Bank shares plunge as funding issues persist

IRISH bank shares plunged yesterday as funding issues persist and less signs of an economic turnaround are seen.

Experts said the rising cost of government borrowing and continued uncertainty about the state guarantee for banks after September both weighed heavily in early trade.

In the morning AIB was down almost 5% while Bank of Ireland was 6% lower. At the close AIB was down 4.3% to 80 cent while Bank of Ireland finished down 2.2% to 77 cent. Irish Life and Permanent was also down 2% to €1.66.

Overall, Irish shares closed down 0.4% yesterday. Next week is a big one for many Irish firms listed on the stock market. Companies such as CRH, Aer Lingus and Independent News and Media are all due to report results.

Across Europe yesterday stocks also fell, extending last week’s biggest drop in more than a month, as slower-than-forecast economic growth in Japan increased concern that the global recovery may be faltering.

National benchmark indexes declined in 12 of the 18 western European markets. France’s CAC 40 slid 0.4%, while Germany’s DAX and Britain’s FTSE 100 were little changed.

A report yesterday showed Japan’s economy grew at the slowest pace in three quarters, pushing it into third place behind the US and China. Separate US data showed manufacturing in the New York region expanded less than forecast in August as orders and sales declined for the first time in more than a year.

Ireland may face rising borrowing costs at an auction of 4 and 10-year bonds today.

However the bond auction is expected to go “smoothly,” analyst Ciaran O’Hagan at Societe Generale in Paris said. “The amount issued is low and the market is prepared for the auction, with the bonds cheapening considerably ahead of it.”

Also yesterday Nomura International said Irish banks have about €30 billion of government-guaranteed debt securities to roll over in September.

The premium investors demand to hold Irish 10-year debt over the German benchmark has risen 63 basis points over the past week, partly on the “worrisome bank guarantee roll, also known as the funding cliff,” London-based analysts including Guy Mandy and Nick Firoozye said.