Investors take fright over fears of tighter regulation
IRISH shares fell to their lowest level since March 3 yesterday as investors across Europe took fright after Germany banned some bets against government bonds and financial institutions, sparking concern that regulation will increase.
The ISEQ slid 129.65 points, or 4.2pc, to 2978.94 as most large stocks fell. Allied Irish Bank was among the biggest decliners following reports that Spanish bank Santander ended talks on merging its US operations with M&T Bank, which is part owned by AIB.
Goodbody Stockbrokers, which is owned by AIB, downgraded its recommendation on its parent to "add" from "buy", partly citing recent market moves downward, particularly in M&T Bank and Bank Zachodni WBK combined with large currency moves. Bank of Ireland, which won shareholder approval for a rights issue, fell 1.8pc to €1.40.
CRH's share price was also the victim of a downgrade, tumbling 4.9pc to €18.14 after JPMorgan analyst Anthony Codling rated CRH "underweight" rather than "neutral". Clinical testing company Icon slid 3.6pc to €21.20 a day after chief executive Peter Grey filed to sell 60,000 shares.
One of the few companies to go against the tide in Dublin trading was financial services company IFG, which rose 2.6pc to €1.17 after an upbeat trading statement, which saw the company reiterate recent forecasts.
The markets were equally glum elsewhere in Europe, with the Stoxx Europe 600 Index falling 3pc to post its lowest close since May 7. The gauge has fallen 10pc since this year's peak on April 15 as credit-ratings downgrades of Greece, Portugal and Spain added to concern that European governments will struggle to fund their deficits. A decline of that magnitude is often referred to as a correction.
Deutsche Bank and Banco Santander led financial shares lower as German Chancellor Angela Merkel's government rattled investors. Bayerische Motoren Werke dropped the most in six months as BofA Merrill Lynch Global Research downgraded the world's largest luxury-car maker.
"Financial regulation definitely is coming, it's just a matter of the politicians and bureaucrats working out how best to implement what they choose to do," said Kevin Gardiner, head of investment strategy at Barclays Wealth and the man who coined the term 'Celtic Tiger' back in the 1990s.
"Eventually the dust will settle and investors will come back to risky assets, but at the moment this regulation issue is shattering everything," he said.
National benchmark indexes dropped in all but one of the 18 western European markets. The UK's FTSE 100 declined 2.8pc and Germany's DAX slid 2.7pc. France's CAC 40 fell 2.9pc, while Greece's ASE Index rose 0.4pc after the ECB and IMF helped the country to pay back a bond.
Most observers said the measure is unlikely to be followed elsewhere. A Europe-wide ban on the practices is "doubtful", Eddy Wymeersch, Europe's top market regulator, said yesterday.
European Union Financial Services Commissioner Michel Barnier said the rules would have been "more efficient" if they were coordinated with the EU. France, the Netherlands and Finland said they have no plans to implement similar measures.