The Irish Independent reports that members of the Irish Nationwide Building Society yesterday voted by a large majority not to seek plc status, but put all their faith in a change in legislation by the Government in the near future.
A resolution requiring the Irish Nationwide board to consider taking the building society public was rejected in a poll by 81pc of those voting (19,051 votes and proxies against) compared with 19pc (4,444 votes in favour) with 32 spoiled votes.
Irish Nationwide member and critic of the board, Shane Hogan, proposed the resolution which, he said, gave shareholders the option of remaining with the society as shareholders of a public company, or selling their shares on the open market.
However, a number of speakers at the well-attended, two-hour agm argued that a public quote would hinder the sell-off of Irish Nationwide to a sole purchaser.
Chairman Dr Michael Walsh said a single financial institution buyer would develop the society which is hindered from faster growth by its reliance on members' equity.
At one stage in the debate, ceo Michael Fingleton interjected to say that he did not expect any political opposition to the passage of the enabling legislation through the Dáil.
The chairman told the meeting that the Revenue had contacted the society seeking the PPS numbers of the members.
"At least somebody in Revenue feels the demutualisation will go ahead," he said.
The meeting also heard shareholder Brendan Burgess argue that the Irish Nationwide's lending practices - which had been a cause for complaint to the Ombudsman for financial services - would significantly reduce the amount of money available for distribution to members.
"The new Ombudsman has the power to award compensation up to €250,000 in individual cases, but he has also got the power to order a financial institution to change its practices," Mr Burgess said.
In an election held to appoint a board member, chairman Michael Walsh was elected with 87pc of the available votes against Mr Burgess with 13pc.
Dr Walsh told the meeting that legislation on building societies should be published within a matter of weeks.
This would leave the way open for demutualisation and takeover, and a windfall of up to €15,000 per member.
The Irish Independent also reports that listed IT solutions provider Horizon Technology has confirmed that it is having talks with WBT Systems, another Dublin-based company which provides eLearning options for companies and organisations.
Yesterday's stock market announcement does not explain the basis of these talks - only that the group had entered into "preliminary discussions with WBT", and that there was "no certainty that any transaction will occur".
The company was responding to weekend newspaper comment which suggested that Horizon was considering making a €30m plus offer for WBT, which is backed by Tony Kilduff.
Horizon's share price dipped 5c to 93c in Dublin yesterday, albeit in a market that is in the throes of a savage sell-off. WBT was formed in 1995 and is a leading provider of intelligent learning solutions.
The Irish Times reports that talks talks on a new national pay deal remained on hold last night as employers, unions and the Government struggled to finalise agreement on measures to prevent exploitation of workers.
It is now likely to be tomorrow at the earliest before a deal emerges on pay increases for 600,000 union members over the next two to three years.
The parties had hoped to conclude a pay deal over the weekend, but unexpected difficulties have emerged in completing the employment standards strand of the talks.
As negotiations continued late last night, several key issues remained to be resolved.
One concerned the measures needed to ensure all companies involved in public sector contracts are in full compliance with labour laws. A final deal on measures to stamp out the use of bogus sub-contractors, who are in reality employees, for the purpose of avoiding tax and other liabilities was also proving elusive.
Regulation of employment agencies and new laws concerning the keeping of proper records by employers were other areas still under negotiation.
While there was frustration among the parties at the slow progress in the talks, participants remained optimistic that a deal on employment standards remained achievable.
Among the measures already agreed in principle are the appointment of 60 additional labour inspectors, to take the total to 90.
It is envisaged that a new statutory body, the Office of the Director for Employment Rights Compliance, will be established to police employment legislation.
A dramatic increase in penalties, to up to €250,000, for those convicted of breaching labour laws is also on the cards.
Negotiators have also reached an outline agreement on new legislation designed to deter employers from making workers redundant for the purpose of replacing them with cheaper labour.
One of the issues still to be concluded in that regard concerns the level of compensation to be paid to workers who are "displaced" by others on inferior pay and conditions.
Separate legislation is also to be introduced to make it illegal for an employer to sack workers for engaging in an industrial dispute, as happened in the case of catering company Gate Gourmet in Britain last August.
One source at the talks said the difficulties that remained in the area of employment standards were "not insurmountable". Another said they were more about the efficacy of the measures proposed, rather than to do with fundamental issues of principle.
Participants at the talks were hopeful that, with employment standards finally out of the way, negotiations on pay could begin in earnest today.
Department of the Taoiseach secretary general Dermot McCarthy, who is chairing the talks, faces a difficult task in finding common ground on the pay issue.
Employers continue to insist that a new agreement cannot include any provision that would allow workers to pursue "top up" increases in highly profitable companies. Failure to secure such a measure would increase the pressure on unions to secure the maximum possible basic pay increases.
While figures have not yet been tabled at the talks, it is generally speculated that the final deal will involve pay increases of between four and five per cent per year.
Negotiations on the wider social agenda have also yet to be completed. These would form an overall 10-year social partnership agreement, with the pay element to be renegotiated at intervals.
The Irish Times also reports that Eircom's employee share ownership trust (Esot) will increase its stake in the former State telecoms company to some 35 per cent after the €2.36 billion bid, which is likely to be formalised today with Babcock & Brown Capital, the Australian investment fund.
The takeover was approved by Eircom's board yesterday afternoon and the terms of the agreed bid were said last night to be "99.9 per cent certain". A notification to the stock market is expected today. The transaction documents will confirm the nomination of former BT executive Pierre Danon as incoming executive chairman to replace Sir Anthony O'Reilly, but the position of the telco's current management team is still unclear.
The documents are also likely to cast light on the indebtedness that will remain with the company after the deal, which is likely to be financed by Barclays, Credit Suisse, Dresdner Kleinwort Wasserstein and JP Morgan. Mr Danon is a senior adviser to JP Morgan.
While Babcock & Brown has promised to be a long-term investor in Eircom's network, the company's indebtedness will have a bearing on the level of resources available for investment.
Babcock & Brown and the Esot will pay €2.20 per share, in addition to the second interim dividend of 5.2 cent per share that the company has promised to pay on June 26th. The transaction itself will not close for several weeks.
However, it emerged last night that it would increase by more than 60 per cent the Esot's current stake of 21.5 per cent, leaving the trust in control of more than one-third of the telco.
On the basis that Babcock & Brown and the Esot have agreed a joint plan for the company, this means the deal will be less expensive for the Australians. For their part, Esot members will be told before voting on the proposal that the transaction will be self-financing for the trust.
At some 35 per cent, the trust's shareholding will be greater than the 30 per cent it held after Sir Anthony's Valentia's consortium took the company private in 2002. Its position is further strengthened by the fact that Eircom now owns Meteor. When Valentia bought Eircom, the company had already sold its former mobile arm Eircell to Vodafone.
In preparation for the bid, the company brought forward its annual results last week. With due diligence completed in advance of yesterday's meeting and an agreement on shareholding finalised in recent days, the way is now clear for Eircom's fourth change of ownership since its first flotation in 1999.
Babcock & Brown and the Esot already hold some 50.3 per cent of Eircom, curtailing to a significant extent the ability of any other shareholder to block a deal.
The prospectus for the takeover is likely to guarantee the terms and employment conditions of staff. In anticipation of a transaction, Mr Danon met worker representatives last week. After once-off property gains, Eircom reported a rise in pretax profits to €112 million in the year to March from €88 million.
The Irish Examiner reports that stock markets globally continued to suffer major losses yesterday amidst fears that higher interest rates and rising inflation would undermine company earnings.
As a result, Europe and US markets continued to lose value having shed billions already in the previous week. Close to €7 billion has been wiped-off the value of Irish shares in the last fortnight.
The fall in share prices has increased fears that up to 1,000 will be wiped from the value of SSIAs invested in the markets. About one fifth of the €1.1 million plans taken out were in equities, accounting for roughly €3.7bn of the €16bn invested.
Global stock markets were undermined last week on increasing concerns about inflation and interest rates.
Yesterday morning, the Tokyo and Hong Kong markets dropped by around 2%, while the Indian stock exchange was forced to close for an hour after losing more than 10% of its value, though it later regained some ground.
Reuters reported Indian police were watching out for possible suicides by brokers and investors after the 10% shock slide wiped out billions of dollars in share values, officials said.
The big concern is that both inflation and rising interest rates in Europe and the US in particular will erode profits.
There are fears that higher inflation and interest rates could also dampen demand.
In Europe, London’s FTSE was down 1.5% in morning trading, while Paris and Frankfurt were also more than 1% lower.
The ISEQ was down 2% at 7,419, wiping more than €2bn off the value of Irish shares. Financial stocks were worst hit, losing between 2% and 3%.
By late afternoon the ISEQ had lost 2.8% on the day a fall of €2.75bn.
Back on the 31 March, 2006 the ISEQ stood at an all time high, but the increasing fears the ECB and US interest rates may go higher have forced fund mangers to have a rethink about share valuations.
Since then, close to 9% or 9bn has been wiped off the value of the Irish market, said Philip Kearney, senior fund manager, Hibernian Investment Managers.
The ISEQ fall was reflected in London and New York later in the day. In London, the FTSE was off 1.9% by late afternoon representing a fall of close to €30bn.
On New York the S&P, which experts regard as the key index of US share performance was off just 0.7%.
This, however, equates to a massive $820bn which was lost in the first few hours of trading after the markets opened.
The fall in the indices has surprised many and some fear it may trigger a worse fall in the coming weeks.
The Financial Times reports that investors around the world bailed out of riskier assets on Monday in favour of safe havens such as government bonds.
Leading emerging markets such as Brazil, Russia and India were hit the hardest. The MSCI emerging markets index was on track for a 10th consecutive decline, its worst run since August 1998, when the Russian default triggered worldwide market turmoil.
Dealing in Indian stocks was suspended on Monday after the main index slumped 10 per cent in early trade. After a pause to calm the market, trading resumed and the benchmark index ended down 4.2 per cent.
Russian equities fell 9.1 per cent, the Turkish market dropped 8.3 per cent and Brazil was down 4.5 per cent in midday trade.
US indices had recovered from their worst levels by the close in New York, but more volatile sectors, such as tech stocks and smaller companies, were still down heavily.
In Europe, many leading indices closed at least 2 per cent lower. Swedish stocks fell 5 per cent. The London market suffered another heavy fall, with mining and oil stocks dragging the FTSE 100 to its lowest level for nearly six months.
Gerry Fowler, a strategist at Citigroup, said: “There is now higher demand for hedging – people are expressing more genuine concern that the liquidity crunch is not yet over. Last week, people were thinking that the sell-off would be short-lived.”
Volatility measures around the world have spiked sharply higher in recent weeks as investors fret about the chances of higher interest rates and the potential economic impact. On Monday, the Vix, the US volatility index sometimes known as the “fear gauge”, reached a two-year high of 19.62, up 10 per cent on the day. Germany’s equivalent measure jumped more than 12 per cent.
Steadier assets such as government bonds rallied as investors sought safe havens. The flight to quality forced the yield on the 10-year US Treasury note below 5 per cent, down sharply from a four-year peak above 5.2 per cent just a week earlier.
Brian Robinson, strategist at 4Cast consultancy, attributed the action to instability abroad, saying: “Although the current environment is nowhere near as serious as in the Russian crisis, Treasury traders need look no further than to Latin American bond markets.”
Emerging market bonds fell steeply as investors continued to unwind popular “carry trades”, in which they borrow at low rates to invest the proceeds in higher-yielding instruments.
The spread, or risk premium that investors charge above Treasury rates to hold emerging market bonds, widened 0.15 of a percentage point to to 2.23 percentage points on Monday, its highest since January, according to JPMorgan’s EMBI index.
Spreads on Brazil’s bonds - the biggest single component - widened 0.21 points to 2.86 percentage points.
But market observers remained relatively calm.
David Spegel, emerging markets strategist at ING, said: “This is a healthy correction. The markets were overvalued and there was a lot of speculation. Right now we’re experiencing a readjustment of risk.”
Rafael de la Fuente, strategist at BNP Paribas, added: “Brazil has been a very crowded trade so there is more to unwind. There’s going to be money coming out, but we’re still talking very attractive fundamentals and we don’t expect this to go too far.”
Regulators are watching the credit markets carefully this week to assess whether the turmoil seen in equities and commodities spills over to corporate bonds and related derivatives. If equity market unease starts to infect the credit world, it could be an indication of a significant change in investor mood.
There were signs that investors were becoming more nervous, reflected by the rising cost of credit default swaps – insurance-like contracts that pay out if a company defaults.
The FT also reports that Russia and the European Union must co-operate more closely to realise the “enormous economic potential” of their commercial ties, according to a report from Europe’s leading industrialists.
Intervening in the debate over relations between Moscow and the EU, the European Round Table has called for reforms to boost bilateral trade and investment, modernise the Russian economy and bring the economies of Russia and the EU closer together.
While the report, published on Tuesday, makes no reference to the growing western political concerns about Russia and its energy supplies, it will be seen as an attempt to calm east-west relations in advance of the Group of Eight summit in St Petersburg.
“EU-Russia relations have enormous economic potential,” say Antony Burgmans, the chairman of Unilever, and Peter Sutherland, chairman of BP, in the introduction.
“In the view of the European Round Table of Industrialists the future benefits available to the EU and Russia from closer cooperation on economic issues are greatly underestimated. Russia has an unprecedented opportunity to strengthen its position as a global economic powerhouse. Meanwhile, the European Union could benefit substantially from increased economic integration with its largest neighbour and one of its best customers.”
The report says that last year’s EU-Russia agreement to cooperate in four “common spaces”, including the economy, “provides an excellent opportunity to foster shared economic growth and prosperity. The report paints a rosy picture of Russia’s potential, quoting a study by Goldman Sachs, the investment bank, which predicts Russia could in terms of per capita income catch up with Italy by 2018, France by 2024, the UK by 2027 and Germany by 2028.
The authors urge Moscow to lessen its dependence on oil and gas revenues and avoid the “Dutch disease” by adopting reforms to diversify the economy and improve the investment climate. They advocate greater transparency, improvements in regulation and the rule of law and more protection for investors. They also want to boost bilateral trade by harmonising customs and other procedures.
The report comes after mounting worries in Europe about energy supplies following the winter gas contract dispute between Russia and Ukraine, when supplies were temporarily cut.
East European governments are particularly concerned about what they see as Russia’s increasing willingness to use energy to apply political pressure. Dick Cheney, the US vice president, this month raised the political temperature by warning Russia against resorting to “intimidation and blackmail” in energy policy.
The New York Times says: Long story short, an influential member of Congress played the China card, and the State Department folded.
It was a drama that reached a conclusion late last week, when the State Department, responding to fears that its security might be breached by a secretly placed device or hidden software, agreed to keep personal computers made by Lenovo of China off its networks that handle classified government messages and documents.
The damage to Lenovo is more to its reputation than to its pocketbook. The State Department will use the 16,000 desktop computers it purchased from Lenovo, just not on the computer networks that carry sensitive government intelligence.
Yet the episode does point to how much relations between the United States and China have become a tangled web of political, trade and security issues. Mutual economic dependence and mutual distrust, it seems, go hand in hand.
To the Lenovo side, the outcome was a matter of anti-China politics overriding economic logic.
Last year, the Chinese company completed the purchase of the personal computer business of I.B.M., after the Bush administration concluded a national security review. Given the nod, Lenovo figured it was free to do business in America just like any other personal computer company.
But the State Department decision suggests that it is not that simple. "Unfortunately, we're in a situation where certain people in Congress and elsewhere want to make a political issue of this," said Jeffrey Carlisle, vice president of government relations for Lenovo. "They are trying to create as uncomfortable an atmosphere as possible for us in doing business with the federal government."
Mr. Carlisle characterizes the worry that the Chinese government might secretly slip spying hardware or software on Lenovo computers shipped to the State Department as "a fantasy." The desktop machines, he said, will be made in Monterrey, Mexico, and Raleigh, N.C., at plants purchased from I.B.M.
"It's the same places, using the same processes as I.B.M. had," Mr. Carlisle said. "Nothing's changed."
Representative Frank R. Wolf, a Virginia Republican, said the change of ownership changes a lot. In a letter to Secretary of State Condoleezza Rice earlier this month, he wrote that because of the Chinese government's "coordinated espionage program" intended to steal American secrets, the Lenovo computers "should not be used in the classified network."
Mr. Wolf is the chairman of the House subcommittee that oversees the budget appropriations for the State Department, Commerce Department and Justice Department.
In an interview yesterday, Mr. Wolf said the security concerns about the State Department's use of Lenovo computers had been brought to his attention by two members of the United States-China Economic and Security Review Commission, a bipartisan group appointed by Congress. "They deserve the credit for this," Mr. Wolf said.
Larry M. Wortzel, a member of the review commission and former military attaché to the American embassy in Beijing, said he and another commission member, Michael R. Wessel, began looking into the sale in March. What most concerned them, he said, was that 900 of the Lenovo computers were intended for use on the State Department's classified networks.
Lenovo is partly owned by the Chinese government, which holds 27 percent. "This is a company owned and beholden to agencies of the People's Republic of China," Mr. Wortzel said. "Our assumption is that if the Chinese intelligence agencies could take action, they would take action."
After meetings with American government and securities agencies, including classified briefings, Mr. Wortzel and Mr. Wessel concluded that it would be possible for the Chinese government to put clandestine hardware or software on personal computers that might be able to tap into American intelligence.
"This is not off the wall as to whether there are potential security concerns here," Mr. Wessel said.
Both Mr. Wortzel and Mr. Wessel insisted that theirs is not an anti-China stance or even anti-Lenovo.
"I'm sure they are good computers," Mr. Wortzel said. "I would use them in my home. But I would not use one on a classified network at the State Department."
The State Department said last Thursday that it would not use the Lenovo computers on its classified networks. In a letter to Mr. Wolf, Richard J. Griffin, assistant secretary of state for diplomatic security, said that the department had "consulted with U.S. government security experts and is recommending that the computers purchased last fall be utilized on unclassified systems only."
The letter added that the State Department was "initiating changes in its procurement processes in light of the changing ownership" of computer equipment suppliers. A spokesman said that "to allay any possible fears and any possible concerns, this is where we came out."
Certainly, there are fears aplenty these days in any matter related to China. Mr. Carlisle of Lenovo insists any security fears about its computers are unfounded.
The company's computers and the software loaded on it are routinely tested inside the company and, on the State Department sale, by third-party American contractors, like CDW.
"If anything were detected, it would be a death warrant for the company," Mr. Carlisle said. "No one would ever buy another Lenovo PC. It would make no sense to do it."
Lenovo, industry analysts say, may well have the stronger argument, but it may still suffer.
"Basically, this is much ado about nothing," said Roger Kay, president of Endpoint Technologies Associates. "Unfortunately, perceptions count. And the damage has already been done."
The NYT also reports that Google is taking its first steps to go after the huge market for television advertising this week with a new service that will place video commercials on the many Web sites where it sells advertising.
For now, Google isn't placing video advertising on Google.com or the other sites it runs, but it says it is considering doing so in the future.
Advertisers have been eager to buy the relatively limited supply of spaces for online commercials at prices that equal and sometimes exceed the rates charged by major networks, as measured by cost per thousand viewers.
Google's move expands the online advertising space to the network it has established for text and graphical ads — a group of sites whose number it will not disclose, though it is estimated to be in the hundreds of thousands.
Google's announcement came a week after AOL said that it had acquired Lighteningcast, a company that sells video advertisements on about 150 sites, including Space.com and Nascar.com. Lighteningcast will be merged with AOL's own Advertising.com unit, which mainly sells banner advertisements on other sites but is also getting into sales of video advertising.
Lighteningcast and other video advertising networks are focused on inserting commercials into video programming. The video ads that Google is placing, by contrast, will appear on conventional Web pages; users will see a single image, and the video will play only if they click a button.
Matt Wasserlauf, the chief executive of Broadband Enterprises, which sells video advertisements on 500 sites, said that major marketers prefer their commercials to be part of a stream of programming rather than be on Web pages.
"No one will click to watch a Pampers ad," he said. For example, he said, Procter & Gamble would rather "put Pampers on relevant or entertaining content."
Google says its system would bring video advertising into reach for small businesses.
"A large percentage of video ads will come from small advertisers," said Gokul Rajaram, a director of product management at Google. "A small resort owner in Maui probably already has video of their great beachfront property. Now they can put it in an ad and reach a qualified set of users."
Mr. Rajaram also suggested that large advertisers will be able to use the system to test different treatments for commercials they hope to run on television.
"You can upload a video tonight and have it run tomorrow," Mr. Rajaram said. "You can really afford to experiment and figure out what works."
Google has become a powerhouse in advertising largely by selling short text advertising closely associated with topics people are researching or reading about on the Web. But it is increasingly looking to place more elaborate advertisements that are more attractive to marketers promoting product brands. Last year, it started allowing advertisers to bid to place advertisements using graphics and animation on sites it represents.
Sites have the option to reject the graphic advertisements and will be able to opt out of the video ads as well — for instance, because they are already selling such ads themselves. But Google said most of the sites in its network had agreed to display the video advertising.
And Google is also working to branch out to other media. It has experimented with running auctions for advertisements in magazines. And in January, it bought DMark Broadcasting, a company that sells radio advertising. Google has said for some time that it hopes to begin placing video advertising not only on the Web but also on television.
Until now, most sites and networks that sell video advertising have largely negotiated prices one on one with advertisers. Google, by contrast, wants to bring its highly automated auction system to video advertising. Indeed, it will run a single auction for text, graphical and video ads. Advertisers, moreover, can bid either as a price for each time a user clicks on the ad to visit their site or a fixed fee to show the ad to 1,000 users.
Google's computers will evaluate all of the bids and decide which one will end up making the most money. At the advertiser's discretion, ads can be placed on pages with content relating to specific keywords, or on sites of their choice.
Mr. Rajaram said Google estimated that advertisers would generally need to bid "in the single digit dollars to low double digits" to display their video ads to 1,000 people using Google's network. That is less than the $20 or more that other video sites are charging.
David Card, an analyst with Jupiter Research, said this auction approach might not represent the way that many marketers approach television commercials.
"The people who buy search words are not the people who buy video ads," he said. "The people who buy TV advertising want to do big deals with the CNN's of the world."
