DOUBTS about the economy, persistent high borrowing rates and falling property prices could push the values of Irish banks down to the levels seen on March 17, when Anglo Irish Bank lost 15% of its value in one day.
In a review of Bank of Ireland following last week’s full year results, Goodbody Stockbrokers said it expects the banks to continue to struggle through the next few quarters as the markets still worry about the real economic consequences of the credit crunch.
“We would not be surprised to see the banks revisit earlier March 17 lows over the short to medium term,” said Eamonn Hughes, banking analyst with Goodbody’s, in a general comment on the outlook for bank shares.
The run on Anglo Irish’s shares on that day is now the subject of a wide-ranging investigation by the Financial Regulator, which is expected to take several months to complete.
Hughes has cut his earnings forecasts for this year and next based on the slowdown in the economy, while shares in BoI rose 2.59% yesterday to €8.31 in late afternoon trading.
The broker said concerns that the slowdown in the domestic franchise and a growing reliance on capital markets, coupled with the impact of foreign exchange on earnings has undermined the value of the business.
At this point in the Irish economic cycle, he is projecting a fair price on the stock in the period ahead is €9.85, a 7% downward revision from his earlier projected value of €10.65.
The more sceptical Citigroup has revised its share price target to just €9 as the markets wait to see what the future holds for the sector.
In a separate development Bloxham Stockbrokers said loan losses would have to quadruple before the country’s second-largest bank would be forced into a rights offer.
Bloxham was quoting chief financial officer John O’Donovan, who they interviewed after the bank reported results last week.
Bad debts would have to hit €750m up from the €180m reported for the year to March 31 2008, before BoI would need to go to the market.
“He can’t ever see this happening,” said Bloxham analyst Kevin McConnell, quoting O’Donovan, who confirmed last week’s report that the amount of loans in trouble had risen 25% to €250m since November.
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