Shares take their worst battering in three months
Financial stocks fall, yield spread widens and the cost of insuring bank bonds jumps
IRISH shares had their worst day since August as financial stocks took a battering, yield spread compared to German bonds widened to more than 600 basis points for the first time and the cost of insuring bank bonds against default jumped to record levels.
The ISEQ benchmark slid 60.12 points, or 2.2pc, to 2715.62 as shares in the banks slid.
Allied Irish closed down 5.8pc at €35c, while shares in Irish Life & Permanent closed down 3pc at 92c. Shares in Bank of Ireland closed 0.7pc lower at 42c.
Credit-default swaps linked to the senior debt of Allied Irish rose 66 basis points to a record 975 yesterday, while credit-default swaps on the senior debt of Bank of Ireland rose 37.5 basis points to a record 736.5. It now costs €8m to insure €10m of AIB's junior bonds for five years.
Central Bank Governor Patrick Honohan said yesterday that total loan losses at the country's lenders, including foreign-owned banks, come to at least €85bn, and he predicted that there would be further losses as more people fail to pay their mortgages.
Heavyweight CRH also had a bad day, sliding 5.6pc to €13.66 which wiped away the building materials group's gains in the previous session.
Smurfit Kappa Group (SKG) slid 3.6pc to €7.78 on fears Venezuela President Hugo Chavez may nationalise the paper-maker's operations in the oil-rich country.
"The nationalisation of foreign-owned companies by the Venezuelan government has intensified lately and would suggest that the risk of similar such action against SKG's business in Venezuela has heightened," chief executive Gary McGann was quoted as saying by Bloomberg. "We've seen activity in terms of expropriation on a wider type of targets than we previously experienced."
Paddy Power closed down 0.7pc at €29.30 after Finance Minister Brian Lenihan said the Government is considering widening the tax base for betting. "It is my intention to widen the possible tax base on betting duty," Mr Lenihan told the Dail yesterday.
Shares elsewhere in Europe also had a bad day with all 18 stock markets in Europe posting losses. European banks tumbled as Ireland's problems were felt across the continent.
"When you have Ireland trading at 600 basis points, Greece and Spain where they are, you realise the answer is not printing money," said Alberto Espelosin, who helps manage about $12bn (€8.70bn). "The problems in peripheral Europe are far from over."
Banco Santander, Spain's biggest lender, retreated 2.9pc. Credit Agricole, France's second-largest bank, declined 4.6pc. KBC plummeted 5.5pc, a five-month low after Belgium's biggest bank and insurer posted a drop in earnings in its home market and forecasted higher provisions for Irish loan losses.
Italy's UniCredit fell 4.6pc after the bank said third-quarter profit declined 15pc due to lower trading income.
Mediaset slumped 6.5pc, the largest retreat since May 2009. The broadcaster controlled by embattled Italian Prime Minister Silvio Berlusconi posted a loss in the third quarter because of charges related to investments.