The Irish Independent reports that Bank of Ireland-owned ICS Building Society remains optimistic on home loan demand following a strong opening to 2005 that has "exceeded expectations".
The lender, which originates close on one in three of the bank's Irish mortgages and processes the group's entire domestic retail mortgage loan book of some €15bn, believes that the conditions that created the housing boom of the past decade are still in place.
ICS managing director Joe Larkin said yesterday that the positive conditions that have been driving demand - strong economy, rising employment, population and take-home income, together with low interest rates and age profile - "are conditions that still hold".
Commenting on a good set of operating results at ICS last year, he said that while interest rates looked as though they will begin to nudge upwards, "our estimate of a 0.5 point increase before the end of 2005 would have little impact on mortgage applications".
These were 20pc up in January and February, compared with the same two months last year, he added.
"Interest rates are not going to spike, and so it's no surprise to me that the property market is well underpinned," he added.
The only change, he explained, was that supply and demand were now broadly in equilibrium and this, he believed, would moderate house price rises going forward.
Bank of Ireland expects a 5pc gain over the course of 2005 but, with disposable incomes set to rise by an estimated 6pc, he noted that this year would be the first of many for incomes to outpace prices.
The Irish Independent says that toll road operator NTR said yesterday that it expects revenues from the controversial West-Link bridge on the M50 to surge by 20pc this year, to €71m.
This works out at €12m more in toll revenue than last year, when €59m was generated from motorists passing through the West-Link.
The Government take from the toll booths, through VAT, rates and a licence fee, will work out at €39m this year, up from €31m last year.
National Roads Authority officials are examining the feasibility of the State buying the bridge, but NTR said yesterday no discussions had been held with it.
It is estimated that a buy-out of the bridge would cost between €400m and €500m, but such a move would also mean the Government would have to forfeit €600m in payments as the contract for the toll bridge runs to 2020.
NTR pointed out that 55pc of toll payments goes to the State.
The Irish Times reports that Irishman Niall FitzGerald, who retired as co-chairman of Unilever in September last year, has been awarded £1.22 million (€1.76 million) as "compensation upon the termination of his employment" as part of total emoluments in 2004 of £3.74 million, according to the consumer products group's annual report.
Mr FitzGerald's pension will also be boosted. Although he retired at 59, he will be treated as if he had remained in employment with the group until his 60th birthday, in September this year.
The transfer value of his pension at the end of 2004 was £16.9 million, which would give him a pension of £852,000 a year. The group's pension fund had a deficit of £1.35 billion at the end of 2004.
The day after leaving Unilever, Mr FitzGerald was appointed non-executive chairman of Reuters, the electronic information services group, for which he is paid £500,000.
The Irish Times also reports on the Irish Congress of Trade Unions' (Ictu) economic adviser's claim that it would be more economical for the Government to simply borrow €500 million and invest it directly in Aer Lingus rather than selling shares to private investors.
Paul Sweeney said yesterday that the Government could borrow the money at cheap rates, possibly 3.9 per cent, and that this arrangement was superior to any sale of shares in the airline to institutional investors.
The Minister for Transport, Martin Cullen, is expected to seek Cabinet approval next month for the sale of a stake in Aer Lingus to raise funds for a new long-haul fleet. Over 50 per cent of the airline may have to be sold to raise sufficient funds.
Mr Sweeney said it was not clear what kind of stake the Government wanted to retain in Aer Lingus. He said that, based on a valuation of €600 million, the Government's current 85.1 per cent stake was worth almost €511 million. The other 14.9 per cent is owned by staff.
Mr Sweeney said to interest private investors in Aer Lingus, the Government would have to sell shares at a significant discount to the market price.
"A company the size of Aer Lingus would be relatively small by international standards, so an incentive would have to be provided to interest certain buyers," claimed Mr Sweeney.
Professor Ray Kinsella writes in the Irish Times on the Bank of Ireland's cost cutting plans.
Professor Kinsella says that there could hardly be a sharper contrast in the reception given to the announcements by, on one hand, Danske Bank and Bank of Scotland (Ireland) and, on the other hand, Bank of Ireland with regard to their future strategies for development within the Irish market.
Danske Bank's acquisition of the National Irish Bank/Northern Bank has been widely welcomed, not least by staff of National Australia Bank's former subsidiaries. Equally, the acquisition by Bank of Scotland (Ireland) of the ESB branch network has been widely perceived as an enormously positive development.
In sharp contrast, the response to the strategy set out by Bank of Ireland in its trading update was widely perceived as being wholly negative.
The key question is this: Is there a real and substantive difference in the "business model" being promoted by the Bank of Ireland, as compared with new entrants and large domestic rivals or is it simply the case that Bank of Ireland's underlying strategy is not sufficiently transparent to the public?
The bank's stated objective is to enhance its competitiveness and the scope for capitalising on growth opportunities. It is not clear from its eagerly awaited trading update precisely how the bank sees - and measures - competitiveness.
Equally, there is a shortage of detail in regard to the kinds of "growth opportunities" the bank intends to pursue.
What is clear, however, is its strategy for pursuing this objective. It entails specific actions to reduce its annual costs by €120 million.
Control over its cost base is a necessary condition for efficiency for any financial service provider. In the case of the Bank of Ireland, the logic of streamlining its operations makes eminent good sense.
But the headline which sets the bank apart from its competitors is the planned reduction of more than 2,000 of its staff as the core driver of its cost-reduction programme.
Three key points can be made in relation to what appears to be the "business model" on which the bank's medium-term strategy is based.
The first relates to a focus on the cost/income ratio. The projected reduction in this ratio is one of a number of elements that go to make up this strategy. Cost/income ratio is a very imperfect proxy for efficiency and competitiveness in banking. It is not something that a strategy of any substance should be built around.
There is no evidence in 2003 figures for a number of leading European banks of a robust relationship between the cost/income ratio and capital strength or pretax profits.
Certainly, cost/income ratios in the high 50s or above may be indicative of structural problems that need to be addressed. However, those banks which might be regarded as major retail banks within their domestic markets have ratios in excess of 50 per cent. Crédit Agricole, RBS, Paribas, Barclays, ABN and Santander are just some examples.
More generally, the cost/income ratio reflects the cost of doing business in specific segments of the market. A "mass market bank" will focus more on achieving a higher aggregate level of sales while generating lower average customer revenue and profitability.
A second issue is the value attached to people. For far too long the cliché "our people are our greatest asset" has not been challenged. In many cases, it is simply devoid of any substance.
It is staff who generate economic value. A failure by management to acknowledge and respect the contribution of individual staff members is wholly subversive of strategy. In a business that is dominated by "knowledge equity", and where relationships are central to trust building and reputation, the notion that cutting swathes of workers as a means of strengthening the bottom line is economic nonsense and morally reprehensible.
Finally, beyond a certain point, cutting costs must compromise the ability of a bank, operating across a spectrum of segments, to deliver a competitive service and to retain its customer base.
The Irish Examiner reports that the Irish Enterprise Exchange (IEX) will be modelled on London's highly-successful Alternative Investment Market (AIM) and will offer smaller companies a route to seek equity funding with fewer regulations and lower costs than a full listing.
Plans for the new market were first announced earlier this year. The stock exchange said it hoped to attract small and medium- sized companies looking to list for the first time, as well as companies with a full listing that wanted to cut costs as well as Irish AIM-quoted companies looking for a dual listing.
The new market will result in the scrapping of Dublin's three minor markets the technology- based ITEQ, the developing companies market (DCM) and the exploration securities market (ESM).
The Financial Times reports that the French government was left smarting on Thursday as disappointing economic forecasts from its own statistics agency undermined efforts to regain the initiative before a crucial referendum on the European Union constitution in May.
Buoyed by victory in Brussels, where France this week won concessions on unpopular plans to liberalise Europe’s services market, the government had hoped to build momentum by launching new measures to boost consumer spending.
The report, released on Thursday by Insee, the state statistics office, said it expected a “return to slowdown” for the economy in the first half of 2005 as the high oil price and weak US dollar took their toll on industrial activity.
Already confronted by growing opposition to the EU constitution, the news was a further blow Jean-Pierre Raffarin, prime minister, adding to growing dissatisfaction with his government over high unemployment and low salaries.
To counter these criticisms, Mr Raffarin, whose popularity has slumped to record lows, announced changes to the rules for employee profit-sharing schemes, scrapping a five-year lock-in to allow employees to gain immediate access to their money.
The government has also introduced tax incentives to encourage companies to distribute more profits to staff. It hopes a swift injection of cash into the economy will boost consumer spending and deflect public unrest about weak purchasing power.
Critics, however, said the changes could do more harm than good in the long term, by making consumer spending more cyclical and discouraging people from saving for their retirement.
The FT also reports that Bashar Assad, the Syrian president, had threatened Rafik Hariri, the assassinated former Lebanese prime minister, “with physical harm” if he opposed the extension of the Lebanese presidency of Emil Lahoud, a UN inquiry said on Thursday.
The inquiry also said the Syrian government bore “primary responsibility” for the political tension that preceded the February 14 killing, although it did not say who was actually responsible for the attack.
The mission, led by Peter Fitzgerald, deputy Irish police commissioner, called for an international independent commission to find the truth, accusing the Lebanese authorities of a “distinct lack of commitment” to investigate the crime effectively.
It added that the international commission would be unlikely to work satisfactorily “while the current leadership of the Lebanese security services remains in office.”
The mission believed the explosion was caused by a TNT charge of about 1,000kg placed “most likely” above the ground. It concluded “the Lebanese security services and the Syrian military intelligence bear the primary responsibility for the lack of security, protection, law and order in Lebanon.”
The findings are likely to increase international pressure upon Syria. The US and France are expected to back calls for a full inquiry.
The mission documented accounts of a 10-minute meeting in Damascus in 2004, between Mr Hariri and Mr Assad. It was described by various sources as “a last attempt” by Mr Hariri to convince Syria not to support the extension of Mr Lahoud's presidency. Mr Lahoud was “generally described as Syria's favourite”, the mission said.
Its sources all claimed to have heard the account of the meeting from Mr Hariri himself. There was no account of the meeting from Mr Assad's side, but the received testimonies “corroborated each other almost verbatim.”
Mr Assad told Mr Hariri that he “would rather break Lebanon over the heads of Hariri and [Druze leader Walid] Jumblatt than see his word in Lebanon broken”, the report said, and threatened both with “physical harm if they opposed the extension”.
The mission heard accounts of further threats by security officials in case Mr Hariri abstained from voting in favour of the extension, or “even thought of leaving the country”.
Mr Hariri voted in favour of the extension on 3 September, and resigned on September 9. But it was “widely believed” that Mr Hariri supported the UN Security Council resolution on September 2 calling on foreign forces to leave Lebanon.
The New York Times says that real estate-crazed Americans have started behaving in ways that eerily recall the stock market obsession of the late 1990's.
In Naples, Fla., some houses have been bought twice in a single day, an early-21st-century version of day trading. Buying stocks on margin has morphed into buying homes with no money down. The over-the-top parties of Internet start-ups have been replaced by flashy gatherings where developers pitch condos to eager buyers.
Five years ago, the cable channel CNBC sometimes seemed like a backdrop to daily American life. Its cheery analysis of the stock market played in offices, in barbershops, even in some bars. Today, "Dude Room," "Toolbelt Diva" and other home-improvement shows are the addictive fare that CNBC's exuberant stock shows once were.
"It just seems like everyone is doing it," Laurie Romano, a 26-year-old self-described real estate investor, said with a giggle as she explained why she was attending an open house this month for the Nexus, a 56-unit building going up in Brooklyn's chic Dumbo neighborhood. She and her fiancé, a dentist, had already put down a deposit on a Manhattan condo earlier in the week and had come to look at another at the Nexus.
Nobody can know whether the housing boom of the last decade will end as the dot-com frenzy did. But the parallels are raising alarms among many economists, even those who acknowledge that there are important differences between homes and stocks that significantly reduce the chances of another meltdown. For one thing, houses are not just paper wealth: you can live in them.
Still, perhaps the most troubling similarity, some analysts say, is the claim that the rules have somehow changed. In an echo of the blasé attitude that "new economy" investors took toward unprofitable companies, the growing ranks of real estate investors are buying houses they never expect to be able to rent at a profit. Instead, they think the prices of houses will just keep rising.
Indeed, the government reported yesterday that sales of new homes jumped sharply in February, in the biggest monthly increase in four years. A strong economy and an improving job market contributed to the gain. But many buyers were also trying to beat rising mortgage rates, which could eventually cool the market.
Adding to the parallels between stocks and housing, some of the doomsayers from the 1990's have returned with new warnings.
"We're going through something very similar in real estate that we did with stocks," said Robert J. Shiller - a professor of economics at Yale, whose prescient book on stocks, "Irrational Exuberance" (Princeton University Press, 2000), appeared just a few months before technology stocks began their slide. "It's driven by the same forces: that investments can't go bad; that it has the potential to make you rich; that you'll regret it if you don't do it; that it looks expensive but is really not."
A new edition of Mr. Shiller's book will be published next month. The cover promises an "analysis of the worldwide real estate bubble and its aftermath."
Premonitions of a bubble on the verge of popping do not ruffle those who are bullish on real estate. In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely.
"South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."
The can't-miss aura of real estate has also helped nudge many families to invest more of their personal wealth in real estate by buying more expensive homes and taking on riskier mortgages - much as ordinary workers used their 401(k) plans to bet on company stocks.
There are certainly serious reasons to believe that house prices will not suffer the fate of technology stocks. Not only are houses more tangible, but people do not sell their homes as quickly as stocks, making a panic much less likely. Because of tax advantages, few owners are likely to sell and rent something else simply because local house prices start to decline.
As high as they might seem now on the coasts, home prices nationally have not quite doubled over the last decade; during the 1990's, the Standard & Poor's 500-stock index more than quadrupled.
"I just don't think we have what it takes to prick the bubble," said Diane C. Swonk, chief economist at Mesirow Financial in Chicago, who was an optimist during the 90's. "I don't think prices are going to fall, and I don't think they're even going to be flat."
In the NYT, Floyd Norris writes that there is too much capital in the world. And that means that those who own the capital - investors - are in for some unhappy times.
That thesis may sound inherently unlikely, but it explains a lot. Those with capital find they must pay high prices for investments that are likely to produce only a little income. The relative importance of things other than capital, like commodities and cheap labor, has grown.
Evidence of the capital glut can be seen in interest rates. Market rates are low, and even when central banks set out to raise short-term rates, longer-term rates are slow to move. Little additional yield is available to those who buy very risky bonds. For the same reason, stock prices are high. Profit disappointments may not cause the stock market to plunge, since the capital will have to go somewhere. But the return on the underlying investments is likely to be below what investors have expected.
With capital in a weakening position, returns that once would have gone to owners of capital have gradually been redirected. That is one way to explain the surge in management compensation in the last two decades. In the early 1980's, when interest rates were high and stock prices low, the average chief executive received no stock options in any given year. Now nearly all get sizable grants, and one study found that chief executive pay rose faster than that of any group save for professional athletes and movie stars. Those who provided the capital had less power to demand the profits from the enterprises they financed.
Another sign of excess capital can be seen in what Argentina did to its creditors - and in how they reacted. When Argentina defaulted on its debt in December 2001, many thought it would eventually negotiate a deal with creditors that was similar to previous arrangements made by countries in default. Instead, this year it imposed far harsher terms and refused to talk about them. The vast majority of the bondholders meekly went along and bonds of other emerging markets have not suffered.
Emboldened, Argentina's government is sounding an uncompromising note regarding foreign-owned utilities and oil companies. It is betting that it can get away with treating the owners of capital badly and it may be right.
Why is there too much capital? One answer is that central banks reacted to the bursting of the technology bubble by cutting interest rates by too much for too long. The resulting liquidity might in other times have sent inflation soaring, but now China's emergence has placed offsetting deflationary pressures on consumer goods prices. The excess liquidity is sloshing around world capital markets.
At the same time, China's emergence is spurring investment that the world may not need. The world automobile industry is plagued by overcapacity, but every car company believes it must have plants in China.
