Taxpayers here down €1.25bn as fears over Credit Suisse hits banks

Bank of Ireland stock has plunged by 16pc, AIB by 14pc

Markets turn red amid Silicon Valley Bank meltdown. Craig Ruttle/AP

Jon Ihle

March 15 2023 05:24 PM

Irish taxpayers are down €1.25bn in just four days as plunging share prices push hopes of recovery on the State's crash-era stakes in AIB and Permanent TSB further away.

Small shareholders who've only recently edged back into Irish bank shares in significant numbers are also being hammered.

Almost 15 years to the day since the St Patrick's Day Massacre of shares in Anglo Irish Bank and other lenders heralded the global financial crisis, a new crisis of confidence in Swiss banking giant Credit Suisse pummelled stocks already reeling from the US bailout of Silicon Valley Bank.

Irish bank shares have been battered in the last five trading sessions since problems at Silicon Valley Bank (SVB) first emerged publicly last Thursday and Credit Suisse shares plunged to an all-time low.

Investors have wiped more than €4bn of the value of the three domestic banks in several bouts of sustained selling in a flight to safety.

Bank of Ireland has been hit the hardest, losing nearly 16pc, or more than €2bn, of its value in just a week. AIB was not far behind after falling just over 14pc in the same period, losing almost €2bn in market capitalisation itself.

The much smaller PTSB hasn’t escaped a battering either, but dropped a much more modest 6.7pc, shaving about €150m from its market value.

Those losses have severely impacted the value of the State’s bank shareholdings, which had been riding high in the last year as the profitability of the lenders improved dramatically due to rising interest rates.

The paper loss on the Government’s 57pc ownership position in AIB amounted to €1.15bn in the last week, while the decline in value on its 62pc stake in PTSB equalled €93m.

The Government is not the only loser. Small retail investors have been coming back to bank stocks after the financial crisis, too. Bank of Ireland’s share register has 13pc retail investors.

Bank shares plunged yesterday morning as market panic shifted from the fallout around the collapse of Silicon Valley Bank (SVB) to new problems at troubled Credit Suisse.

In Europe, short-term deposits cannot be used to fund long-term assets

Shares recovered somewhat in the afternoon after a torrid start to morning trading saw Bank of Ireland fall by double digits.

Those moves followed a strong bounce in financial stocks on Tuesday as contagion fears related to SVB subsided and investors anticipated continued interest rate increases from the European Central Bank (ECB).

The price action in Irish banks was part of a broader trend in the European banking sector, Credit Suisse dropped after the lender’s biggest shareholder said it could not raise its 10pc stake citing regulatory issues.

By late afternoon, Credit Suisse had plummeted by 30pc and the bank was pleading with the Swiss National Bank for a show of public support to shore up confidence.

While there do not appear to be any issues specifically affecting sentiment in the Irish banks, the shares have not avoided widespread caution about the sector in general.

Investors are concerned that rising interest rates have created large unrealised losses, as with SVB and some other US regional lenders, which could threaten banks’ stability.

“[The] situation in Europe is very different due to liquidity rules post last crisis – where large short-term deposits cannot be used to fund long term assets,” said Davy bank analyst Diarmaid Sheridan.

“Because of the interest rate environment Irish banks, in common with many banks in Europe, placed excess liquidity with the ECB rather than in short-term bonds.”

However, the distress in the market could alter the scope for dividends, share buybacks and sell downs of Government shares due to volatility and the need to preserve capital.

Bank of Ireland and AIB are planning more than €700m of dividends and buybacks and it is understood that AIB and the Government are exploring options for a major share placing that could bring that State’s shareholding below 50pc.

“While paying dividends remains a sine qua non to keep investors on board, banks should think long and hard when it comes to share buybacks, especially at scale,” said Sam Theodore, senior consultant at Scope Insights.