Good Afternoon,
It is the first day back after the Easter break and after the short week last week. I have to say maybe it is the weather which is sunnier that is making me slightly perkier in humour and in outlook about the market but I think that for the first time in months that we may be past the point of the bottom for the time being.
I am struck by the ISEQ index , and by the fact that even the newsflow on the banks whether it is credible or not would appear to have turned more positively in favour of existing holders of their equity. The Announcement by AIB this morning was greeted positively by the market which is somewhat ironic as the management credibility here has been absolutely shot to bits given the comments before Christmas by CEO Eugene Sheehy that AIB would rather die than accept fresh equity and suddenly they have a need for Eur5bn ? Staggering However despite this , markets have long since stopped believing utterances from desperate management teams and imputed their own numbers Simply at this stage , it appears to me that a political solution to the Irish Banking crisis is
being brought about. In reality it is fraught with dangers everywhere but the Minister seems determined that the Banks will remain as PLC’s .
The key question from an equity investors perspective is what is the level of capital that the Government and Financial markets comfortably accept at the end of the process and arising from there how do we get to that point.
This to me is where I agree with one aspect at least with the economists who wrote the open letter to the Irish times about NAMA. The economists argued that the NAMA option was not the correct one. What we know is that the Minister has decided on his chosen course of action and it is to use this vehicle.
The solution to the equation of how the banks get to survive without being nationalised is becoming clearer. Obviously the Minister and the department have let this figure of the required level of capital post NAMA transfers be known to the Banks and AIB failed the stress test hence needs the extra 1.5bn of capital. Bank of Ireland according to the Minister does not require further capital. So the Minister must have some clear view as to the reality of the loan books at each of the institutions. The price that NAMA will ‘pay’ for the toxic assets is the number which balances the equation and the risk then passes onto the state for the next five years with the State option to Levy the banks a real promises but not one that a present equity investor will pay much attention to (Maybe they should …)
So if in the case of Bank of Ireland there is no further dilution then this must be by definition good news and AIB must rapidly get with the programme in terms of raising the capital they require. They have some options including disposal of M&T , maybe Poland and certainly redeeming existing outstanding debt at a discount to help before issuing fresh equity.
I think the market will reflect on these developments and the banks may yet have a decent bounce from these levels.
Elsewhere markets are struggling today , I ad been suggesting that there was a degree of over bought levels having been reached with scopd for profit taking , I am not surprised to see the pull back , I do hopr the markets find support at the technical support levels and then I think that we can build a way forward from here.
The real economy is not getting any brighter yet and the UK budget will be interesting to watch on Wednesday but I do think there is some clarity arising.
The New York Times Deal book announced last week that according to figure from Statestreet , the rally in the US was led by significant inflows of cash into the market which has to be a positive sign. Ireland could be a surprise performer on the upside from here. W have seen some huge perventage bounces from low levels , Lets hope it finds a base from here ,
Enjoy the Sunshine ,
Have a good evening
Liam
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