Inside the world of business
Burning buy-to-let tracker holders may be self-defeating
THE DECISION of Permanent TSB buy-to-let tracker mortgage holders to take up arms over the bank’s decision to cancel their trackers is just another example of how stretched borrowers are and how out of kilter the bank’s funding has become.
By any yardstick, a decision to unilaterally move borrowers off interest-only trackers on to variable rate capital and interest repayment mortgages is draconian. According to figures supplied by the borrowers’ lobby group, Protect Our Trackers, borrowers could see their monthly repayments triple, pushing many of them over the edge.
The alternative offered by Permanent TSB of moving to an interest-only variable rate – with an initial discount – only puts the evil day off a little longer.
Permanent TSB, which faces almost certain nationalisation, should consider whether it is on a hiding to nothing. All it is likely to achieve is to force a large number of customers into default with the risk of contagion, including default on their primary mortgage, be that with Permanent TSB or one of the already State-owned banks.
Permanent TSB’s attitude contrasts with the thinking emerging at AIB, which appears to have recognised that the only silver lining in the massive taxpayer recapitalisation forced by the recent stress test is that this makes it possible for the banks to face the losses in their mortgage books and, where warranted, forgive debt.
Permanent TSB has been subjected to the same stress tests as AIB and will be recapitalised on the same basis. It should thus be able to adopt a similar stance.
Given that its move against buy-to-let tracker holders predates the stress tests, a Pauline conversion may be on the cards. If the bank does not come round on its own, then the Government must consider whether one State-owned bank should be taking a harder line on borrowers than another, given both are dependent on the taxpayer.
One law for Irish taxpayers, another for bondholders
ECB EXECUTIVE board member Lorenzo Bini Smaghi has put pen to paper to once again remind us that our financial predicament is our own fault and thus we must foot the bill.
In the Financial Times, Smaghi repeated much of what he said in an interview with this paper earlier this year. His argument would appear to boil down to that because we elected people who failed to regulate the banks properly on our behalf, we must now pay the bill.
Smaghi’s application of the moral hazard principle with a zeal that verges on the vindictive with respect to the Irish taxpayer, stands in contrast to his treatment of the bondholders.
They – in Smaghi’s eyes – are not required to accept the consequences of their decision to lend money to banks in a country in which people elect governments that don’t regulate banks properly.
The inconsistencies in Smaghi’s positions are of course influenced by the ECB’s exposure to Irish bank bonds and the wider implications for the euro system of Ireland forcing burden-sharing on senior bondholders.
Smaghi said that while, in theory, shareholders, managers and bondholders should bear the costs of a bank being restructured, in an open system like the euro zone such problems were never black and white as they could pose systemic risks.
It is a pity that Smaghi and his colleagues in Frankfurt cannot see any such nuance when it comes to the responsibility of the Irish taxpayer for picking up the tab for the poor judgment of Europe’s bankers.
Virus test will be critical to Elan’s prospects
IRELAND’S LEADING indigenous pharma company, Elan, reports first quarter figures next week. After a period of tumult with boardroom rows, threats of legal action and the announcement of an imminent changing of the guard at both chairman and chief executive level, investors will be glad to get back to concentrating on the nuts and bolts of the business.
While the company continues to be upbeat on the prospects for the pipeline of treatments of Alzheimer’s disease in which it has an interest that are currently in the trials process, the bottom line for Elan this year is Tysabri.
The breakthrough multiple sclerosis therapy is the largest contributor to revenue and its efficacy compared to rival products remains impressive despite the growing amount of competition in the market. However, continuing concerns about safety – and particularly a potentially fatal side-effect – appear to be hindering the drug from achieving its potential.
Elan and its US partner Biogen have developed a test to detect a virus – JCV – in patients. There is growing evidence that those without the virus – roughly half the MS patient population – are not at risk from the side-effect.
The company’s Dublin broker Davy sees the commercialisation of the JCV assay as the priority for Elan this year. Given the propensity of MS patients to switch treatments, it reckons a reliable commercialised test could yield a net gain of 35,000 patients for Tysabri. That would bring patient numbers close to 90,000, well ahead of Davy’s current 2013 projection of 73,000 and of broader market estimates for the drug. Those figures point the way for Elan. The JVC assay will be the story next week.
Today
Two days after AIB updated investors on the scale of its losses last year, the other proposed indigenous pillar of Ireland’s future retail banking landscape, Bank of Ireland, presents its results for 2010.
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