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ISEQ lower as Bank deal under pressure

Wednesday, September 26 09:46:11

The ISEQ is significantly lower this morning at 3,267, down 44 points as markets renew their nervousness about the EuroZone and it's ability to get itself out of these serious problems. Of no help to Ireland was the announcement of Germany, Finland and the Netherlands regarding existing banking debts. NCB Stockbrokers looks at the issues:

A statement released yesterday evening by the finance ministers of Germany, Finland and the Netherlands has cast an element of doubt over June's Euro-area summit that was interpreted as being especially positive for Spain and Ireland. Having begun by stating that "it is imperative to break the vicious circle between banks and sovereigns", the June statement went on to say: "When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly". In the case of Ireland, the statement added "The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme"

That has helped lift sentiment towards Ireland, significantly pushing down bond yields in recent times. However, with regard to the ESM, the Joint Statement of the Ministers of Finance of Germany, the Netherlands and Finland says, amongst other things, that "the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities", while "direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM".

The reference to "legacy" assets casts doubt around sentiment towards Ireland's bank bailout programme along with current developments in Spain, however, in a statement carried in today's Financial Times the Irish Department of Finance appears to be downplaying this, saying the Joint Statement includes only "ideas [that will] feed into our discussions" with all of its European partners. In a game of chess that has as much to do with politics as it does with economics, we expect to see further twists until a final resolution is achieved according to NCB Stockbrokers