Business Irish

Friday 20 April 2018

ISEQ sees €10bn wiped off as crisis deepens

Traders work on the floor of the New York Stock Exchange. Photo: Reuters
Traders work on the floor of the New York Stock Exchange. Photo: Reuters

Donal O’Donovan

More than €10bn has been wiped off the value of Irish shares since January 1 with analysts seeing no end in sight to the losses.

That 15pc decline in the value of the Iseq share index so far this year is amplified across Europe.

In London the FTSE 100 index is trading at a three-year low. The sell-off has now spread to bond markets, traditionally seen as better insulated from losses.

Fears over the future of European banks this week replaced oil and China as the driver sending markets weaker, with even German’s government forced to defend the strength of the country’s biggest lender, Deutsche Bank.

Deutsche Bank is “absolutely rock-solid”, its co-chief executive officer, John Cryan, wrote in a letter to employees after its shares were hammered in trading.

German finance minister Wolfgang Schaeuble also felt the need to back the strength of the lender in an interview with Bloomberg TV. 

Sentiment in the market has turned dramatically negative.

At home bonds issued by both AIB and Bank of Ireland have been hammered as money managers ignore potentially large returns to pull money into the safer assets.

Last year AIB, Bank of Ireland and even smaller rival Permanent TSB raised money by issuing risky so-called Additional Tier 1 (At1) bonds in what was hailed as a signal of the recovery here. The At1 bonds offer relatively fat returns to investors but are at the front of the queue to take a hit – by being converted into shares – if banks get into trouble.

AIB and Bank of Ireland’s AT1 bonds have dropped to 90pc of face value, having traded at more than face value at the start of this month, according to Ryan McGrath, a bond trader at Cantor Fitzgerald. No one factor is behind the markets’ turmoil, Mr McGrath said.

Investor sentiment is now dominated by fear of losses, outweighing most money managers’ impulse to generate returns, he said.

That is a product of the cumulative impact of collapsing stock markets, which have become self sustaining; the slowdown in China; the collapse in oil prices; and big central banks’ inability to revive the global economy, Mr McGrath added.  

Data yesterday showed German industrial output plunged in December at the steepest rate in 16 months and exports unexpectedly dropped.

In Britain, signs that the economy is slowing and fears that the country will vote to leave the European Union have weakened sterling.

Meanwhile, banks in the euro area are struggling to lend profitably while being punished by central banks for holding cash through negative interest rates.

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