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ISEQ lower-Irish bank debt to be eased

Tuesday, July 17 09:04:24

The ISEQ is lower this morning at 3,208, down 16 points as markets await indications from the Fed of it's short term intentions. Markets want easing and more liquidity and with the US election race well under way Bernanke must be under some pressure to respond positively.

In Ireland the recent IMF economic outlook does not look great however NCB Stockbrokers see some lights at the end of the tunnel particularly regarding our bank debts:

The IMF lowered its global growth forecast by 0.1pc to 3.5pc for 2012 and by 0.2pc to 3.9pc for 2013. In terms of Ireland's main trading partners, the UK saw the largest downgrade with growth expected at 0.2pc in '12 and 1.4pc in '13. The euro area is forecast to decline by 0.3pc in '12, before recovering modestly in '13, 0.7pc. The US is expected to grow by 2.0pc and 2.3pc respectively.

We believe the banking story in Ireland will no longer be a negative drag in terms of market sentiment and the impact on Ireland's debt. The opposite in fact will be true. Ireland is likely to get a deal on restructuring the promissory note, with a maturity extension the most likely, reducing the NPV of Ireland's debt and easing cash flow funding requirements in the medium term.

We believe Ireland could potentially get up to circa E10bn (6pc of GDP) for its interests in AIB,BKIR and ILP. Moving on from the banking sector the key remains the outlook for the economy and the impacts that this will have on the trajectory of unemployment and the underlying deficit. At the end of the day Ireland is still looking at a deficit at circa 8.0pc and an unemployment rate at circa 15pc.

The IMF figures highlight the sluggishness of growth in Ireland's main trading partners, crimping Ireland's ability to enjoy a proper recovery. Following last week's GDP figures (-1.1pcq/q, +1.2pc y/y), we kept our 2012 forecast for Irish GDP at 0.3pc given our long held view that advanced economy growth would disappoint in 2012 and lowered our 2013 Irish GDP forecast from 1.7pc to 1.5pc according to NCB Stockbrokers.