Proposed levies hit financial stocks
IRISH shares fell yesterday as financial stocks took a bashing on concerns that Irish banks will suffer from levies in the UK and possible domestic levies as more and more countries introduce measures to charge banks for previous indiscretions.
The ISEQ Overall Index closed down 44.96 points, or 1.4pc, to 3076.78 points as Bank of Ireland tumbled 8.2pc, Allied Irish fell 7.1pc and Irish Life & Permanent slid 5.9pc. The collapse in financial stocks came as Britain, France and Germany agreed to introduce a bank levy based on banks' balance sheets.
Britain will impose the tax from next January on the British arms of some foreign banks. Such a measure is likely to hit Bank of Ireland's profits and reduce the attraction of AIB's units in Britain for any possible buyer. British banks shrugged off the changes with Royal Bank of Scotland and Lloyds closing higher. "We recommend being long of Lloyds in particular now that the levy appears to be less onerous than the bear case expectation," said analyst Andrew Lim at Matrix Corporate Capital in London.
CRH also fell in Dublin, sliding 3pc to €19.08 as the US construction market, where CRH earns half its profits, showed signs of faltering after sales of existing homes unexpectedly fell 2.2pc in May.
Shares in Independent News & Media rose 2.3pc to 90c after shareholder Denis O'Brien raised his stake to 20.2pc from 18.6pc. Drinks company C&C also posted a gain, rising 1.7pc to €13.34 after the UK budget did not include an extra tax on cider.
Elsewhere in Europe, National benchmark indexes declined in all of the 18 western European markets, except Iceland. France's CAC 40 dropped 0.8pc and Germany's DAX slipped 0.4pc as investors fretted that the longest rally in 11 months has outpaced prospects for earnings and economic growth.
BNP Paribas slid 1.6pc as Fitch Ratings cut the credit rating for France's largest bank. Aegon slipped 2.8pc after saying it may consider selling its life reinsurance unit. Chemring sank 6pc after profits fell.
"The markets remain nervous about the risks to growth and the wildly optimistic earnings expectations in some sectors," said Chirin Gill, at Daiwa SB Investments.
BP dropped 4.4pc, the lowest close in six years after adjusting for dividends, on concern that the oil spill cleanup in the Gulf of Mexico may be disrupted by bad weather. The first storm of the Atlantic hurricane season may enter the Gulf of Mexico as soon as next week and forecasters are predicting the season may be among the worst on record.
UK homebuilders rallied after the UK budget raised the capital gains tax rate by less than anticipated. Barratt Developments climbed 4.4pc and Redrow gained 3.2pc.