Bank shares downgraded
Shares in the two companies which make up almost 42% of the entire value of all Irish shares fell sharply last week after the market reacted poorly to “noisy” end-of-year results from AIB which were broadly in line with market expectations.
Yesterday, Morgan Stanley, a global financial services firm and a market leader in securities, downgraded Allied Irish Banks and Bank of Ireland to “underweight” from “equal weight”.
Morgan Stanley said it had lowered its share price target for Allied Irish, Ireland’s biggest company by market capitalisation, to €12.8 from €13.3. Its target for Bank of Ireland shares was cut to €10.9 from €11.6.
Morgan Stanley said in a note to investors: “We do not believe the margin decline in Irish retail banking is over. Despite the rate cycle looking to have bottomed, we continue to expect significant margin decline in Irish retail banking.”
The financial services firm said differing growth rates in assets and liabilities will shave around 25 basis points from domestic margins, with earnings further hit by the roll-off of older interest rate hedges, according to the broker.
However, Morgan Stanley said increasing competition in the business lending market will probably be the most significant weight on sector margins in the medium term.
The global company also said question marks remain over the earning base of both banks and it expects downgrades to both company guidance and consensus estimates.
AIB closed last night at €12.31, up 9 cent, 0.74%, and Bank of Ireland on €10.70 up 17 cent, 1.61%.
In sharp contrast, Morgan Stanley asset management and credit services, said it retained its “overweight” rating on Anglo Irish Bank whose shares have more than doubled over the past 12 months. Anglo Irish shares closed last night at €13.74 up 9 cent, 0.66%.
