Tuesday 26 September 2017

Election talk sparks big slump in share prices

Brendan Keenan and Donal O'Donovan

GLOBAL financial markets gave the Irish bank rescue plan the thumbs-down yesterday as a leading ratings agency said it was bad for the country's credit standing, while traders reacted badly to news of an imminent general election.

World stock markets suffered heavy losses, with Irish and European stocks falling the most after Ireland's decision to officially request a bailout package from the EU.

Irish bank shares all took a battering, with Irish Life and Permanent tumbling 27pc to 84c and Bank of Ireland slumping 19pc to 39c.

AIB fared little better, losing 6.2pc to end the day at 41c.

This reversed an early surge in the Irish stock market, with shares slumping after the Green Party called for a general election in the New Year.

Doubts over the bank rescue plan intensified after credit rating agency Moody's Investors Service said it would simply shift the burden of support for Irish banks from the ECB to the Irish taxpayer.

Downgrade

It warned that a "multi-notch" downgrade for Ireland was now the most likely outcome of its review of the country's credit rating. But the agency recognised the package as an important step to restore confidence in the Irish banking system.

It expects the size of the aid package to be €80bn-€95bn, of which €8bn-€12bn will be for capital injections into the banks, with the remainder used to cover government borrowing over the next few years.

"The capital injections would come on top of the €31.5bn already injected by the Government in 2010 and will further increase the Government's debt," it said.

But the extra money, if seen as sufficient to solve the banks' long-term asset-quality problems, could possibly allow the Irish banks to re-enter the capital markets at some point.

"These outcomes are positive for the stand alone credit quality of the banks," Moody's said.

Bond market expert Gary Jenkins of Evolution Securities said it was the wrong time for Moody's to cut the Irish rating.

He argued that the IMF/EU bailout meant a downgrade was no longer justified. "A rating is supposed to be a measure of how likely Ireland is to default. With this money in place that is now less likely," he said.

Irish Independent

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