Shares surge 9pc after extension to capital deadlines
SHARES in Ireland's biggest banks surged by as much as 9pc yesterday as investors flocked to financials across Europe, following revelations that banks will be given longer than expected to hit new capital targets.
European policymakers announced on Sunday night that banks will be given until 2019 to hit key targets under the new Basel III capital rules intended to insulate banks from future financial crises.
"It wasn't so much that the rules were better than we expected, it's that the need for capital is further away," said Goodbody's financial analyst Ken Darmody.
The UK, US and Switzerland had been arguing for banks to have just five years to hit the new targets, which require institutions to hold top-quality tier-one capital equal to at least 7pc of their risk-bearing assets.
The level is more than three times higher than the current 2pc, triggering some criticism from the European Banking Federation who said the new demands were "onerous" and would cost banks "several hundred billion euro". Several Dublin analysts last night pointed out that Ireland's banks were already required to secure imminently a 7pc tier-one capital ratio under capital targets set down by the Financial Regulator.
In a statement, the Financial Regulator pointed to the similarity between the Basel requirements and the Irish requirements already in place, adding that Irish institutions were "well placed to implement the new (Basel) standards".
The situation was mirrored across Europe, with UK banking giants Lloyds and RBS, French giants Societe General and Credit Agricole all starting the day strongly ahead,
"Irish banks were largely following the internationals," said one market source, adding that Friday's news of lower-than-expected capital demands at Irish Life & Permanent also helped the stock.
The gains fell off somewhat later in the day both at home and abroad, with AIB closing up 4.8pc, BOI closing up 5.5pc and IL&P closing up 6pc; while Societe General ended up 4.3pc, RBS up 2.4pc and Lloyds up 3pc.