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Money markets us seasonally adjusted cp market shrinks for 5th week

* Seasonally adjusted U.S. CP market falls $15 bln on the week * U.S. repo rates hold near recent highs * ECB rates on hold, no discussion of easing By Chris Reese and Kirsten Donovan NEW YORK/LONDON, Oct 4 The amount of seasonally adjusted U.S. commercial paper contracted for a fifth consecutive week in the week ended Oct. 3, Federal Reserve data showed on Thursday. U.S. seasonally adjusted commercial paper outstanding fell $15 billion to $975.1 billion in the latest week. Non-seasonally adjusted commercial paper outstanding - which some analysts consider is a more reliable reading than the seasonally adjusted one since it has been distorted by the financial crisis - rose $1.9 billion to $972.1 billion. U.S. non-seasonally adjusted foreign bank commercial paper outstanding fell $200 million to $192.2 billion. Separately, the key interest rate investors charge Wall Street for overnight cash was holding near recent highs on Thursday as bond dealers' demand to fund their trades and bond holdings outweighed investors' willingness to lend. Analysts attribute the comparatively high rates to dealers' bloated cache of short-term Treasuries as a result of the Fed's "Operation Twist" stimulus program. Compounding dealers' cash needs has been the effect of the Fed's latest round of purchases of mortgage-backed securities, known as QE3, as the U.S. central bank has not settled purchases with dealers. Analysts estimate dealers should collect anywhere between $30 billion to $40 billion from the Fed on its MBS purchases on Oct. 11. Until then, the overnight rate on repurchase agreements in which dealers use Treasuries as collateral in exchange for cash will likely stay above the yield on two-year Treasury notes . The overnight repo rate is bid 32 basis points on Thursday, flat from late Wednesday, according to brokers. Meanwhile, euro zone money markets were stable on Thursday after the European Central Bank kept interest rates on hold, giving no clue when, or if, it may ease them further, although many analysts still expect such a move. The ECB held its main refinancing rate at 0.75 percent and left the rate it pays banks to deposit cash overnight - a key factor in calculating the rates at which cash is lent to the wider economy - at zero as expected. However, President Mario Draghi said rate cuts had not been discussed at all this month. "It's looking less likely we'll get a cut next month," said Credit Agricole's global head of interest rate strategy David Keeble in London. "We're not ruling out a cut, we expect it to come at some point, but they're dragging their feet," he said. The ECB can cut either the deposit rate or the refinancing rate or both. It has typically maintained a fixed corridor between the two rates but in order to continue this, any further refi rate cut would have to be accompanied by an unprecedented fall in the deposit rate to negative territory. Market pricing based on forward overnight swap rates and presuming a constant relationship between these and the deposit rate shows that the expectation of a cut in the deposit rate this year remains minimal. "The deposit rate remains the underlying driver for short-term interest rates and the macroeconomic impact of changing the refi rate alone is not obvious," said London-based RBS rate strategist Simon Peck. However, economists polled by Reuters last week expect the ECB to cut the refinancing rate to 0.5 percent in the fourth quarter of the year then remain on hold through 2013. "Looking at the global backdrop there still remains the justification at some point on the horizon for a rate cut," RBS' Peck said. "With the focus currently on the OMT program this may turn into a story for early 2013," he added, referring to the ECB's Outright Monetary Transaction bond-buying program. The Eonia overnight rate is currently at 8.5 basis points . It is seen at 7 basis points in December and only marginally lower through the first half of next year. If a deposit rate cut to minus 25 basis points were being priced in, forward Eonia would likely fall further. And without further changes to the ECB's remuneration system, having a negative deposit rate may not encourage banks to lend more: banks could continue to leave excess cash in their current accounts at the central bank - which pays no interest - rather than lend it to each other or the wider economy.

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Rpt insight revenge of the irish as mega merger restores air finance crown

* AerCap takeover of ILFC revives Ireland as leasing hub* Shannon was heart of late tycoon Tony Ryan's leasing empire* Insiders say merger could prompt a wave of industry IPOs* Veterans see new volatility despite aviation boomBy Conor Humphries and Tim HepherSHANNON, Ireland, Jan 19 Twenty years after the spectacular collapse of Irish tycoon Tony Ryan's plane leasing empire, the Emerald Isle has restored its grip on the world's aircraft fleet with a mega-merger that could pave the way for a wave of multi-billion-dollar IPOs. The $5 billion takeover of U.S. leasing giant ILFC by AerCap , a firm that emerged from the ruins of Ryan's pioneering Guinness Peat Aviation (GPA), is set to send ownership of its fleet of 1,000 jets to Shannon, a small town in the west of Ireland where GPA pioneered the plane leasing industry in the 1980s. A disastrous bet on an airline boom that was cut short by the Gulf War led to GPA's effective collapse in 1993 and an exodus from Shannon. Ryan bounced back to found Ryanair, now Europe's largest carrier by passenger numbers, and firms set up by the jet-setting Irishmen he trained have brought ownership of about one in four of the world's commercial fleet back to Ireland."What goes around comes around is an expression I could use," said Patrick Blaney, one of the GPA executives who helped restructure the firm after a failed initial flotation in 1992 and who still lives nearby."It leaves me with a warm feeling, for certain."Like other executives from the firm who remember how the exuberance of the late 1980s gave way to the airline failures of the early 1990s, Blaney sees some warning signs that not all of the world's aviation firms will survive the current boom intact. Yet Ireland's rebirth looks set to whet the appetite of aircraft financiers holding their own mini-Davos gathering in Dublin this week. Their industry is basking in greater market recognition in the wake of the purchase of ILFC and is at last supported by robust profits at many airlines after years of restructuring and adjustment to high oil prices."This transaction will drive a lot of people to look at the IPO market," said Aengus Kelly, Chief Executive of AerCap. "It may encourage people to get involved in this business soon, before the values start to move on further."From shaky roots in the 1970s, leasing has become a dominant force in aviation, with aircraft portfolios at leading firms worth an estimated $200 billion.

The industry is credited with making air travel cheaper and safer. Operating leases allow airlines to avoid huge capital costs and rent a modern jetliner, potentially worth $40-50 million at market prices, with all the latest equipment. A mid-level executive from Ireland's national airline Aer Lingus in the mid-1970s, Ryan, who died in 2007, spotted the same opportunity as his great rival ILFC founder Steven Udvar-Hazy in California. When Ryan was tasked with finding a home for a mothballed Aer Lingus Boeing 747 during the winter months, he flew around the world until Thailand's Air Siam agreed to take it. He quickly realised serious money could be made by financing and operating planes for other airlines. After founding GPA in 1975, he surrounded himself with a team of ambitious young executives who travelled hundreds of thousands of miles a year - occasionally dipping behind the Iron curtain - to match parked planes and expanding airlines. At weekends they would retire to their country piles near the Shannon estuary, a key refuelling spot for transatlantic planes from the 1930s to 1960s, where locals suffering from the 1980s recession looked on in awe."They had more money than anyone in the town had ever seen," said the manager of the nearby Dromoland Castle Hotel, Mark Nolan, who remembers struggling to meet the demands of his "spoiled, opulent" clientele."But it all dried up pretty quickly," he said. THE FALL

The good times ended when the first Gulf War hit the industry and torpedoed Ryan's attempted IPO, leaving him with $17 billion in orders and not enough capital to fund them."He over-reached himself," said Christopher Brown, author of "Crash Landing", an inside account of how GPA crumbled. "He bought too many aircraft and didn't realise the cycle was turning until it was far too late to get out of the hole."Just before turbulence hit, ILFC managed to sell itself to insurance giant AIG, guaranteeing it a steady flow of cheap funding, until it was laid low by the 2008 financial crisis, which froze its access to unsecured market financing. While Ryan was ruined, until Ryanair rebuilt his fortune, some executives joined the two entities that split from GPA, and others set up by themselves. GECAS, built by General Electric on about 60 percent of GPA's fleet and 75 percent of its people, went on to become the world's largest lessor, with most of its 1,700 planes owned and still managed from its Shannon office. Other executives played a key role in the rise of several of the top 10 lessors, including SMBC Aviation Capital, Babcock & Brown Aircraft Management and AerCap, now the industry number two."Ireland is the centre of air leasing in the world, and that came from GPA. The seeds were sown," said Kelly, whose company AerCap acquired what was left of GPA after its carve-up.

ILFC DEAL As AIG desperately searched for an owner for its leasing unit last year, Kelly stepped up again, orchestrating a merger with AerCap and bringing ILFC under what is left of GPA. While AerCap's corporate headquarters is in the Netherlands, it manages its fleet in Ireland, which remains the industry hub, thanks to what many say is an unrivalled web of international tax agreements, a low corporate tax rate and world-leading aviation financing expertise. The deal, which is due to close in May, will create a listed company with a market cap likely around $8 billion, hugely expanding the volume of publicly traded shares in the sector."This is a transformative transaction. It shows for the first time that large-scale consolidation is possible, and it should make the public market more attractive," said Domhnal Slattery, who started his career in GPA and now manages 182 planes at privately owned Dublin-based lessor Avolon. However, another wave of record aircraft orders and the bulging backlogs of leading planemakers Airbus and Boeing, have renewed fears that the industry is over-extending itself, just as it did in the late 1980s. RISKS Airbus and Boeing have announced record combined orders for more than 3,000 passenger jets in 2013, and the waiting list for new jets is as long as nine years on average, a headache for buyers unable to finance commitments so far in the future. At the same time, manufacturers are vying to increase output, raising fears of overproduction, a double headache for lessors who are chasing the same airlines and also depend on healthy second-hand prices in order to preserve the underlying value of their assets. Still, most forecasters in the industry say the economic picture has changed for the better. China and emerging markets have spurred demand that did not exist in Ryan's day, and air travel is expanding to serve a new Asian middle class. The bruises and knocks still felt by GPA veterans may, in theory, have led to a more mature, less gung-ho industry. Executives say many of the checks and balances were brought to the industry by GECAS, which married financial portfolio skills with the international reach and customer focus of the old GPA."What GPA did not have, which is an integral part of most leasing companies today, is a deep-rooted system of risk management," said Slattery, who started at GPA and then GECAS. "It was an entrepreneurial, opportunistic, go-go style culture. Let's do the deal and think about the risk later."Even with those checks, "the margin for error is slim", said a senior leasing industry executive, asking not to be named. An accelerated slowdown in China or an economic or currency mishap elsewhere could upset the fine-tuned calculations in an industry that produces a thinner average return on equity than its financial peers and depends heavily on access to the cheapest possible financing. The temptation that both GPA and ILFC succumbed to in varying degrees remains - to maximise margins by borrowing short and laying themselves open to a liquidity crunch."I don't think anything has changed that makes it more or less likely that someone will fail," said GPA veteran Colm Barrington, chief executive of FLY Leasing. "It's liquidity that drives lessors to the wall."