The shares of the two main Irish bank shares had one of their worst days since the financial crisis as lacklustre earnings and the looming Brexit threat hit hard.
Shares in AIB, which had reported half-year earnings on Friday, slid over 7.5% in the latest session, to value it at €8.8bn.
AIB, in which the Government owns a 70% stake, has lost almost 10% of its value in the past month ever since it became clear Brexit hardliner Boris Johnson was to become the new British prime minister.
Shares in Bank of Ireland, of which the Government owns 14%, fell 4%. That brings its losses to 10.5% over the same period and to value the bank at over €4.5bn.
It means the two largest Irish lenders have between them lost over €1.2bn in market value since the start of July, as the prospects of a damaging crash-out Brexit increased in recent weeks.
Unveiling its half-year figures on Monday, Bank of Ireland cited Brexit as well the prospects for ECB interest rates staying lower for longer as among the headwinds buffeting the bank since its new chief executive Francesca McDonagh set out new long-term targets a year ago.
Underlying profits fell to €376m at the end of June from €500m at the same half-way stage in 2018, and the lender said its net interest margin - a key gauge of profitability for banking - will for the full year be “slightly lower” than the 2.16% posted at the half-way stage.
But the bank was still on target to reach its capital and profitability goals, said Ms McDonagh, and that its long-term dividend payout policy was not in question. Like other Irish banks, Bank of Ireland faces the growing storm of Brexit as uncertainty is now replaced by fears of the UK will leave the EU with no transition deal at the end of October.
The bank’s operations in Britain - it also has a tie-up with the British Post Office - potentially makes it vulnerable to the slump in sterling against the euro.
Asked if Brexit threatened to sweep away the bank’s targets, Ms McDonagh said the fundamentals of the Irish economy and low UK unemployment meant it was it the bank’s gift to use “the levers” under its control to deliver on its targets.
On the shares, she told the Irish Examiner the bank “would be in line with a lot of sentiment at the moment around European banking stocks. My job is to create longer-term intrinsic value for the firm and for the shareholders and that is what I am doing.”
She said a year ago many observers would have been confident that Brexit would have by now been resolved and uncertainty had made Irish SMEs more reluctant to take out loans, while “lower for longer” interest rates could affect its profitability if it didn’t react with offsetting measures.
The bank also announced a further €55m provision for its part in the industry-wide tracker scandal. Owen Callan, senior analysyst at Investec Ireland, said that weak earnings and Brexit were driving the shares of AIB and Bank of Ireland lower.
Those Brexit headwinds strengthened as sterling fell below 90 pence against the euro. Weak sterling, however, boosted the Ftse-100 in London.
“Markets are waking up to the prospect of a no-deal Brexit, with the Ftse-100 driven sharply higher after the pound hit a two-year low against the dollar,” said Joshua Mahony, senior market analyst at online broker IG.