Banks: Shares nosedive as unconvinced investors flee
THE value of Ireland’s biggest banks plunged as much as 36pc yesterday as investors revolted at the prospect of having their holdings obliterated by a fresh bailout.
Less than 12 hours after details of the latest banking support packages had begun seeping out, shareholders voted with their feet and sold out.
And market insiders expect further falls today after the Government’s four-year plan failed to give the market any reassurance on how Ireland’s banks will be fixed.
The news comes after the Central Bank met with AIB, Bank of Ireland and Irish Life & Permanent (IL&P) on Tuesday and told them they face higher capital targets.
A meeting with Anglo Irish Bank has not yet taken place, but the bank is believed to be standing by for a meeting by the end of the week.
European policymakers also stoked fears of painful banking reform after the spokesman for Economic and Monetary Affairs Commissioner Olli Rehn said Irish banks faced “severe” restructuring.
Bank of Ireland (BoI) was the worst hit by yesterday’s selloff amid fears the State’s stake in the bank will soon rise from 36pc to more than 80pc.
The fears were triggered by revelations that BoI could be asked to hold €3.5bn as a cushion against future losses.
Reports yesterday suggested this may all be pumped in by the State, forcing the bank into majority state ownership and massively diluting ordinary investors.
Market sources said the bank spent yesterday trying to reassure investors that talks on higher capital were purely “exploratory” and majority state ownership could be avoided.
BoI believes it can avoid becoming state controlled if it is given an extended period of time to raise the cash and can tap private investors who stumped up €1.7bn in the summer.
But investors were unconvinced. “A lot of people bought into BoI last week on the assumption the bank would not be forced to raise more capital,” one market source told the Irish Independent.
“What’s coming out now is making them nervous.” Battered The bank’s shares ultimately closed down just 11pc. Some market sources pointed to a late recovery in sentiment, but others said sluggish late trading meant small numbers of shares changed hands at the better price.
IL&P was also battered by the markets yesterday as investors revolted at news that the bank could be forced to take a state bailout of €600m in new capital.
It is understood to believe that even if this capital is required, the group can come up with the money without taking a state handout. Some 16pc was wiped off IL&P’s value yesterday.
The shares are now worth less than half their value a fortnight ago. AIB’s shares fell sharply in the morning before finishing up 3pc, even though the bank now faces 99.99pc state ownership.
“There’s a lot of confusion out there and institutional investors don’t like confusion,” said one market source, pointing to the lack of clarity on any banking issues in the four-year plan.
It reveals that it will cost the State €2.4bn to satisfy its commitments to Anglo, Irish Nationwide and EBS between now and 2014.
But it has been roundly criticised for making no mention whatsoever of the interest costs of the fresh bank bailout, and giving no detail of how the banking crisis will be resolved.
The crisis in confidence in the Irish banks was illustrated by comments from Danishowned National Irish Bank, which yesterday said it was seeing “an increase” in deposits amid the “uncertainty” surrounding Irish banks.
Dutch-owned Rabobank also said it was seeing a “considerable increase in the number of calls and new account applications over recent months”.
The overall Dublin stock market saw more of a lift yesterday, with the ISEQ closing up 0.83pc.
Stocks across Europe also gained, with the FTSE 100 in Britain closing up 0.9pc, Germany’s DAX up 1.6pc and France’s CAC40 up 0.5pc.
US indexes opened higher on better- than-expected jobless figures. On the currency markets, the euro briefly dipped to just US$1.3284 yesterday, but recovered to US$1.3372 by mid-day trading in New York.