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ISEQ lower-Irish bank deal delayed

Monday, September 10 08:56:20

The ISEQ is a little lower this morning at 3,252, down 9 points from last week's gains as European markets await the next boost from Central Banks as the Fed is expected to push further funds into the US system later in the week. Ireland's target to resettle our banking debt seems to have moved from October to November at the earliest. Goodbody Stockbrokers looks at the reasons:

An exercise in expectations management appears to be in full swing by the Irish government in relation to the supposed deal on bank debt following the June 29 summit statement. A deadline of October was set for initial agreement on the outline of the deal but the probability of such a deal being announced appears to be declining rapidly following comments over recent days, including from the Central Bank Governor and the Tanaiste.

This is something we warned of in our note last week (Deal or no deal?, 5 September 2012). The issue appears to be one of timing. It was suspected at the time of the June leaders' summit that the bailout of the Spanish banking system would have been completed by October and that there would be broad agreement on the next steps towards a banking union. Not so.

It will be November at the earliest that the Spanish banking bailout will be finalised while there are fundamental disagreements between the European Commission and Germany on what a banking union may actually look like. Along with the Troika's current visit to Greece and some slippage in Portugal's fiscal plans, it is clear that there are bigger, more pressing issues for European leaders to deal with rather than the "poster child" that is Ireland.

As we pointed out in our note, European policymakers will be aware that any deal agreed for Ireland would set a precedent for the rest of the euro area. That is why getting a deal done by October was always going to be difficult. Although the ECB actions of last week have given another boost to Irish bonds, some reversal of the post-summit move is likely as expectations are pared back by Irish policymakers according to Goodbody Stockbrokers.