Ireland Financial News – Mortgages & Banking

The latest figures from the Central Bank show that weakness in residential mortgage lending persisted in November.The Central Bank says that mortgage lending rose by just €96m in November.

This compares with an average monthly increase of over €850m between January and September of this year.

It also compares with an average monthly increase of almost €2bn at the height of the housing boom in 2006.

The annual rate of increase in residential mortgages slowed to 6.7% last month from 7.6% in October – the lowest annual rate of increase since 1986.

Overall, private sector credit growth slowed to 8.4% in November from a figure of 8.9% the previous month.

The figures from the Central Bank also show that new credit card spending was slightly over €1bn in November, the lowest level since April 2006

The Government has announced support for a recapitalisation programme of up to €10 billion for credit institutions.

In a statement issued this evening, it said its objective was to ensure the long-term sustainability of the banking sector in Ireland.

The Government said it would support the programme alongside existing shareholders and private investors, and would underpin its contribution through the availability of credit to individuals and businesses in the real economy.

After a day of meetings, Minister for Finance Brian Lenihan confirmed that money from the National Pensions Reserve Fund will be used in the recapitalisation programme.

State investment will take the form of preference and/or ordinary shares in the institutions receiving funds.

Mr Lenihan said State investment would be assessed on a case-by-case basis and all the institutions were being asked to submit their proposals by early next month.

A spokesperson for AIB said the bank’s board would discuss the Government announcement when it meets later this week.

 Figures from the Central Bank show a dramatic slump in the growth of residential mortgage lending in October.

The annual rate of growth in October fell to 7.6%, the lowest figure since 1986.

The Central Bank described the mortgage figure as ‘exceptionally weak’.

The amount of money lent for mortgages rose by just €26m during October, compared with the average monthly increase of almost €2bn at the height of the housing boom in 2006.

The US government has agreed to a $306bn (€244bn) rescue plan for Citigroup in the latest attempt to bolster a financial services industry in turmoil.

Citigroup’s package may also prove a template for other banks that are expected to face growing losses as economies worldwide sink into recession.

Credit losses once concentrated in mortgages are already bleeding into new, large areas such as credit cards and commercial real estate.

  The nation’s second-largest bank by assets has the farthest international reach of any US bank, with operations in more than 100 countries.

Many analysts have said Citigroup might be too big to be allowed to fail, and that any collapse could cause financial havoc around the globe.

‘The market wants some kind of certainty about their losses,’ said Blake Howells, director of equity research at Becker Capital Management in Portland, Oregon.

The plan announced late Sunday calls for Citigroup to obtain $27bn (€21.9bn) of capital by issuing preferred shares.

The shares carry an initial eight percent dividend, higher than the five percent it charges dozens of other lenders under its $700bn (€560bn) financial industry rescue package. Citigroup itself got $25bn (€20bn) in the earlier package.

Citigroup agreed to absorb the first $29bn (€23.2bn) of losses on the $306bn (€244bn) portfolio, plus 10% of additional losses, for a maximum total exposure of $56.7bn (€45bn).

The Treasury Department could end up absorbing $5bn (€4bn), the Federal Deposit Insurance Corp $10bn (€8bn), and the Federal Reserve the rest.

The bank will not have to make management changes, but agreed to tighter restrictions on executive pay, and to try to modify troubled mortgages in the $306bn (€244bn) portfolio.

It also cannot pay more than one cent per share in common stock dividends per quarter for three years without the Treasury Department’s consent. The quarterly dividend is now 16 US cents.

‘The US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy,’ the Fed, the Treasury Department and the FDIC said in a joint statement.

The plan was announced less than a week after Pandit announced plans to reduce Citigroup’s workforce to 300,000 by early next year from 375,000 at the end of 2007.

Citigroup employs over 2,200 people in Dublin’s IFSC and in Waterford.

The Minister for Finance, Brian Lenihan has said the Government has not ruled out public investment in Irish banks, but said banks had to demonstrate a capacity to attract private investment.

Speaking on RTE’s this week, Mr Lenihan said the State putting money into the banking system would be a last resort and it was entirely legitimate that the taxpayer should not be asked to capitalise banks.

He said he had received a Government commissioned report confirming there was no threat to the solvency of banks in Ireland and that they could meet the current regulatory capital requirements.

Mr Lenihan also said he was not ruling out income tax increases over the next two years.

News from RTE >>

Official figures show that the annual rate of inflation fell back to 4% last month from 4.3% in September.

The Central Statistics Office said lower petrol and diesel prices and falls in the prices of clothes and footwear were the main factors in the fall.

The CSO said the October figures did not include rises in excise duties announced in the Budget, as they took effect after the figures were compiled.

Overall, prices fell by 0.2% compared with September.

There was a 2% fall in prices of clothes and footwear, while lower oil prices and air fares led to a 1.8% drop in transport costs.

Prices of furnishings and household equipment were also lower due to sales.

But education costs rose by 3.6% in the month, while there were also higher childcare costs and house insurance premiums.

News from RTE >>

Bank of Ireland has reported pre-tax profits of €650m for the six months to the end of September this year, a drop of almost a third from a year earlier.

In its statement published this morning, the bank also said it would not pay a dividend to shareholders.

Chief executive Brian Goggin told RTÉ radio that the bank was a ‘strong, sound and successful’ business and did not see the need to raise additional capital at the moment.

He said only €13bn, or less than 10% of its total loan portfolio, linked to property development, was causing the bank problems.

Underlying earnings per share were down 31% to €0.55.

A breakdown showed that profits in Bank of Ireland’s retail business in the Republic dropped 25% to €286m, while Bank of Ireland Life profits plunged from €72m to €3m, badly hit by stock market turbulence which affected the value of its investments.

Capital markets profits fell 8% to €283m and UK profits dropped 38% to €148m.

News from RTE >>

 Permanent TSB, one of the largest players in retail banking in Ireland, is offering staff a paid career break in an effort to cut costs.

The initiative is being taken as the bank expects less business volumes in the months and years ahead arising from the recession in the Irish economy.

Permanent TSB has confirmed it is offering to pay employees up to €20,000 euro to take a two year career break (€10,000 per year) or €35,000 for a three year break.

Unite, the trade union which represents 75% of Permanent TSB’s 2500 staff, has given the initiative a cautious welcome.

Regional organiser with Unite, Colm Quinlan, described the proposition as a novel one that has not been seen before and which ultimately does preserve jobs.

However, he said a number of points had still to be ironed out.

He said the union had been informed by management of the initiative and had not objected to it being circulated to staff.

Permanent TSB hopes the career break will appeal to younger employees who might take the opportunity to travel.

The bank will also be anxious not to lose staff entirely given the high cost of training and staff development.

News from RTE >>

AIB shares have opened sharply lower after issuing an interim management statement this morning, in which it substantially reduced its earnings forecast for this year.

The bank said it does not expect a ‘meaningful’ recovery in the residential market until 2011.

AIB Group, Ireland’s biggest bank, said bad debts, largely because of loans to residential property developers in Ireland, would increase this year and next, well beyond the bank’s and analysts expectations.

Worries over loans to property developers lead the group to reduce its earnings forecast for the rest of the year to €1.20.

Originally it had forecast earnings of between about €1.80 and €1.90 per share. Analysts had forecast around €1.70 before the statement was released.

AIB will not be paying a dividend to its shareholders.

Minister for Finance Brian Lenihan said he is worried that the bank does not estimate a meaningful recovery in the mortgage market until 2011.

Speaking in Dublin this morning, Minister Lenihan said AIB’s trading statement showed just how important the government’s action to stabilise the Irish banking sector had been.

He also said yesterday’s exchequer figures were in line with those contained in the Budget and at the moment he did not see the need for a ‘mini-budget’.

However, Mr Lenihan said that if there is further deterioration, corrective action will be taken to ensure expenditure remains within the ‘proper limits’.

News from RTE >>

The Financial Regulator has asked the six Irish banks covered by the State’s guarantee to submit new business plans showing how they plan to reduce their risks.

The regulator has also placed ‘officers’ in each of the banks to scrutinise their future operations.

20 officers have been employed to be placed on-site across the banks.

The moves were agreed as part of the €500bn deposit guarantee introduced by the Government to prop up the Irish banking sector amid the global financial crisis.

Elsewhere, European shares have dived in opening trade this morning, tracking steep falls across Asia on global recession fears.

Dublin’s ISEQ index was down almost 3.5% in the first 10 minutes of trade.

Irish financial stocks were all lower.

London’s FTSE 100 tumbled over 3% in opening trade, while the Frankfurt’s DAX index also fell by 3% in early trades as investors fretted over potentially weak corporate earnings. The Paris CAC plunged fell 4.9%.

Japan’s Nikkei index plunged 9.6% earlier this morning to end at a five-year low.

Meanwhile, a growing list of countries have been affected by the global financial crisis in recent days.

Among those now affected by the credit crunch are: Iceland, Hungary, Pakistan, Ukraine, Serbia and Belarus which are all in discussions with the International Monetary Fund.

Capital has also flowed out of countries such as South Africa, South Korea and Argentina which yesterday announced it was nationalising its pension funds.