Bank shares up after positive stress tests

THE two main banking stocks – Bank of Ireland and AIB – both grew by around 5% yesterday as investors reacted positively to Friday’s news of them passing their EU stress tests.

Given that both banks were set an 8% tier one capital ratio target by the Irish authorities earlier this year – which Bank of Ireland has effectively met and AIB is targeting – the 6% threshold put forward by the EU was always likely to be met by the Irish banks.

Despite that, both banks’ share prices were largely unmoved on Friday evening.

Yesterday, however, they were slightly stronger. On a day when the ISEQ, as a whole, crept up by a meager 29 points – or 1% – to just over 2,945 points, AIB approached the €1 mark by gaining 5 cent – 5.56% – to close at 95c. Bank of Ireland, meanwhile, which saw a small gain on Friday, was up by 4.86%, or 4c, at 78c.

However, analysts at Citigroup have effectively poured cold water on the significance of last week’s European ‘stress tests’.

The tests – which were aimed at assessing whether or not banks could cope with further financial crises – took into account potential losses on government bonds which the banks trade on but didn’t include those bonds which are being held until their maturity.

While only seven of the 91 tested banks failed last week’s exercise, Citigroup claimed that as many as 24 would fail if the rules had been more stringent. That number, it said, would include AIB; which under the broader measure would only have a 5.5% capital ratio.

Meanwhile, despite the ISEQ’s slow progress yesterday, its rate of increase was still stronger than the main European exchanges.

Each of the big three of London, Paris and Frankfurt were up, but by less than 1% on Friday’s close.

As well as the banks, Dublin was boosted by strong gains for the likes of FBD Insurance, CRH, Paddy Power at the start of Galway Race week and Tullow Oil – which was up 64c on the back of another oil find in Ghana.