Monday, January 19, 2009

Irish banks plunge on talk of nationalisation

By John Murray Brown in the Financial Times:

Shares in Allied Irish Banks and Bank of Ireland halved yesterday amid investor fears that the Irish government may be forced to nationalise the two largest domestic lenders.

Bank of Ireland shares fell 54 per cent to 34 cents, compared with a high of €18.65 in February 2007. AIB fell 58 per cent to 60 cents, against a high of €23.95 in January 2007. Irish Life & Permanent, the country's biggest bancassurer, fell 45 per cent to €1.23, compared with a high of €22.80.

The sell-off follows last week's decision to nationalise Anglo Irish Bank, the country's third-largest bank.

Stewart Draper, head of research at Dolmen stockbrokers, said investors were "spooked" by the government's handling of the Anglo Irish crisis.

"All of a sudden, out of nowhere, there was this nationalisation of Anglo Irish Bank. It has been perceived internationally as somewhat of a panic mea sure and I think that has definitely got international investors spooked," said Mr Draper.

The government is committed to injecting €2bn ($2.6bn, £1.8bn) through preference shares in both Bank of Ireland and AIB, with the two banks raising an additional €1bn each with a rights issue underwritten by the state.

But analysts said that yesterday's share collapse increased the likelihood of a full-blown nationalisation, because it has made it much more difficult for the banks to raise sufficient capital via a rights issue.

"It pushes very close the likelihood that the government either has to pour in billions of euros in recapitalisation or take them into state ownership and nationalise them," said Brian Lucey, associate professor in finance at Dublin's Trinity College.

Brokers said the government could also have inadvertently affected the banks' short-term funding, through a provision in the Anglo Irish nationalisation legislation that envisaged freezing the deposits of those debtors who owe the bank more than €20m. A government spokesman said yesterday that the provision had been dropped. But brokers said it had done little to encourage confidence in depositors at the two big banks.

In the first evidence of change at the top of the two big banks, Bank of Ireland said yesterday that it had begun a process to select a new chief executive, after the announcement that Brian Goggin was to step down this summer.

Meanwhile, five non-executive directors of Anglo Irish resigned "to facilitate the appointment of new board members by the minister for finance".

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