BILLIONAIRE Dermot Desmond sold a substantial amount of his shares in the country's two biggest banks, sources revealed last night.

In doing so, he has made millions of euro profit.

But the move is bound to raise questions in the market about the banks' ability to ride out the current crisis, as debate over the State's planned "bad bank", the National Asset Management Agency (NAMA), intensifies.

Mr Desmond's decision to buy almost 1pc of Bank of Ireland and just under 0.6pc in Allied Irish Banks in January infused confidence in the banks.

But by the same token, his move to sell shares is bound to raise doubts among certain sections of investors. The share selling is understood to have occurred within the past few weeks.

It comes as Finance Minister Brian Lenihan prepares to unveil next month the discounts the banks will have to take on risky property loans bound for NAMA. Mr Lenihan has not ruled out the State taking majority stakes in either bank, if they are left with large holes in their balance sheets as a result of the loan writedowns.

However, the Government hopes that both will be able to source private investment once "toxic" assets have moved into NAMA.

Mr Desmond, estimated to be worth more than €1.5bn, acquired 8.9 million shares in Bank of Ireland through his investment vehicle IIU Nominees in early January, when the shares were trading at 88c a piece, and valuing his holding at €8.72m.

He stood to make a profit of up to €11.8m by selling down his entire stake, based on an average BoI share price of €2.21 over the past three weeks.

IIU also purchased 5.1 million shares in AIB at the start of the year when the stock was changing hands at €1.71 each -- pointing to a €8.72m outlay for the position.

With AIB's shares trading at an average of €2.14 over the past three weeks, Mr Desmond was placed to generate a €2.2m profit if he sold out of the bank.

It is not clear, however, whether Mr Desmond, whose son Brett married singer Andrea Corr in a star-studded event last weekend, still remains a shareholder in either bank.

And it could not be established why the businessman recently sold down his stakes.

However, some sources have speculated he may just have been looking to lock in profits after a very strong run by shares in both banks from record lows in March, when his investments were severely under water.

When the Irish Independent tried to contact him through his office, it was told: "He doesn't comment on any of his investments."

The financier warned at an event in Dublin at the end of April that nationalising the banks would leave the economy in "dire straits for several decades" as they were left open to "political interference, skulduggery and cronyism".

The normally media-shy entrepreneur also took issue at the time with the idea of NAMA in its planned form, saying the banks could work through their bad debts over four or five years with government help.

Mr Desmond said he could not support an entity "where it's impossible to value the assets" and that he did not know how values could be established as the property market was frozen.

Defence

With nationalisation having once again cropped up in the debate over how to solve the banking crisis, Mr Lenihan is preparing to deliver his strongest defence yet of the NAMA plan, when he faces a grilling from members of a key Oireachtas committee on Monday.

Still, investors in banking stocks continued to ignore nationalisation calls yesterday, with AIB soaring 11.9pc to €2.80 -- a level not seen since last November. Bank of Ireland jumped 6.3pc to €2.71 -- its highest level since October.

Analysts at stockbrokers Davy warned last night of the risks of outright nationalisation of the banks, saying "deposit and wholesale funding outflows are inevitable" if banks fell into whole state ownership.

It also highlighted that the cost of the state borrowing would also increase as a result -- at a time when the hole in the Exchequer's coffers continues to widen.

Still, the brokerage said the Government "must endeavour to protect the taxpayer to the maximum extent that it can" as it seeks to push through the NAMA project.

- Joe Brennan Senior Business Correspondent