Experts said the sharp fall in shares poses a risk for AIB’s private capital raising plans and for Bank of Ireland’s rights issue.
A poor take up of shares as part of Bank of Ireland’s €1.7 billion rights issue could send a negative signal for the financial sector, they said.
Bank of Ireland fell 9%, to 66 cent, which compares to a rights issue price of 55c. AIB shares, which were at a peak of €1.79 in March, nose-dived almost 13%, to 90c.
“Allied Irish in particular is struggling because people are struggling to work out how they can raise their capital by the year end with their share price where it is at the moment,” one Dublin trader said.
Davy analyst Stephen Lyons said even if AIB gets satisfactory value for the asset sales, it will need to raise over €3bn and need to follow Bank of Ireland in launching a rights issue.
If investor appetite is lacking and AIB is unable to make its offerings by the regulator’s deadline, the Government’s stake in the group could rise to 83%.
Across Europe stocks tumbled to an eight-month low as signs of weakness in the Spanish banking system increased concern that Europe’s debt crisis is spreading and military tensions grew in the Korean peninsular.
All 18 western European markets and all 19 industry groups in the Stoxx 600 fell after a report that North Korean leader Kim Jong Il last week ordered his military to prepare for combat.
Since this year’s high on April 15, the Stoxx 600 has dropped 15% amid concern European governments will have difficulty reducing their budget deficits without derailing the economic recovery.
The measure has erased all of the gains that followed the unveiling earlier this month of a €750 billion European Union loan package aimed at stopping the euro region’s weakest members from defaulting.
“Sentiment is on the floor and confidence is shot to ribbons,” said David Buik, a London-based market analyst at BGC. “The banking sector is being hit by a double whammy, with the problems in Spain exacerbated by the ridiculous policy decision. Then you have the situation in North Korea, which is a bit scary and makes for quite a toxic cocktail.”
The euro fell to the lowest level since 2001 against the yen after the International Monetary Fund on Monday urged Spain to do more to overhaul its ailing banks, adding to concern Europe’s financial institutions may face more losses.
In London, the FTSE slumped 2.5%, and the CAC in Paris fell 2.9%. In Frankfurt, the DAX lost 2.3%.
Other European markets fared even worse, with Madrid down 3% and Milan off 3.4%. In Dublin, the ISEQ ended down 110 points, or 3.8%, at 2,777.