Tuesday 16 January 2018

Market mayhem continues as Brexit infection spreads

John Mulligan

John Mulligan

Almost €640m has been wiped off the paper value of the State's stakes in Bank of Ireland and Permanent TSB since Thursday as international stock markets continue to reel from the shock decision by UK voters to leave the European Union.

And the notional value of the State's 99.8pc stake in AIB has fallen by about €2bn.

European stock markets went into another tailspin as they were engulfed by a continuing vortex of political and economic uncertainty.

Ireland's ISEQ Overall Index - the main stockmarket index here - took another hammering and was the biggest faller in Europe. It plunged 9.9pc, with €9bn cut from its valuation compared to Friday, when it also lost about €9bn.

And today, markets are likely to face into another bruising session.

Shares in Bank of Ireland, in which the State has a 14pc stake, collapsed over 20pc yesterday.

Shares in Permanent TSB plunged 17pc. The taxpayer owns 75pc of the bank.

And the value of AIB, which the State owns 99.8pc of, has also fallen, but its current market capitalisation is not reflective of its true, much lower underlying value.

And on a day when Sterling tested new lows and traders expecting it to decline further, other Irish stocks were also battered.

Ryanair saw its shares crash over 15pc. The airline is worth €4.6bn less than it was last Thursday.

Its shares plummeted after Easyjet said that the Brexit vote will damage its business. The airline said that on-going air traffic strikes in France and the impact of the Egyptair tragedy have cut its third-quarter pre-tax profit by £28m. It added that the Brexit vote will cut the revenue per seat that it generates during the second half of the year. Its shares slumped 22pc.

One UK brokerage cut its rating on Ryanair, but Goodbody Stockbrokers said the precipitous decline in airline shares is starting to mean "good value" is emerging in the stocks.

Trading in UK bank stocks was briefly halted yesterday.

So-called circuit breakers - automatic mechanisms for suspending trading in a share if there's extreme volatility - kicked in on the London market on more than one occasion as shares in Barclays collapsed 18pc and Royal Bank of Scotland shed 15pc.

The FTSE-100 fell 2.5pc, while Germany's DAX index sank 3pc. France's CAC-40 index also fell 3pc as the Brexit virus continued to infect markets.

But the FTSE-250, which reflects a broader number of companies more focused on the UK domestic economy, tumbled 7pc.

Its constituents include Irish companies such as Grafton Group, Greencore, and Smurfit Kappa. Grafton fell 19pc, Greencore dropped 4pc, and Smurfit Kappa declined 4.8pc.

UK Chancellor George Osborne, and Boris Johnson, both sought to calm markets and investors early yesterday, but their entreaties were brushed aside as investors continue the panic selling of stocks that began on Friday.

"People's pensions are safe, the pound is stable, markets are stable. I think that is all very good news," said Mr Johnson yesterday morning as the bloodbath got underway. Sterling continued its rout against the dollar. It hit a 31-year low, falling more than 4pc at one stage.

Irish Independent

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