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Roundup-CRH, great in US, bad in EU

Wednesday, August 15 08:13:59

CRH's clear message around its interim results yesterday was that there was nothing to worry about. It was at pains to point out that its declining Ebitda (earnings before interest, tax, depreciation and amortisation) had been flagged in early May and its performance mirrors that of many of its peers, namely a decent first half of the year in the US, counterbalanced by dreadful trading in recession-hit Europe.

The markets didn't seem to be entirely convinced. CRH's share price fell by just under 5 per cent in London, where it now has its primary listing, and by 5.35 per cent in Dublin. Analysts were quick to pare back their forecasts. Company broker Davy has scaled back its earnings forecasts for the full year by 4 to 5 per cent while Dolmen noted that "the cautious tenor of management's outlook and implied pull-back in Ebitda guidance will weigh on the stock over the short term".

It's tough going for construction-related stocks at present, particularly those operating in Europe, where many economies across the region are in the doldrums. There is little light at the end of the tunnel in relation to the euro zone crisis and this is likely to affect CRH for the foreseeable future. At face value, its 5 per cent sales increase in the first six months looks good. However, the like-for-like rise was just 1 per cent with a strong dollar contributing the balance of the increase by way of foreign exchange revenues. There was quite a divergence in the performance of its European and American divisions. The Irish Times

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The need for Irish banks to slash costs and the resulting demise of the traditional bank branch has created opportunities for An Post to take on more business at 1,147 post offices. The opportunities also show the potential for an Irish postbank - similar to the working models in Germany, Italy and Belgium - and the dreadful timing of An Post's Postbank, the joint venture with Benelux bank Fortis that was taken down by the global financial crisis. Both State-controlled Allied Irish Banks and Danish-owned National Irish Bank are using arrangements with An Post to conduct lower-value banking transactions through post offices rather than high-cost branches.

AIB is closing 67 - or one in four - branches, while NIB is closing all 27 of its branches in the Republic. An Post's arrangement with AIB dates back a decade, while the deal with NIB is only two years old. Both banks are looking to greater use of technology including phone apps, internet banking and online video to deal with customers that will generate cost savings. This will only add further pressure on branches. As more and more products are sold over the internet, the cost of supporting a branch network will become harder to justify as sales volumes through branches decline.

Bank of Ireland is taking a different approach. Chief executive Richie Boucher said last week the bank has no plans to close branches as it was "very hard" to sell investments, mortgages and products to small and medium-sized business over the internet. The Irish Times

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Bank of Ireland shareholder Kennedy Wilson and partner Deutsche Bank have acquired a E360m portfolio of Irish property loans from Lloyds Banking Group at a huge discount. The buyers are understood to have paid less than 20c in the euro for the loans. A spokesman for Lloyds declined to comment. Kennedy Wilson confirmed it has acquired the loans but did not name the seller. The Irish Independent understands the loans are the Project Prince portfolio of "non-performing" or defaulted Irish commercial property loans.

The buyers are reported to have paid just 17pc of face value for the deal. The sale is part of UK bank Lloyds's effort to exit the Irish market after raking up huge losses at its Bank of Scotland (Ireland) and Halifax units. The loans are backed by more than 100 office and retail developments. By buying "non-performing" loans, debts that are in default, Kennedy Wilson and Deutsche Bank are effectively buying the properties themselves, or at the very least the right to take control of the properties.

California-based Kennedy Wilson is linked to the Kennedy political dynasty through JFK's nephew Bobby Shriver. It is now one of the most active buyers of Irish assets. Kennedy Wilson bought a Bank of Ireland real estate business in 2010, before taking a stake in the bank itself last year as part of the deal that kept the bank out of state control. The Irish Independent

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The cost of insuring Irish bonds against default has fallen below the levels seen in the lead up to the 2010 bailout. The insurance products, known as credit default swaps, slid yesterday to their lowest level for Irish bonds since October 2010 after falling eight basis points to 455 points. Irish bonds have enjoyed an extraordinary run this year, with the notional cost of borrowing falling below those of Italy last month for the first time in three years. Irish nine-year bonds yielded 6.04pc yesterday, just above the psychologically important 6pc level and their lowest since late 2010.

The rate exceeded 14pc a year ago. The bonds have benefited from speculation that we will share in the EU's agreement to refinance Spanish banks directly without boosting the country's sovereign debt, as well as signs that the economy is poised to resume growth. While the markets have welcomed the changes, rating agencies appear sceptical. Fitch Ratings said yesterday that Ireland's investment-grade BBB+ rating remained on negative outlook because of risks to growth and fiscal consolidation. The Irish Independent

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The long-awaited personal insolvency regime will not be widely used to escape from under mortgage debt, and will come with little cost to banks, rating agency Fitch said last night. An outline of the new rules was published in June and is expected to become law later this year. Fitch said it does not expect the changes to have any immediate impact on its rating of Irish mortgage books. It is in contrast to the view of Justice Minister Alan Shatter, who has proposed the new rules.

He said the changes would help people to deal with unsustainable debts and mortgages, and predicted that around 15,000 people could seek to avail of out-of-court debt settlement arrangements in the first year alone. Fitch however said it thinks these settlements will rarely be used to escape mortgage debt. The Irish Independent