Bank of Ireland plunges on bailout dilution concern
Bank of Ireland fell to a 20-month low, leading the country’s lenders down, on concern that shareholders will be diluted in any government bailout.
Bank of Ireland slid 25pc to 29.2 cents at 11:53am in Dublin trading after tumbling 19pc yesterday.
Allied Irish Bank, the country’s second-largest lender, fell 14pc to 35 cents, and Irish Life & Permanent, which has so far avoided a bailout, fell 4.8pc to 80 cents.
Irish banks may get immediate capital injections as part of the European Union and International Monetary Fund’s rescue package, Matthew Elderfield, the head of financial regulation, said in a speech yesterday.
Finance Minister Brian Lenihan said on November 18 that the Government was considering a “contingency fund” that banks could tap for additional funds.
“That the banks will be obliged to raise further capital now looks assured,” Emer Lang, an analyst with Dublin-based securities firm Davy, wrote in a note today.
“The timing of any increase will hinge on the balance struck between ‘immediate’ additional capital injections and ‘top-ups’.”
Irish banks forced the Government to seek the bailout after loan impairments surged following the collapse of the property boom in 2008.
That year, the Government pledged to back most liabilities, including all deposits in Irish banks, a promise that led the Government to inject €33bn to support the lenders.
As loan losses climbed, the Government put the cost of the rescue at €50bn in September this year, fueling investor doubts that Ireland could afford the rescue.
It is “unsatisfactory that expected losses” among the banks “are clearly higher than provisions already taken” and that any discrepancies “may awaken doubts in the minds of investors,” Central Bank Governor Patrick Honohan told a Chartered Accountants Ireland meeting in Dublin today.
“Uncertainty about whether banks have” more losses on their books “certainly argues for higher percentage capital targets,” he said.