Inside the world of business

Irish openness leaves us exposed

THE IRISH banking system is in an almost unique position in the euro area, not just for the level of funding provided by the central banks, in Dublin and Frankfurt. Irish Central Bank figures show that it provided €51.1 billion “in other assets” last month, most of which refers to emergency liquidity assistance to the banks. This is on top of the €132 billion drawn from the ECB by the banks, making Ireland’s banks the biggest borrowers from Frankfurt.

Few if any other euro zone countries provide the same level of detail when it comes to discount lending to assist troubled banks. The sharp increase in emergency liquidity provided by the Irish Central Bank in October was one of the triggers that prompted the ECB to call time on the Government’s plan to save the banks and encourage financial assistance from the EU-IMF.

That is not to say that there would have been the same outcome had all this funding been provided behind closed doors. However, the disclosure of the sharp increase in Central Bank borrowings by the Irish banks has not helped when the same type of lending is shrouded in secrecy across the rest of the euro zone.

Secrecy does not just exist in euro-land. Under similar emergency lending, the Bank of England gave £62 billion to save RBS and HBOS from collapse in 2008 but the “secret” loans were not disclosed until more a year later. Disclosure should improve confidence but in Ireland’s case it has been visibly left at a disadvantage.

ESB's current rating hangs on grid decision

THE ESB has joined its owner, the State, on BBB+ and Baa1 ratings awarded by the likes of Fitch, Moody’s and Standard Poor’s, who regard the energy company’s debts as investment grade.

While the ratings are low for a sovereign State, they are reasonable for the ESB. It’s the first time that the company has been rated and in terms of its own industry, it’s a small player. It might have a big slice of its own market, and plenty of ambition, but EDF it ain’t.

It has been waiting for the rating and its arrival will increase the number of institutions it can tap for money when it next goes to the bond market.

New lenders will be interested too. Based on the fact that they tend to stay around and provide things that people need, the capital markets see utilities as a good bet.

But there are some complications for the ESB. It is owned by the State, which has made a committment to both the EU and IMF to review the energy market and its ownership of several companies in that sector, by the end of the year.

The second thing is the national grid, which transmits electricity from generators to the distribution networks.

This accounts for over €1 billion of the company’s assets, but it has been Government policy for some time that ownership of this would be transferred to another agency, Eirgrid.

There were indications that the Government was about to do a U-turn on this decision.

There’s no real knowing what its successor will do, but it will have to act fast on this, as the EU wants a decision in early March. Either way, the decision will have ramifications for those brand-new ratings.