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ISEQ higher as bank agreement reached

Friday, October 19 09:10:21

The ISEQ is a little higher this morning at 3,274, up 11 points as news comes from the EU summit that agreement has been reached on a banking supervisor for the Eurozone. Davy Stockbrokers takes a positive view of events:

Following the opening of this week's EU council meetings, Commission President Barroso indicated in a statement last night that EU leaders have agreed to put in place legislative decisions on a single European financial regulator by the end of 2012. EU leaders have confirmed the summit agreement on June 29th, and will honour the commitment on direct recapitalisation of banks. The new supervisory regime will be able to intervene in all euro-area banks, despite previous German opposition to universal coverage by the new regulator.

The key issue for Ireland is whether the ESM fund may take equity stakes in Irish banks, helping to reduce Irish government debt. Last night's statement indicates that the key condition, a single supervisory regime, will be put in place in the near future, allowing the ESM to consider capital injections. And the confirmation of the June 29th agreement also includes the commitment by EU leaders to consider options to help Ireland's debt sustainability. However, Barroso fell short of indicating that the ESM will be allowed take stakes in 'legacy assets', so it is not clear that the opposition voiced by the Dutch, Finnish and German finance ministers in September has been overcome.

That said, Angela Merkel is reported to have confirmed that EU bailout funds will not be used to inject capital into troubled banks until the new supervisory regime is in place. This suggests the ESM will be expected to make capital injections into 'legacy assets'. President of the euro group of finance ministers, Jean-Claude Juncker, indicated that a decision on how to recapitalise Spain's banks will be made in the next couple of weeks. This will be a key moment for the Irish sovereign, with any deal for Spain expected to apply retrospectively for Ireland.

So, at face value last night's statement suggests ESM capital injections into Irish banks, to reduce government debt, are now more likely. German attempts to delay implementation of the new single supervisory regime, and the prospect of ESM capital injections, seem to have been resisted according to Davy Stockbrokers.