'Toxic asset vehicle' rumours prompt surge in bank shares
SHARES in Allied Irish Banks and Bank of Ireland surged yesterday on optimism that Finance Minister Brian Lenihan will create some sort of vehicle for toxic assets in next Tuesday's budget, together with a plan to fight the recession.
Shares in Allied Irish jumped as much as 25pc and Bank of Ireland climbed over 30pc in early trading before they eased back to close showing more modest gains on the session.
At the finish, AIB was pegged above €1 for the first time in months, ending the day showing a 15pc gain at €1.02 while Bank of Ireland finished up over 10pc at 75 cent.
Surge
The surge meant AIB had gained 60pc to €1.02 this week, while Bank of Ireland ended the week showing a 56pc gain to 81 cent. Irish Life & Permanent was up 14.6pc last night and has jumped by 49pc on the week, closing at €1.776.
Investors are increasingly confident that the Government will present a convincing solution to our economic ills on Tuesday while avoiding the need to nationalise the two banks, analysts said.
"The changes in the equity market reflect what's been happening in the bond market," said Davy Stockbroker analyst Scott Ranking. The spread between Ireland's and Germany's 10-year government bond has narrowed by 70 basis points over the past two weeks to 230 points, reflecting optimism that the Government will tackle the country's problems.
Finance Minister Brian Lenihan said in Prague yesterday that there was total solidarity between Ireland and the ECB. "The ECB stands behind the Irish banking system and ensures the stability of the Irish banking system," he told reporters.
The Irish banks finished higher despite a drop in the wider market -- the overall ISEQ was down 1.4pc after industrial shares came under pressure. European stocks also fell yesterday, trimming their fourth straight weekly advance, as a surge in US unemployment to a 25-year high dampened optimism that the worst of the global recession is over.
Over the week, however, it was a different story, with the Dublin market up 7.6pc, rising in tandem with other European markets.
These gained for a fourth week, the longest winning streak in 18 months, as world leaders stepped up aid to end the recession, and speculation grew that the global slowdown and banking crisis are subsiding.
The Group of 20 summit met in London as some reports suggest the pace of economic decline is easing.
Gains
US durable goods orders and home sales rose in February. UK house prices unexpectedly gained in March for the first time since October 2007, while Chinese manufacturing increased, figures released earlier this week show.
The G20 leaders called for stricter limits on hedge funds, executive pay, credit-rating companies and risk-taking by banks and pledged more than $1 trillion in aid to cushion the economic fallout.
Over the week, national benchmark indexes climbed in all 18 western European markets this week except Iceland. The UK's FTSE 100 rose 3.4pc. Germany's DAX added 4.3pc and France's CAC 40 advanced 4.2pc.
- PAT BOYLE and TOM MOLLOY
