SHARES in Irish Life & Permanent (IL&P) collapsed more than 16pc yesterday as bleak industry prospects and record yields on Irish bonds prompted investors to dump the stock.
The brutal day left IL&P's shares trading at just 88c, almost half their €1.65 price on October 21. Bank of Ireland shares also spent yesterday in negative territory, falling as much as 12pc before closing down about 5pc, while AIB's shares remained weak at 28c.
The bloodbath among Irish financials shares came as the yield for Ireland's government bonds passed the 8pc mark for the first time ever, while Ireland's debt became more expensive to insure than Argentina's.
"The negative sentiment from last week has persisted, with the IL&P sell-off catching up with the rest of the sector," said NCB's banks analyst Ciaran Callaghan.
"With sovereigns yields at these levels it will be very difficult for the banks to fund themselves, and political risk has probably increased over recent days also which isn't the ideal backdrop."
His comments were echoed by Davy's analyst Stephen Lyons, who said there was "little if any analysis done on the Irish banks beyond the fact that they are Irish and therefore a sell at the moment".
"IL&P is also getting hit though concerning expected tax relief changes on pension contributions," Mr Lyons added, referencing fears that pension tax relief will be slashed in November.
On the bond markets, Irish yields hit a new wide after gloomy analysis from economist Morgan Kelly said the cost of the Irish bank bailout could double amid mass default on residential mortgages.
Speaking yesterday, Financial Regulator Matthew Elderfield acknowledged that mortgages were "the one to watch" but said he had "not seen any evidence" that Ireland's banks were not adequately capitalised to deal with the mortgage situation.
The European Central Bank (ECB) confirmed it had bought €711m of Irish sovereign bonds over the previous week.
It brings the ECB's total holding of European government debt to €64bn and confirms rumours the ECB had tried to support Irish bonds in recent days.
But the comments came too late to placate the market, and the yield on Irish 10-year bonds rose 0.21pc to 8.04pc yesterday afternoon. The extra yield investors are getting to hold Irish rather than German bonds hit a record 5.5pc.
Gary Jenkins, of Evolution Securities, says there is no quick fix to the Irish debt problem. "It will take consistently positive data over a period of time to convince the markets," he said.
That means Ireland's next visit to the bond market is increasingly likely to be pushed back to the end of the first quarter of next year.
The cost of Credit Default Swaps (CDS) contracts to insure Irish bond holders hit 6.10pc yesterday, according to data provider Markit. It means an investor has to pay €610,000 to insure €10m of Irish bonds against default.
The cost of CDS for Argentina's debt slipped below the Irish level. Gavan Nolan, of Markit, said trading in Irish CDS was now more liquid than the bond market. That could be a sign of investors are "shorting" Ireland by taking out insurance against a default without actually holding any bonds.
The cost of CDS for senior AIB bonds climbed 43.5 basis points to 8.99pc yesterday. CDS for Bank of Ireland senior bonds rose 37.5bp to 7.24pc.