will manage to get it through, but there is no guarantee that the incoming government early next year will not want to renegotiate the terms of the bailout.”

The rescue of Ireland by the EU/IMF was more or less priced into Irish spreads, so the widening was concentrated in the other peripherals (bar Greece).

“Speculation that Portugal is next in line has intensified and has now spilled over into sovereigns – such as Belgium – that were perceived as relatively safe a few months ago,” Nolan Writes.

Core euro zone countries have also widened significantly.

Banks lost the gains they made this morning, the sovereign debt concerns outweighing the relief from the lack of “burden sharing” for Irish bank senior bondholders.

AIB and Bank of Ireland senior CDS, unsurprisingly, outperformed the rest of the sector, though liquidity remains poor on these names.

(Markit Liquidity Scores of 3 and 4 respectively).


  • Markit iTraxx Europe 115bp (+5), Markit iTraxx Crossover 515.5bp (+21.5)
  • Markit iTraxx SovX Western Europe 198bp (+10.5)
  • Markit iTraxx Senior Financials 166bp (+1.5)
  • Sovereigns – Greece 960bp (-4), Spain 353p (+28), Portugal 545bp (+43), Italy 249bp (+34), Ireland 615bp (+15), Belgium 188bp (+29)

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UPDATE: Euro Strengthens, Stocks Decline On Irish Bailout

The European common currency continue to strengthen vs the Dollar while European stocks turns negative after a short rally as a reaction to Sunday’s news of another EU bailout. Here are the comments and updates from some of the leading Nordic and European analysts.

“It’s probably a question of when the next problem will occur, rather than whether there will be one.”

Jim Reid

Prime minister Brian Cowen & Finance minister Brian Lenihan

European stock markets responded positively on Monday to news that Ireland has applied for a rescue package in an effort to safeguard financial stability, but earlier gains were pared back as the market awaited more details of the plan. The euro seems to be following the same pattern.

The Stoxx Europe 600 index is now down by 0.5%, after hitting an intraday high of 271.68 Monday morning. The index posted a loss of 0.3% last week.

Stocks across Europe were already turning negative when Moody’s Investors Service announced a review of Ireland’s Aa2 rating would likely result in a “multi-notch downgrade.”

Moody’s says in a statement that a package of financial aid for Ireland will help standalone credit quality of banks but that it would underline bank-contingent liabilities for the government and weigh on its sovereign debt burden.

Moody’s Investor Service.

Late Sunday, the Irish government formally applied for aid from the European Union, which welcome the request.

The International Monetary Fund says it stands ready to join the support program, including through a multi-year loan.

Here’s a copy of the statement by the Government of Ireland.

Here’s a copy of the statement by the EU officials.

No specific number has been given, but Irish Finance Minister Brian Lenihan says, according to media reports, that it would be less than 100 billion euros ($136.7 billion).

The troubled state of the Irish banking sector had made a bailout deal seem all but inevitable in recent days.

Video report by Reuters:

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Irish Financial Stocks Drop

However, Irish financial stocks came under heavy selling pressure after Prime Minister Brian Cowen on Sunday said they would need to become smaller as part of the bailout.

He also said they may need to raise more capital.

“The good news for banks is that they have a bit more to go on, but for them, because of the support structure in terms of that, it looks as if there’s a fair chance they will further dilute shareholders,” Bernard McAlinden, strategist with NCB Stockbrokers, says according to MarketWatch.com.

Shares of Bank of Ireland has dropped 16,8% this morning, while Allied Irish Banks PLC is down -1.15%.

Irish Life & Permanent Group Holdings PLC is tumbling down more than 20%.

“As long as no one else needs a bailout, the market gets relief from here,” McAlinden says.

“A restructuring of the banks seems obvious as well as tighten fiscal policy. New stress tests of the banks are likely to be included as part of the plan as the tests undertaken this summer did not prove sufficient. However, the Irish authorities claim the low corporate tax for foreign companies is not part of the deal. In addition the four-year fiscal is likely to be even tighter than planned,” senior economist Knut Magnussen at DnB NOR Markets points out.

Here’s a copy of today’s Morning Report from DnB NOR Markets.

See also: FX Weekly Update, DnB NOR Markets, 11222010.

Who’s Next?

The market turbulence triggered by worries over Ireland had started to spill over in recent days to other high-deficit countries like Portugal and Spain.

Jim Reid, strategist at Deutsche Bank, says it’s probably, though, “a question of when the next problem will occur, rather than whether there will be one.”

“A band-aid solution will take the immediate pressure off from the peripheral risk complex but will not permanently resolve the more fundamental issues of the highly leveraged western financial system,” Reid writes in a note to clients.

“So with Ireland having now joined Greece in the ‘kick the can down the road’ drill, which bails out bondholders at the expense of the Irish tax-payers, markets are likely to turn the attention to the next of the PIIGS. Portugal needs to roll over more than EUR 10 billion of sovereign debt in the first half of 2011 and thus looks more or less like a sitting duck,” market strategist Christian Tegllund at Saxo Bank writes in his Wake-up Call Monday morning.

Here’s a copy of the latest macro analysis from Saxo Bank.

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New All-Time-High For Irish CDS Spreads

The spreads on Irish CDS reached another all-time-high at 530 basis points, Tuesday, as the nation’s governments problems keep mounting. Allied Irish Bank (AIB) announce that it has failed to sell its UK operations, meaning that the government’s preference shares could be converted into ordinary shares. Additionally, the credit market is worried about the recent announced restructuring mechanism in the EU.

“As usual, the core euro zone countries drove the expansion but the dichotomy between core and peripheral countries was less distinct.”

Gavan Nolan

European credit markets lagged their equity counterparts for most of the day but managed a recovery in the afternoon. Investors are now focused on tomorrow’s FOMC announcement and the – near certainty – of additional quantitative easing.

The expectation of monetary loosening by the FED has been the main driver of spread compression in recent weeks.

The markets recall the strong performance of risky assets after the FED’s initial programme of “unconventional” measures. Fundamentals were often disregarded during the rally of 2009; the flood of central bank liquidity deterred the bearish.

The positive direction of recent leading indicators hasn’t changed the consensus view that QE is inevitable; persistently high unemployment is the FED’s main concern.

Yesterday the ISM manufacturing survey came in well ahead of expectations, as did the Markit PMIs for China, India and the UK.

Today’s Markit Euro zone PMI continued the trend, the 54.6 October reading well up on the 54.1 flash estimate, Markit Financial Information reports.

“As usual, the core euro zone countries drove the expansion but the dichotomy between core and peripheral countries was less distinct,” credit analyst Gavan Nolan at Markit Credit Research comments.

Spain was back above the 50 neutral mark and even Ireland was expanding again. However, the performance of Ireland’s sovereign spreads didn’t reflect this good news.

The country’s spreads hit a new record wide level of 530bp today as the problems for the government piled up.

The negative sentiment created by a weekend article in the Irish Independent was compounded today by two unrelated pieces of news, according to Markit.

Allied Irish Bank (AIB) announced that it had failed to sell its UK operations, meaning that the government’s preference shares could be converted into ordinary shares.

“Along with a proposed rights issue, this could take the government’s share to 92% if asset sales aren’t achieved,” Gavan Nolan notes.

To make matters worse for the government, one of its Fianna Fail TDs announced he was resigning his seat. This leaves Brian Cowen‘s administration with a very slim majority – a delicate situation given the upcoming budget vote.

“And all of this in a sovereign market uneasy about the EU restructuring mechanism announced last week,” Nolan writes.

The Markit iTraxx SovX Western Europe was over 160bp earlier in the day before recovering in the afternoon.

  • Markit iTraxx Europe 97bp (-1), Markit iTraxx Crossover 448bp (-8.5)
  • Markit iTraxx SovX Western Europe 157.5bp (0)
  • Markit iTraxx Senior Financials 125.5bp (-0.5)
  • Markit CDX IG 92.5bp (-2)
  • Sovereigns – Greece 845bp (+15), Spain 225bp (0), Portugal 402bp (+8), Italy 179bp (+2), Ireland 520bp (+22), Belgium 123bp (+2)

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