Massive fall in value of bank stocks ahead of key speech
Published 30/03/2010 | 05:00
SHARES in the country's two biggest lenders plunged yesterday as investors baulked at news that Finance Minister Brian Lenihan would outline the extent of the State's ownership in the banks.
Allied Irish Banks tumbled 19.5pc to €1.36.
It is understood the Financial Regulator is looking for the bank to raise up to €7bn, which could leave the State with a 70pc stake in the country's largest bank.
Bank of Ireland's stock traded down 10pc to €1.24, as the market digested the prospects of the bank being 40pc-owned by the Government.
BoI is being told it must raise about €3bn, though it expects to bring in more than half of this through a share sale and by offering some of its riskier bondholders a deal to convert into shares.
Share traders last night expressed surprise that Mr Lenihan plans to use his eagerly-anticipated speech to give a clear indication of the stakes he expects to take in both AIB and Bank of Ireland.
"I think the market expected him to repeat the line that he will stand behind the banks as they pull out all the stops over the coming months to raise money themselves," one dealer told the Irish Independent.
Kevin McConnell, head of research at Bloxham Stockbrokers, said AIB could now be backed into a position where it is a forced seller of assets, including its stakes in US bank M&T, its Polish unit Bank Zachodni as well as its UK business banking arm.
The big fear for many investors is that AIB is forced to sell its 70.2pc stake in Bank Zachodni, which is set to remain profitable over the coming years, even as the Irish business remains in the doldrums.
"A sale of Zachodni could kill off the (interest among) many shareholders that could be called on to support a share sale later in the year," said another analyst, who declined to be named.
Irrespective of what stakes the Government ends up in the country's banks and building society, each institution must convince Brussels in a restructuring plan how it plans to pay back the State within five years.
This is expected to be much more difficult for Anglo Irish Bank and Irish Nationwide, according to observers.