Irish financial shares down €2.5bn

IRISH financial shares took a further hammering in Dublin yesterday as the ISEQ 100 Index saw close to €2.5 billion wiped off its overall value.

Bank of Ireland shares fell 5.5% to €9.83 valuing the bank at €9.7bn. The stock has lost 44% of its value this year. Good recoveries on Wall street in the US and in the Asian markets since Tuesday were not enough to ease fears about the banking sector’s exposure to the housing market.

A warning from Bank of Ireland that its full year earnings would not be as good as it had forecast again sparked fears that banks here are overexposed to the construction sector, which is slowing economic growth.

However, in its Financial Stability Report yesterday the Central Bank stressed the banking sector was in very good health with little or no exposure to the subprime sector.

Its bad debt exposure was among the best in Europe, according to the bank’s latest assessment of the sector.

However the Central Bank Governor John Hurley warned the risks to financial stability have increased since the bank last reported in 2006.

But he added: “Our overall conclusion is that the Irish financial system’s shock absorption capacity remains robust and the system is well placed to cope with emerging issues.”

But as Mr Hurley confirmed the findings on the sector to the media at the bank’s headquarters in Dame Street, Dublin, Irish share prices were being decimated as big international funds sold off more of their holdings in Irish banks.

By late afternoon AIB was trading down 6.29% at €14.46, a fall of 97 cent on the day. Anglo Irish Bank was also caught up in the stock market rout and was off 2.69% at €10.12.

Anglo has been under particularly heavy scrutiny due to its high exposure to the property development sectors in both Ireland and Britain and is seen to be at greater risk from a property meltdown in Ireland and Britain.

Last week in a note on the bank, Dresdner Kleinwort said there were “no liquidity or funding problems” at Anglo, tackling head on market rumours the bank has been to the Central Bank seeking emergency funding.

Irish Life & Permanent fell 57c to €14.58, a dip of 3.76%.

Without commenting on any particular bank yesterday the Central Bank made it clear that, after a very detailed analysis of all of the major banks, it has no concerns about their bad debt position or about their current funding positions.

More recently the banks here have been limiting their exposure to the three month money market and raising more of its funding through longer term borrowing.

International investors have taken the view since early this year that the slow down in the housing is hurting the economy and exposing the banks to greater risks to earnings and bad debts.