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President Barack Obama delivers remarks about the American automotive industry at the White House on Monday, March 30, 2009.
On Monday, President Obama announced that his Auto Task Force has completed its evaluation of the viability of General Motors and Chrysler in light of their requests for federal assistance. In addition to releasing the viability assessments, he also released a new policy with the American government guaranteeing warrantees for cars from those companies to ensure that if you have one it "will be safer than it's ever been."
General Motors faces a structured bankruptcy managed by the US government if the company can’t meet a deadline to drastically reduce debt in the next 60 days.
GM has debt of $27.5 billion in GM, which bondholders have been reluctant to exchange for equity and $20.4 billion in obligations to a union-run healthcare fund.
GM has received $13.4 billion of government loans since December.
On the markets, the Dow Jones Industrial Average fell 254.16 points, or 3.3%, to 7522.02. All of its components dropped. GM shares shed 25%.
The Nasdaq Composite Index fell 2.7% and the S&P 500 declined 3.5%.
The MSCI Asia Pacific Index lost 1.4 percent Tuesday.
Japan’s Nikkei 225 Stock Average lost 1.5% in advance of Prime Minister Taro Aso's planned announcement of a new package to stimulate the economy where unemployment surged to a three-year high.
The jobless rate rose to 4.4% in February from 4.1% in January.
European stocks have risen Tuesday and the Dow Jones Stoxx 600 is up 1.6%
British bank Barclays PLC has decided against taking part in a government insurance plan aimed at shoring up the finances of the country's banks, in a signal of its confidence in surviving the recession without state support.
Belgian-Dutch financial services group Fortis reported today that it made a net loss last year of €28 billion, compared with the €22.5 billion expected in mid-March.
"The loss in 2008 was due to the €27.4 billion negative result of discontinued operations, caused by the loss on sale of the banking activities," it said in a statement.
The group was split up last October as part of a rescue with the Netherlands acquiring its Dutch banking assets and Belgium acquired the Belgian assets, with a view to to selling them to French bank BNP Paribas.
The German luxury car maker Porsche, which has been termed a hedge fund, today reported, that its first-half profit rocketed due to its increased stake in Volkswagen, but that car sales were down and it could not give a full-year forecast.
Porsche's net profit surged to €5.5 billion in the six months from August to January, mainly as a result of a jump in the value of VW shares in October, the company said.
Porsche owns 50% of VW, the biggest European car maker, and wants to raise that holding to 75% but VW is now an expensive company.
In its 2007/2008 fiscal year, Porsche had reported a first half profit of €1.26 billion and it reported pre-tax profit rose to €7.34 billion from €1.66 billion, mainly related to the VW share transactions.
Porsche car sales fell meanwhile, by 9.2% on a 12-month basis, to €3.32 billion.
The company said that no reliable forecast for the near term was possible.
In Dublin, the ISEQ is up 1.8%.
Elan is slightly down, while AIB and BoI are up 5% and IL&P has gained 10%.
Elan reports in its annual report, that its chief executive's pay fell 57% last year than in 2007.
Kelly Martin earned $830,496 last year, compared to $1.9m the year before. The report states this is because he waived his 2007 cash bonus which would have been paid last year in exchange for share options.
Elan's executive director Shane Cooke's pay fell by 14.5% to $1.1m last year.
Davy analyst Jack Gorman comments on scope for substantial Elan EBITDA upside if BIIB's commitment to Tysabri translates into revenue gains: "In addition to profiling its emerging pipeline last week at its R&D day, BIIB also reiterated its commitment to Tysabri. BIIB has increased the marketing emphasis on Tysabri’s superior efficacy. Further analysis of clinical trial data and emerging “real-world” experience is being used to differentiate Tysabri from the opposition. Continued "re-education" on PML diagnosis and treatment is also positive for Tysabri take-up.
How quickly BIIB's marketing and R&D initiatives can translate into Tysabri's revenue acceleration is less certain. But the existing costs structure allows for significant operating leverage in the event that reacceleration does occur.
We ran a sensitivity analysis to look at the impact of rising enrolment rates on our EBITDA forecasts for Elan. Assuming addition rates peaked at 325/week at end- 2009 (from 200/week in current forecasts), then adjusted EBITDA for 2010 could rise from $85m to $184m. A more bullish assumption sees addition rates peak at 445/week at end-2009; adjusted EBITDA for 2010 then rises from $85m to $254m.
Q1 results in late April will provide the next indication of Tysabri patient numbers. There also will be presentations at AAN (April 25th-May 2nd) from BIIB/Elan and its competitors in the MS field.
The outcome of Elan's strategic review should also become available in April/May and will aim to balance the management of Elan's debt overhang with the value in the pipeline.
Both catalysts can push the shares higher during Q2."
Irish spread betting firm WorldSpreads Group plc said today in a trading statement, that its core financial spread betting business has continued to trade strongly during the second half of its financial year.
The small sports spread betting division, however, has had a difficult trading year. and as a result, the firm has decided to exit this business. This will result in a once off write down in the carrying value of the sports division of approximately €1.5m.
Excluding the results of the sports division, the firm expects to announce profit before tax for the full year to 31 March 2009 in line with market expectations (excluding the effect of foreign exchange fluctuations). The depreciation in the value of Sterling against the Euro during the past financial year has reduced Group’s UK based revenues on a consolidated basis, which make up c. 40% of the overall revenue.
Providence Resources P.l.c., the London (AIM) and Dublin (IEX) listed oil and gas exploration and production company, today announced that it has successfully completed drilling operations on the development well at its Singleton Field in the Weald Basin, onshore UK. This new development well was drilled to a total measured depth (MD) below rotary table of 13,001 ft (4,158 ft true vertical depth subsea) using the Larchford Drillmaster 1 drilling rig.
Speaking today, Tony O’Reilly, Chief Executive of Providence, said:“This is a great result for Providence. The drilling of the SNX-10 well is an important technical achievement for Providence, demonstrating our ability to effectively target reservoir sweet spots utilizing complex geological modeling in tandem with extended reach well design. The initial review of the well data suggest better results than had been anticipated, though we will need to bring the well into production before we can confirm whether the flow rates will exceed our pre-drill modeling. We are now moving forward to complete the well and bring it into immediate production.
We are particularly pleased with this well as it represents the first major activity in our field re-development programme at Singleton and it gives us even greater confidence for future field development with the resultant potential for further production increases.”
Gold is trading at $925.40 up $2.30 from Friday's spot price close in New York.
Davy economist Rossa White comments: Pace of adjustment makes S&P look too pessimistic:"S&P downgraded Ireland from AAA to AA+ yesterday (March 30th). The negative outlook remains, meaning that a further downgrade is possible. It justified the decision on the basis that the fiscal consolidation does not yet go far enough and that a "credible multi-year fiscal plan will not emerge until after the next general election in 2012". It also sees Ireland materially underperforming the euro area over the next five years. On both counts, we believe S&P is too pessimistic because of the Budget next week and the flexibility demonstrated by the labour market so far.
We expect detailed plans for the next few years to emerge at next week's Budget. The introduction of the supplementary Budget itself is a positive, and the advent of the pensions levy shows that unprecedented change is possible in the public sector. Deflation in the public wage bill needs to go much further to encompass numbers and basic pay cuts, but it is a start. If transparent spending and tax plans are now revealed for the next three years, the market will be more assured and households will find it easier to plan their spending.
As for the private sector labour market, flexibility is already apparent. Flexibility was a term more associated with the elasticity of migration to job prospects in recent years. It is flexibility in a different sense now, as deep and rapid pay cuts prove that private business leaders and workers are realistic about the outlook. Yesterday's ISME survey of 400 firms highlighted that 50% of firms have introduced a pay freeze and 41% have taken pay cuts. The average pay reduction is 13%. These kinds of pay reductions contrast sharply with most European countries and mean that Ireland will rapidly make up lost competitive ground. "
Goodbody economist Dermot O'Leary comments: S&P downgrade should represent a call to arms ahead of the Budget - - "The one-notch downgrade of Ireland’s debt rating to AA+ cannot have come as a surprise to anyone. More disappointing is the decision to keep its outlook on negative. Markets had already moved to discount such a downgrade, and more, over recent months. Indeed, we indicated in our note on the state of the public finances in February (A Rocky Road Ahead, 16th February, 2009) that Ireland was unlikely to retain its top-notch rating, but also expressed confidence that it could retain a relatively high rating nonetheless.
Despite the continuing economic and financial problems, we remain of that view. Look at the reasons cited by S&P for its downgrade yesterday: (1) It expects net general government debt could peak at over 70% of GDP by 2013 as a result of a sustained weak period of economic growth. We are even more gloomy, predicting that debt could reach 80% of GDP by 2013. However, that is likely to leave Ireland at close to the European average at that time. (2) Like us, S&P believes that further public money will be required to repair the banking system. It believes that the total cost will amount to €15bn-€20bn. While this is larger than our estimate of c.€9bn, we have previously pointed out that international observers should view the National Pensions Reserve Fund (NPRF) as a contingency on further costs of helping the banking system.
At the end of last year, the value of the NPRF amounted to €16.5bn, and thus would roughly cover the cost of this pessimistic assumption. Interestingly, the 11% of GDP fiscal cost for resolving the problems in the banking system is exactly the amount that we calculated as the average fiscal cost of banking crises in developed nations since the 1970s. Rather bizarrely in our view though are S&P’s comments in relation to a multi-year plan for the public finances. The statement says that it is concerned “that a credible multi-year fiscal consolidation strategy will not emerge until after the next general elections, due by 2012”. Given that the budget is due in seven days, it could have waited for the full details of any plan on the public finances to emerge before making such a statement. We, too, would be concerned if there is no firm commitment to fiscal consolidation next Tuesday. In one way, yesterday’s rating downgrades may provide the necessary motivation to map out such a plan and stick to it."
Goodbody analyst Eamonn Hughes commented: S&P on the Irish banking system:"The Economics piece above evaluates the main points from the S&P downgrade to Ireland’s sovereign rating, a move that has been heavily anticipated in capital markets, notwithstanding the widening of spreads straight after the announcement. In its statement, S&P noted that “more public sector resources may be required to recapitalize the banking sector, beyond the EUR7 billion the government has already committed”.
It went on to add that “this reflects the following considerations: the need to recapitalize Anglo-Irish bank in advance of its return to private ownership; the need to fund the proposed public asset management vehicle, which aims to remove some nonperforming assets from banks' balance sheets; and, more broadly, the prospect that additional public capital resources will be required to deal with a further deterioration in banks' asset quality in a protracted recession”. S&P said that “taking these factors into account, we believe that the total gross fiscal cost to the government of supporting the Irish banking sector could reach EUR15-EUR20 billion (as much as 11% of GDP)”.
In relation to Anglo Irish, the prospect of private ownership still remains a distant aspiration though we acknowledge the probability of capital being required, as losses overwhelm pre-provision profits this year and next. In relation to the funding of the proposed public asset management company (AMC), recent media commentary has focused on the AMC issuing paper to the banks in return for the impaired loans. Our sense at this stage is that the bond issues may not appear on the national accounts, in the same way that Anglo Irish is not reported within the government balance sheet, though acknowledging it will still have some notional impact on the market’s views of the government finances. Finally, the view on the credit losses over the cycle remains an open question, though our own estimates show it at €27bn over the three worst years and €35bn over the whole cycle (estimated at H208 to H112).
S&P added that “even after uncertainties about Irish banks' capitalization are removed, however, we think that domestic credit may still shrink as households reduce their debt burdens”. That would go some way to easing some funding constraints and is something that is already built into our bank and economic models. Having said that, in the short term the collapse in redemptions, particularly in the mortgage book, is making it hard for the loan books to shrink."
