Bank shares fall on poor stress test results

Shares in Bank of Ireland, Ulster Bank owner RBS, as well as Barclays fell as stock markets responded for the first time to the results of the stress tests of 51 European banks.

The falls came as business group Ibec said the hit taken by Irish firms from the slump in sterling against the euro since the Brexit vote was on par with the 1992 currency crisis.

Bank of Ireland and AIB, as well as three Spanish banks, two Austrian banking leaders, and Barclays and RBS were among the “weakest performers” in the European Banking Authority tests, which measured the hit they would take from a severe future economic shock.

S&P Global Ratings said in a report yesterday that the stress tests would probably not automatically lead to a change in its bank ratings, though the results may spur EU banks to strengthen their reserves.

Regulators will also have to refocus on EU banks’ business models “given the prospect of a prolonged period of low interest rates”, said the ratings agency.

Irish banks fared particularly poorly because the tests were anchored on a ‘no change’ status to balance sheets, said S&P.

Bank of Ireland shares, which fell 1c to 17c in trading yesterday, have halved in value this year.

Barclays and RBS fell 2.6% and 2.2%, respectively.

Ibec director of policy Fergal O’Brien said the Government needs to help the worst hit Irish exporters to meet “the Brexit strain”.

UK banks were also weighed by new figures showing a sharp fall in British manufacturing. Earlier survey data for the much larger services sector pointed to the sharpest contraction since 2009.

“The banks are in a much better position than they were, but I think there is a lot of concern around the banks in relation to how heavily linked they are to the UK economy and how interest rate cuts... (will) play through into their profitability,” said Laith Khalaf, senior analyst at Hargreaves Lansdowne.

Joshua Mahony, market analyst at IG, said that amid expectations the Bank of England will cut interest rates on Thursday, investors will hope yesterday’s losses are short-lived.