Financial aid to Ireland 'unavoidable', investment manager says Go compare with our comparison table

Financial aid to Ireland 'unavoidable', investment manager says

18 November 2010 / by Paul Dicken

A fund manager has described the provision of financial aid to Ireland as ‘unavoidable’, as the country is visited by European and international experts to assess its banking sector.

Peter Geikie-Cobb, who manages a global bond fund at Thames River Capital, part of F&C Investments, said Ireland – which has denied it needs external financial support at this stage – could be in denial about the full severity of the situation it faces.

“They believe that they have enough funding to see them through to the middle of next year and that they will be able to grow their way out of the problem. However, the reality is that as the economy falters their debt to GDP ratio continues to increase.

“Furthermore as markets being to prove in defaults, they will be forced into a classic debt trap as market interest rates increase.”

Geikie-Cobb added: “It’s quite clear to us that financial aid is unavoidable and the ultimate end game will see bondholders being forced to take a haircut, bearing the brunt of the restructuring and refinancing.”

He said there was a lack of market credibility while there was no agreement between Ireland, the European Central Bank and EU on spending cuts and restructuring going forward.

Ireland has come under increasing pressure in Europe to request a financial support package as the cost of borrowing for the Irish Government has risen sharply and concerns have increased about the government's ability to meet its funding requirement next year.

Speaking in the Dáil, the Irish parliament, on 18 November, Irish finance minister Brian Lenihan said if a 'substantial contingency capital fund was made available to back Ireland' but not necessarily accessed, that would be a very desirable result of the talks going on. He also reassured customers of Irish banks, saying that 'all deposits continue to be safe and secure'.

In a statement on 17 November, José Manuel Barroso, president of the EU Commission, said he had confidence in the Irish government’s fiscal plans but it was addressing a ‘very specific problem as far as the banking sector is concerned.’

“In this context, the Irish authorities are committed to working with the Commission, ECB and IMF [International Monetary Fund], to determine the best way to deal with market risks, especially as regards the banking sector. That was the message we’ve got just yesterday in the Eurogroup,” Barroso said.

He insisted no pressure had been put on Ireland to resort to ‘the financial assistance mechanism’ but reiterated the message that the EU financial support mechanism was available if requested.

The Irish Government confirmed talks would begin today, 18 November, with the purpose of the meetings looking at the ‘structural problems’ in the Irish banking sector, with intensive engagement to see how these could be addressed.

UK Chancellor George Osborne was reported on 17 November saying Britain would be willing to provide billions of pounds in financial support to Ireland, in the event that a financial aid package was sought.

© Fair Investment Company Ltd

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Our selected partner for investing in Neil Woodford's Equity Income fund is Barclays Stockbrokers, via their INVESTMENT ISA for new ISAs and ISA transfers, or their MARKETMASTER® ACCOUNT for non-ISA investments. Income Paid Quarterly.The fund’s investment objective is to provide investors with long-term appreciation through investing in stocks primarily listed on the UK stock exchanges. Up to 20% may be invested in international companies. The income objective is 10% higher than the FTSE All Share Index yield with an anticipated annual yield of 4.0%.
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