Stockbrokers forecast losses for country’s two biggest banks

IRELAND’s two biggest banks — AIB and Bank of Ireland — are likely to make losses for the next two years, according to one of the country’s leading stockbroking firms.

Merrion Stockbrokers yesterday revised downwards its original earnings forecasts for the two banks and Irish Life & Permanent (IL&P), but maintained that — in its view — full nationalisation of the banks is not warranted.

Saying that, however, Merrion analyst, Sebastian Orsi, still made the claim that further Government funding support will probably be needed.

“The Government’s initial move to guarantee bank debts and deposits improved liquidity. Given the expected scale and duration of the ongoing economic downturn, however, investors remain unconvinced that the Irish banks are sufficiently well capitalised. This raises funding concerns for the banks and, more importantly, the economy.

As such, further Government support for the banks is likely required. Inaction is untenable given the risks that are present,” he said.

Mr Orsi added that “the Government’s position would not be improved by nationalising AIB or Bank of Ireland,” saying that further direct capital injections would be an alternative.

“Our proposal is for the Government to underwrite common equity capital injections of sufficient scale to put the capital strength of the banks beyond a reasonable doubt. The key risk to the Irish banks’ capital basis is credit quality. Credit losses may be significantly worse than expected and just the fear of this may cause creditors and depositors to withdraw funding,” Mr Orsi said.

While Merrion has kept its “buy” recommendations on AIB and IL&P and its “hold” call for Bank of Ireland; it has reversed its earnings outlooks for each of the quoted banks.

Where previously it forecast earnings per AIB share of 20.1c in the current year and 52.3c next year, it now thinks the country’s largest bank will show a loss per share of 50.4c for its current financial year and a loss of 8c in 2010.

Similarly, in Bank of Ireland’s case, Merrion has changed its previous forecast of a 2009 loss per share of 19c to be followed by earnings per share of 35.3c in 2010 to losses per share of 63.5c and 15.8c in the two years, respectively.