Friday 28 April 2017

Bank shares hold up as market bets on bailout

Investors concerned over EU funding plan

Bank of Ireland last weekend admitted its deposits fell by €10bn in late August and early September. Photo: Bloomberg News
Bank of Ireland last weekend admitted its deposits fell by €10bn in late August and early September. Photo: Bloomberg News
Laura Noonan

Laura Noonan

FEARS over Ireland's banking sector continued to mount yesterday but bank share prices held up as the market bet on an imminent bailout.

The developments came amid frenzied speculation about how banks could benefit from an application by Ireland to the €450bn EU bailout fund, dubbed the EFSF (European Financial Stability Facility).

Sources in London said investors were extremely concerned about the impact any European bailout could have on the banks being able to fund themselves independently.

"The problem with the EFSF is that it's never been used before so no one knows what the terms and conditions would be," one said.

Investors fear the EFSF might force bondholders who've loaned money to the banks to take a hit on what they get paid back.

Markets have also become increasingly concerned about Irish banks' inability to fund themselves by raising debt on international markets.

Yesterday, investors were baying for detail on what kind of funding support the EFSF could offer banks.

"EFSF funding is typically for three years, banks need something longer-term," one source said.

The Central Bank last night insisted Irish banks' access to funding was "not in question" since they had "all the necessary access" to cash through a Europe-wide system that enables central banks to fund individual banks.

Senior sources at Irish banks last night said they had "no idea" what kind of support any bailout could offer since they had not been asked for their views. "We're getting all our news from the papers," one source said.

The banks also categorically dismissed speculation that deposits had begun flowing out as fears mounted.

Deposits

The commentary came after Bank of Ireland last weekend admitted its deposits fell by €10bn in late August and early September.

The bank stressed that this fall was caused by a downgrade of the Irish sovereign at the end of August, coupled with uncertainty about whether the bank guarantee would be extended beyond September.

Deposits have been "broadly stable" since then, the bank's boss Richie Boucher told analysts on Friday.

Shares in the three financial stocks put in one of their better performances in recent weeks, but sources said the improvement reflected expectations that a bailout was imminent.

Shares in AIB closed up almost 6pc at 41c. Shares in Bank of Ireland closed unchanged at 40c, despite downgrades from several stockbrokers on the bank of the bank's interim management statement last Friday. Shares in Irish Life & Permanent closed up more than 2pc.

Irish Independent

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