Shares in AIB posted crisis-era losses as international investors assessed the damage to the economy and the loan books of the country’s banks from the fallout of the Covid-19 crisis.
AIB tanked by 24% and Bank of Ireland closed 5.5% lower, but only after it pared significantly higher losses during the session, as markets assessed the implications of the shutdown and the loss of thousands of jobs for the loan books of the lenders.
The Government confirmed that up to 400,000 people could be put out of work from closures designed to defeat the virus.
Following waves of selling in recent weeks as the economic costs from the virus escalated, AIB, which is 71% owned by the Government, and Bank of Ireland, in which the Government has a 14% stake, are now valued by the market at little over €2bn and under €1.9bn, respectively.
The banks’ losses came despite the prices of many battered stocks across Europe having rallied in response to the ECB announcement of a new €750bn bond-buying programme.
The ECB, led by president Christine Lagarde, had been widely criticised in the past week for having done too little to reassure investors that it had a grip on the market turmoil.
On the pressure facing Irish and other European bank stocks, Davy analysts said Irish banks were reflecting a market “that has priced in an abrupt shift to assume stress-test levels of credit losses rather than a V-shaped recovery”.
Its analysis showed that AIB holds approximately €7.2bn of commercial loans directly exposed to vulnerable sectors such as retail and hospitality and pubs, as well as transport, accounting for 11.5% of its loans. Bank of Ireland holds €3.6bn of commercial loans advanced to the sectors.
Central Bank governor Gabriel Makhlouf said there was “no impediment” to the banks delivering on their pledges to freeze, for three months, the loan payments of businesses and households facing financial stress from the Covid-19 outbreak.
The Central Bank’s own measures and the ECB’s Pandemic Emergency Purchase Programme would help keep the Irish banks “resilient”, he said.
Meanwhile, KBC Bank Ireland’s latest consumer sentiment survey showed households were already pessimistic ahead of last week’s closure of schools.
Its chief economist, Austin Hughes, said he estimated the Government will need to announce as much as €12bn in additional fiscal measures to support vulnerable businesses and jobs. The exchequer can afford the resources because it “cannot afford not to spend”, he said.
“In the current circumstances, a policy response scaled on what is necessary but proves not to be sufficient may be much more costly in terms of lasting economic losses than one which is seen to be sufficient but proves to be more than is necessary,” said Mr Hughes.
“It is impossible to be in any way precise in relation to the scale of fiscal package that may be required to support incomes and ultimately restore the economy to a solid and sustainable growth path,” he said.
“At current interest rates — and assuming ongoing support from ECB bond-purchase programmes — that might add a modest €40m to €50m to annual debt service costs.”