08 Mar 2019

AIB Group: Colin Hunt confirmed as CEO

AIB Group has this morning confirmed that it has received approval for the appointment of Dr Colin Hunt as Group CEO after a successful conclusion to the regulatory fitness and probity assessment process. He will now take up the position as Group CEO with immediate effect. Dr Hunt replaces outgoing CEO Bernard Byrne. 

Dr Hunt joined AIB Group in 2016 as Managing Director, Wholesale and Institutional Banking. He previously held a number of senior positions in Macquarie Capital, Goodbody Stockbrokers, Bank of Ireland and NatWest, as well as spending time as special advisor to former Ministers for Finance and Transport.

 

The appointment of Dr Hunt as CEO follows the appointment of Donal Galvin as CFO last week, and both appointments should be taken positively by investors given their broad career experience and previous senior management positions within AIBG. 

 

ECB hold rates, but measures, guidance and forecasts weaken euro

 

The ECB left interest rate policy unchanged yesterday, with the key rates held at -0.40% (deposit rate), 0.00% (main refinancing rate) and +0.25% (marginal lending rate). However whilst the ECB maintained a steady stance on rates, it did announce a number of policy changes. These included; i) an adjustment to its interest rate guidance; ii) a third series of targeted longer-term refinancing operations (TLTRO-III) and iii) the extension of full allotment of fixed rate lending operations until 2021. Whilst these measures and adjustments had been expected at some point, their timing and delivery at the same time surprised markets. In response EURUSD has fallen to a 21 month low, whilst euro area sovereign bonds have rallied, with 10yr bund yields falling 6bps to just 0.06%. The key changes are detailed below.

 

Guidance

 

Perhaps the most surprising element of yesterday’s decision was the change in guidance. Consensus expectations had been for a change slightly later in the year. The updated guidance quashed any idea of a move in interest rates this year, with the wording now stating that the ECB expects the key interest rates to “remain at their present levels at least through the end of 2019”, rather than “through the summer of 2019” as previously stated. ECB President Mario Draghi did however state that several members of the Governing Council (GC) had a preference for a March 2020 reference, but the final version reflected a convergence of views on the GC. In terms of market expectations, the new guidance did not really change anything, with the forward EONIA curve not pricing in a deposit rate move until mid-2020 anyway.

 

TLTRO-III

 

As had been signalled in recent weeks, the ECB announced a new round of longer term liquidity operations. These will allow banks to borrow two year liquidity at any of the quarterly offerings which begin in September 2019 and end in March 2021. These will allow banks to borrow up to 30% of their stock of eligible loans, but on less favourable terms than TLTRO-II. At the best rate this allowed banks to borrow at the prevailing deposit rate should they meet set lending criteria. The interest rate on the new loans will be indexed to the main refinancing rate over the two year term, whilst additional incentives to encourage favourable credit conditions will also be included. But details of these have yet to be published. Overall the new loans will address some concerns over bank liquidity requirements over the coming years, however as TLTRO is demand driven, it remains to be seen how much will be borrowed. Certainly some TLTRO-II funding is likely to be refinanced into TLTRO-III, but given the less favourable terms, the net liquidity injection may be less than when TLTRO-II was introduced; TLTRO-II saw €740bn drawn by Euro area banks, but the net injection was actually only €315bn.

 

Forecasts revised lower

 

The Governing Councils concerns over the outlook for the economy was reflected in the latest set of economic forecasts. 2019 GDP growth was downgraded “substantially” to 1.1% from 1.7% (December projections), whilst 2020 saw only a marginal revision to 1.6% (1.7%), 2021 was unchanged at 1.5%. As with our own forecasts, the ECB is expecting some recovery in the pace of growth in H2 2019, averaging 0.4% (qoq). For the year as a whole, we are forecasting a slightly stronger pace of growth at 1.3%. The impact of a softer growth profile is an upwardly revised unemployment forecast and slightly softer earnings growth. Under such a scenario inflation is assumed to take longer to converge with target. Most notably core HICP inflation is forecast to stand at just 1.6% (prev 1.8%) in 2021, raising the question of whether that is really consistent with the ECB’s target of inflation “below, but close to 2%”. A final and notable point around the forecasts is that the GC continues to deem that risks are tilted to the downside, despite the downward revisions to the outlook. President Draghi himself stated that this was unusual and hints at the GC’s continued worries about the outlook. The reasoning behind the risk assessment, was that whilst the measures announced today helped to increase the resilience of the Euro area to internal risks, it did nothing to address external risks such as protectionism.

 

Brexit latest – lack of progress

 

Reports suggest a distinct lack of progress in talks with Brussels on the Irish backstop, with no. 10 preparing itself for another loss in the meaningful vote on Tuesday, unless things change dramatically over the next few days. One plan suggested is that on a defeat, debates on whether ‘no deal’ is acceptable and a request for an Article 50 extension will both take place on Wednesday, instead of Wednesday and Thursday as currently envisaged. The government is also under pressure to hold a series of indicative votes on various trading arrangements next week, if and when Mrs May loses. Meanwhile the PM is due to give a speech in Grimsby at lunchtime today. It is not clear whether she is due to go to Brussels over the weekend and/or Monday, bearing in mind what currently appears to be a serious deadlock.

 

Economic releases

 

13.30 US Building Permits

13.30 US Nonfarm Payrolls

16.30 EZ ECB’s Mersch