Bank of Ireland value falls €1bn since UK financial turmoil onset

Shares in other Irish firms with large British operations also hit

Turmoil for British financial markets has hit Irish stock market companies after the new UK government unveiled a disastrous mini-budget.

Turmoil for British financial markets continued to hit large Irish stock market companies, with Bank of Ireland having shed over €1bn of its value since the new UK government of Liz Truss unveiled a disastrous mini-budget last Friday.

The crisis unfolded for sterling and British bonds after international financial debt markets took fright at the unfunded economic plans by Ms Truss and her chancellor Kwasi Kwarteng, involving tax cuts and large borrowings.

Sterling slumped in recent days to a historic low against the dollar, and British yields or interest rates on British bonds or gilts jumped under the strain.

International fears spread that the loss of confidence could spark a meltdown. The IMF issued an unprecedented rebuke to the British government over its economic plans on Tuesday night. The Bank of England was forced to intervene on the debt markets to buy up billions worth of British bonds to stop British interest rates spiralling to levels that would have had punitive effects on the cost of borrowing for British companies and households. 

By Thursday, the intervention had helped stabilise sterling at $1.095 against the dollar and at 88.8 pence against the euro, and to pull back the sharp rise in yields of British bond. The yield on British 10-year bond has nonetheless risen sharply over recent days, to 4.1%. That compares with implied lower cost of borrowing for the Irish State of 2.8%.                   

Many economists say the financial turmoil of recent weeks will likely make the looming recession in Britain even worse, by further undermining consumer confidence and rattling UK households over sharply-rising mortgage costs at a time when utility bills have already rocketed.                  Large Irish companies that generate significant revenues and profits from Britain face a double whammy from the fall in sterling when they translate revenues back to euro, as well as from the prospects of a deeper-than-expected downturn there.  

Of the two main banks here, Bank of Ireland lends the most into Britian via a longstanding link with the British Post Office, through which it offers consumer loans and savings accounts in Britain. 

Bank of Ireland shares fell 6.5% on Thursday and have now lost 17% since last Friday morning, before the unveiling of the UK's mini-budget.

Bank of Ireland shares fell 6.5% on Thursday and have now lost 17% since Friday morning, before the unveiling of the UK's mini-budget. That has taken out over €1bn from its stock market capitalisation since the onset of the British financial turmoil. 

AIB shares have fallen by 8% since last Friday. 

John Cronin, head of financials at broker Goodbody, said that Irish banks in Britain face a hit to loans growth and the effects of the fall in sterling when earnings are translated into euro.

Economist Jim Power said Britain is now less attractive for Irish businesses, with exporters such as agri-food firms facing more difficulties.  

There is a general sense that the next-door neighbour, and the significant economic relationship, is in utter turmoil at the moment.

"Its financial markets are in turmoil, the economy is in turmoil, and the political system is in turmoil, and there is always the risk of contagion," Mr Power said, citing the concerns of the IMF and the White House of potential fallout from Britain for global markets.     

Shares in other Irish companies with large operations in Britain have also been hit. Shares in building products firm Kingspan fell 8% on Thursday and Dalata, Ireland's largest hotels owner, fell by 5%.

Ryanair bosses will be looking out to see whether the financial turmoil of the past week weakens British consumer confidence. 

The airline's shares fell over 4% on Thursday and have now fallen 10% since last Friday.