AIB shares plummet as market reacts badly to increase in borrowing costs

SHARES in AIB plummeted by more than 11% yesterday, down to a closing price of just 62c, as the Dublin market reacted badly to news that Ireland’s cost of borrowing has continued to rise. <

The yield between 10-year Irish securities and their German equivalents (basically, the interest rate demanded by bond investors) jumped another four points, yesterday; resulting in the ISEQ falling by nearly 2.7%.

The fall in the Irish market came despite the Government denying it is on the verge of calling in emergency international financial help, in order to stabilise the economy.

Bank of Ireland also suffered yesterday with its share price falling by over 7%, or 5c, to a closing price of 62c.

Elsewhere yesterday, NCB Stockbrokers noted media speculation that Spanish banking giant, Santander could be lining up a public float of its British-based operations; saying such a move could allow it to launch a bid for AIB’s own British operations.

AIB is looking to sell off its non-Irish divisions in a bid to reach its €7.4 billion end-of-year recapitalisation target, of which just over €3bn has already been raised through the sale of its Polish-based business to Santander.

“We believe that any attempt by Santander to float its UK operations would be positive for AIB — potentially giving the Spanish bank further ammunition to re-stock its war-chest. A successful flotation may give Santander the flexibility to purchase AIB’s UK division, or at least benefit the bidding process by bringing another credible buyer to the table,” NCB’s Ciaran Callaghan said in a research note.

“In relation to its UK division, we’ve been working on the basis that it disposes just its mainland GB operations at book value, freeing up €1bn of capital for the group&,” Mr Callaghan added.


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