Bank shares soar after 'comforting' statement
Published 05/01/2010 | 05:00
BANKING stocks surged and global market appetite for Irish government debt improved yesterday after Finance Minister Brian Lenihan vowed to stay in office as he receives cancer treatment.
Shares in Bank of Ireland rocketed 15pc to €1.52, while Allied Irish Banks jumped 12.5pc to €1.35.
"Certainly, the market is benefiting from Brian Lenihan's commitment about remaining in his role at a critical time. It is of huge comfort," Kevin McConnell, head of research at stockbrokers Bloxham, said.
Meanwhile, the interest-rate premium that international markets demand from the Irish Government for its borrowings compared to Germany, the European leader, continued to fall.
This gap between Irish and German government bonds, which is closely watched by international investors, hit its narrowest level in a year yesterday morning.
This is of huge importance as the Government goes about borrowing €20bn to plug its expected budgetary hole this year.
Bank shares had already been rising strongly ahead of Mr Lenihan's press statement and RTE Radio appearance at lunchtime -- as his intention to remain in office had already been well flagged in the press over the weekend.
A senior Dublin-based stockbroker said: "The minister put in a robust performance today. But it's hard to say whether this is something of a 'Lenihan rally' in the stock market or investors having a flutter on the first day of trading of the year."
He added: "Shares in the banks are likely to remain very volatile over the coming months as investors continue to worry about the amount of capital they will need as they begin to transfer loans at a loss to NAMA (National Asset Management Agency)."
The discounts banks are set to take on their NAMA loans are set to blow large holes in their balance sheets. Mr Lenihan reiterated on RTE Radio yesterday that the State may have to bail out AIB and Bank of Ireland again if they cannot raise the cash from private investors or sales of assets and subsidiaries.
"I know they are looking at how they can seek to obtain (capital) on the markets. But if they cannot do this, then the State will have a greater public ownership of these institutions," he said.
He reiterated a warning from last month that the banks have until the end of March to address their capital needs -- or risk majority state ownership.
"We cannot have any continuing doubts about the viability, about the capitalisation, about the standing of the banking sector. With an economic recovery under way later in the year, we need a banking system that will support that," he said.
Mr Lenihan said he agreed with recent calls from Central Bank governor Patrick Honohan that there should be an inquiry into the crisis.
But he said that any inquiry should wait until the NAMA transfers were completed and the banks were recapitalised.