I only caught a snipet of CNBC this morning, so I’d appreciate if anyone can explain the context of these comments.
Sometime between 8.30 and 9.00 a gentleman being interviewed about “Who owes what in Europe”, I believe he was talking about companies such as banks owing money to each other.
He singled out Ireland as a particularly worrying story and I think he said that 70% of corporate debt needs to be refinanced in 2009, which was an extremely high number.
Like I say I only half caught this, so if anyone can clarify I’d appreciate it.
Don’t remember hearing anything. I think it was Steven (Stephen) Roache from Morgan Stanley who was on around that time. You might find a some articles by him on the MS website, he writes a few.
OK, everybody here knows about the Irish story. But on the morning of the biggest banking failure in history, a guy who has been looking at the state of banks and debts goes on CNBC (not rte or the Longford Leader) and singles out Ireland as being in particularly bad shape.
And apparently none of the Irish media notice or care, or want to follow up on this question.
The first thing that popped through my head when I heard the comment was Oh yeah! sure Ireland’s problems are all caused by the global slowdown. If all our problems were down to the global slowdown we’d be no worse off than you know other countries on the globe.
There doesn’t seem to be much concern about being the first into recession (beating even the US to that title) or having experts talking about us in hushed tones.
Remember how we did BOOM? We kicked ass at BOOM. We BOOMED more than anyone else in Europe. We were the Man Utd of Boom. Boom champions league winners year after year. Brian Cody couldn’t have strung together so many years of success.
Well, we seem to be preparing to kick ass at BUST too.
I wouldn’t be so sure it’s the banks. What about CRH, IAWS, Kingspan, Smurfitt, Quinn, Eircom even? (They don’t have to be publicly traded companies to be indebted). I’ve no idea about their debt levels, I did ask the question on here some months ago, but didn’t have any luck, so I guess it’s not easily available?
As the hobbit pointed out and many here have been saying, the credit crunch is yet to really reach these shores. BoIs 9.75% for tier 2 capital is only the start of the pain that’s going to be felt by corporations that have to rollover debt. Particularly since they are rolling it over from very low levels.
If I was in the market for stocks (and I’m not at the moment) I would be trying to see what debt they have and when it is due for rollover as this is what is going to really crimp profits in a downturn, assuming the companies can down-size with reduced demand for their product.
When the cost of corporate borrowing gets really high, it will actually be quite good for people with skills. People with real skills are indispensible to a business, whereas most senior management are very much dispensible. When you have to meet payroll by actually selling things, then theres going to be less money for mega remuneration packages for parasitic executives whos only skill is being able to do a slick powerpoint presentation laden with buzzwords they read in a managment book. There will be a huge culling of parasites.
Normally that wouldn’t be a big deal. Most corporations rely on revolving credit lines arranged with consortia of banks. Typically a credit line will last for three to four years before it has to be refinanced. Smurfit Kappa would be a good example of a large Irish corporation heavily dependent on revolving credit lines, because it has unusually high levels of debt, or “gearing”, a consequence of the fast one Michael Smurfit pulled at last year’s IPO. Until fairly recently, such credit lines were easily refinanced.
With credit so hard to come by, these corporations are looking at much more expensive financing, that is if they can arrange it. Which is why it was so essential for Lenihan to free up the basic process of credit flows while bringing costs more into line with normality.
Ireland inc. is more dependent on credit than your average small economy, but qualitatively no different than a Belgium or a Holland.
