£400,000 loss likely on entry to EMU

by Kyran Fitzgerald
ANGLO IRISH BANK stands to lose around £400,000 a year in income from foreign exchange following Irish entry into Economic Monetary Union.
This figure would increase to £1 million in the event of British entry, the bank's chairman, Gerry Murphy, said, yesterday.
Lower interest rates following Economic Monetary Union entry should have an off-setting effect with an easing in bad debt pressures, he added.
Anglo Irish Bank remains on course for yet another record year following another strong performance during the first three months of the bank's current financial year.
The bank is also strongly placed to boost its ranking in the market through major acquisitions.
Following its issue of $125 million in preference shares, it will be possible to double the bank's assets, which currently stand at over £3 billion, Mr Murphy said.
Anglo Irish Bank continues to trade strongly.
In the three months to the end of December last, profits were running ahead of budget in all sectors and they were well ahead of comparable figures for the corresponding period in 1996, Mr Murphy said.
In the year to September 30 last, profits jumped by 26% to just over £30 million, the 12th year in a row in which the Allied Irish Bank has enjoyed an increase in profits.
Questioned by shareholders about the board's future plans, Mr Murphy said that they would certainly look carefully at ICC Bank if it came up for sale.
"We have the highest regard for ICC Bank and for its management.
"We are always competing with ICC for business. We make the same sort of loans as them.
"If we are happy with what we see, if the price is right, we will be in there competing."
The chairman indicated that Anglo Irish management would probably not be interested in the ACC Bank, as they operate in a different area of business, outside Anglo Irish Bank's "comfort zone."
The bank would not be interested in the TSB.
Anglo Irish is not interested in expanding its retail operation.
Mr Murphy also told shareholders that there were no indications that an outside group were trying to assemble a shareholding in the bank with a view to launching a takeover bid.
As for certain other dark clouds on the banking horizon, Mr Murphy said that the bank had no involvement with the Asian market, while the potential cost to the organisation from the so-called "Millennium Bug" would be minimal.
This is because the bank's computing systems are of recent origin. The relevant software had been written 10 years ago at a time when there was already an awareness of the Year 2000 problem.
At most, the cost to the bank would be £20,000.
Shareholders approved the proposed increase in the final dividend to 4·2p, an increase of 13·5% for the year as a whole. A proposal to raise the total fee payable each year to non-executive directors from £100,000 to £150,000 was also agreed unanimously. This could pave the way for the appointment of up to two more non-executive directors to the board. Three directors, Tony Colby; Seán FitzPatrick, the bank's long-serving director, and Tony O'Brien were re-elected for further three-year terms.

Gradual decline in rates is urged

by Kevin Mills
A GRADUAL decline in interest rates should commence as quickly as possible, and from an economic stability point of view, will be preferable to a sudden sharp fall later in the year, according to Bank of Ireland Group Treasury chief economist Jim Power
Addressing business issues in respect of forthcoming monetary union, Mr Power said that the Irish situation was pretty straightforward. The political will was undoubted, and the Maastricht Convergence Criteria posed few problems. Inflation averaged 1·5% in 1997; the budget situation was close to balanced; the debt/GDP ratio ended the year around 67%, having come down from 116% as late as 1987, and the exchange rate was within the normal 15% band of fluctuation allowed for all countries except Germany and the Netherlands.
"However, there is a problem in relation to the sterling influence," said Mr Power. "The Irish currency has been trading way out on its own at the top of the Exchange Rate Mechanism (ERM) grid due to the strength of sterling against the ERM currencies, and this has given rise to considerable speculation about revaluation.
"The Irish pound has experienced a dramatic decline since the beginning of December, falling from 2·62 to 2·48 against the deutschmark, from 88 pence to 84 pence against sterling, and from 1·47 to 1·36 against the dollar. This decline has not been driven by any significant selling, but rather by modest selling which, however, has been very consistent," he said. "It is now inevitable that the Irish pound in the euro will remain subject to the vagaries of sterling for a period of at least three years. The key point from Ireland's perspective is that sterling's behaviour can't be guaranteed."
Mr Power was speaking at a seminar on EMU in the Imperial Hotel, Cork.

Trading volumes are up

THE ISEQ index ignored the other major markets, yesterday, as it fell 7·95 points to close at 4304·26, as trading volumes were up as the week closed.
Abroad, the FTSE surged ahead, up 97·3 points in trading that saw most of the "Irish interest stocks" do well. Norwich ended up 10p at 410 stg, the US traded up well and was 104·3 points ahead at 6 p.m. Irish bonds are expected to gain lost ground on their German counterpart if the consumer price inflation report for December, which is released on Tuesday, goes well. The expected result is an increase of 0·4%. The 6% 2008 benchmark bond fell 0·22 to 104·55, pushing the yield up three basis points to 5·35%.
The Irish banks were little changed with AIB down 1p to 735p, Abbey (-7p), Avonmore Waterford (-2p), and Bank of Ireland trading down ½p at 1130p.
Other movers include Greencore (+5), Golden Vale (+1p), CRH (-5p) and Smurfit down 8p at 195p. CRH was raised from "underperform" to "outperform" by a US broker. The EPS estimates were raised from 47·4p for 1998 to 49·4p and from 53·4p to 56·0p for 1999.

Revaluation of the punt in short-term 'not a likely option'

THE Irish pound jumped five pfennigs against the deutschmark yesterday to 2.55 marks after Bundesbank official Klaus-Deiter Kuehbacher suggested the currency might be revalued for European monetary union.
However, the punt later slipped back to 2.5260 marks. Its closing price on Thursday was 2.5175 marks. And last night it closed at 0.8460 against sterling.
Government bonds also saw a short flurry of buying after Kuehbachersaid it was conceivable the Irish punt could be revalued when bilateral exchange rates are set for European monetary union.
Kuehbacher noted that the punt was the only European Union currency to deviate far from its Exchange Rate Mechanism level.
He attributed this to Ireland's strong economic growth and attractiveness as an investment option, as well as its close connection with sterling.
"If necessary the European council can take the opportunity to revalue the Irish punt when bilateral exchange rates with other currencies on January 1,1999 are set," he said.
Finance Minister Charlie McCreevy has refused to be drawn on the punt's probable fate, saying only it will go into monetary union at a rate best suited to the economy.
However, analysts in the Irish market remained doubtful that the Irish authorities would be in a rush to move on the currency.
"Given the way the Irish authorities have been playing their hand of late it's very unlikely they'll revalue in the short term — they'll try for the (central parity) rate of 2.41 marks if possible," said Pat O'Sullivan, economist with AIB Bank.
"There will be volatility and people will speculate but the crucial thing for the authorities will be the performance of sterling/mark over the next few months."
The possibility of a punt revaluation had never been denied or confirmed, he said, but the story had been gaining momentum in recent days ahead Monday's Ecofin meeting.

Sharp increase for pound

HAVING opened at 2.5166 Deutschemarks the Irish pound strengthened sharply to over 2.54 after Bundesbank official, Klaus-Deiter Kuehbacher suggested that the it might be revalued in the run up to monetary union.
Kuebacher noted that the pound was the only prospective member of EMU to deviate far from its Exchange Rate Mechanism mid-point (IEP/DEM 2.4110).
Economists remain doubtful that the Irish authorities will be in a rush to clarify their view on the currency at this point. Profit-taking before Monday's ECOFIN was also a factor.
The pound closed at 2.5350 versus the Deutschemark.
Sterling continues to be supported in the international currency markets after Thursday's comments from Gordon Brown and closed at 2.99 versus the Deutschemark and at 0.8465 versus the Irish pound (opening) rate 0.8420).
The US dollar, while remaining strong versus other currencies, slipped against the rising pound from 1.3732 to 1.3825.