Shares plunge on ‘worst day in Irish financial history’

SHARES plunged yesterday as fear gripped the markets in one of the worst days in Irish financial history.

Irish stocks dived more than 7% at close yesterday as investors fled amid concern about the state of the Irish banks.

The market has been on tenterhooks ever since the Government announced its intentions to nationalise Anglo Irish Bank, following a 98% drop in the bank’s market value.

Yesterday, the ISEQ had to digest the news that five directors had decided to resign from their roles with Anglo, and Bank of Ireland chief executive, Brian Goggin, was stepping down a year early.

The Government will need to act quickly to prevent a total collapse, with total nationalisation a real possibility, according to Brian Lucey, associate professor in finance at Trinity College Dublin.

Mr Lucey called yesterday the “worst day in Irish financial history”.

He said that if the banks keep getting hammered they’ll have to be taken into care.

“It’s happening everywhere else across the globe and there’s no reason to think we’re different.

“I don’t see how they can delay any further. The Government is going to have to do something soon. They can’t let it spill over any longer,” he said.

The day started on a positive note, with stocks up 0.3% in early morning trading.

However, this was short-lived and bank shares tumbled in late-morning trading, dragging the ISEQ Index down almost 6% by lunchtime.

Bank of Ireland was down 47% to 40c, meaning the stock had now fallen 96% in the past year. AIB was down as much as 62% at lunchtime, while Irish Life & Permanent dropped as much as 45%.

“The reality is, at the moment international investors don’t want to know about Irish banks,” said Oliver Gilbarry, head of research at Dolmen Securities in Dublin.

“There’s a concern out there that shareholders will get diluted.”

Fears also mounted that Bank of Ireland and AIB would be unlikely to be able to raise extra cash from private investors to top up a proposed state investment in the banks.

By early afternoon, the banks were still in freefall with AIB diving 47% to 76c, although this was an improvement on earlier losses. Bank of Ireland slumped 29% to 53c, while Irish Life and Permanent plunged almost 40% to €1.33. At one stage yesterday, AIB was down as much as 72%, the most in at least 22 years.

“Investors are a bit worried after Anglo,” said NCB analyst Ciaran Callaghan.

At close the six-member Irish Financial Index was down 48%, the most since at least 1993.

AIB closed down 58% to 60c, Bank of Ireland was down 54% to 34c while Irish Life and Permanent plunged 50% to close the day at €1.10.

This time last year AIB shares stood at €15, Bank of Ireland was at €9.30 and Irish Life and Permanent €10.40.

The bailout and nationalisation of Anglo will add to the risk of the Irish credit rating being downgraded from its AAA rating by global ratings agencies, according to Dolmen Securities.

“The implications for the other Irish banks are significant. With the state-appointed assessor potentially writing down the value of loans in Anglo, similar types of loans in the other Irish banks would, in that situation, also have to be marked down, increasing impairment charges from the levels currently guided.

“Therefore, Irish financials will be under pressure over the next number of weeks as uncertainty over capital and bad debts comes to the fore again,” it said.