Liams Last Post : Bailout rally was swift , short lived and followed by a european wide slide of bonds and equities alike

Good Afternoon ,

 

Well its all very amazing , the Grinch came and stole Christmas yesterday when the news of the IMF/EU deal was announced. On a cold snowy night , the population realised once and for all that all the talk about economy and banks has now become a very visible amount of  hard cash. The scale of the bailout was well leaked in advance , but there was some issues which caught the eye of the man in the street and that was the use of the full reserves of the NPRF to go towards bailing out the banks.

 

The good news though came with the news that the Regulators new pronouncements re Capital requirements were much better than the market had feared. On Friday a complete nationalisation of Bank of Ireland was a possibility or a haircut for bond holders which could possibly have given rise to the extinction of the rights of the equity holders. As it is the new capital requirement for bank of Ireland is just about 1bn less than anticipated and the news that Bank of Ireland management are going to try and raise as much of this from private sources with the state backing is pleasing.

 

And the equity market reaction ? a short rally first thing which gave way to a pull back across the board in all markets except the Irish financials.  Irish Life had a +58% get out of jail rally , Bank of Ireland a mere +15% rally and AIB which still trades on thin air if you ask me +3.8% . The scale of the fund raising at AIB is massive.  AIB is now required to raise an additional €5.265bn Core Tier 1 capital. Taking account of the capital AIB has still to raise under its capital plan, the bank has now to raise €9.765bn of Core Tier 1 capital by end-February 2011. 

 

The reaction of bond markets was hardly surprising with Irish 10 year yields blowing out to 9.27% but the game now in focus is Spain with yields now at 5.42%. This deal did not even put a sticking plaster on the markets worries about the Euro project .

 

European equities also had a tough day with the FTSE -2% , The Eurostoxx50 index -2.45% m, the CAAC 40 index in France down -2.5% and the DAX in Germany and the IBEX in Spain also down -2.2% highlights that this deal does not end the game but merely moves it onto the next high stakes countries.

 

The Corporate News in Ireland today came from Aryzta who affirmed their trading outlook and made positive noises about margin progression .The stock was +6% and Cove Energy who announced that their partners Anadarko had made a third major discovery in Mozambique.  

 

Have a good evening ,

 

Liam

 

 

 

 

 

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Liam Boggan

　

Merrion Stockbrokers

Tel.: 353-1-2404171

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