Another bad day for AIB in spite of Lenihan’s reassurances

AIB shares took another hammering yesterday as the Irish market once again closed down, following massive losses on Monday.

Other banks reacted positively to comments from the Minister for Finance Brian Lenihan who reiterated the Government’s intention to continue with a recapitalisation scheme for Bank of Ireland and AIB rather than going down the route of nationalising them.

Bank of Ireland reversed some of its losses in earlier trading after the minister’s comments climbing 6 cents or 18% to 40 cent. It had earlier fallen as much as 21%.

Irish Life and Permanent also closed up 9% at €1.20.

AIB however dropped 15 cent or 25% to 45 cent at close, rebounding from a low of 29 cent.

The ISEQ closed down almost 2% yesterday.

Goodbody stockbrokers said the Government’s re-capitalisation plans for AIB and Bank of Ireland is unlikely to satisfy the market’s demands, while NCB stockborkers said the move has not resulted in a stabilisation of the banks share prices.

Yesterday it emerged that AIB chief executive Eugene Sheehy had told employees he believes the bank will remain independent.

“We have the depth and strength required to manage our way through this period of uncertainty as an independent organisation and I believe we will do so,” Mr Sheehy said.

In Britain stocks retreated for a second day, as banks extended declines to a 15-year low on concerns that more lenders will be fully nationalised.

Lloyds Banking Group plunged to the lowest since at least 1998 as Merrill Lynch said the lender has too little capital and will struggle with funding and bad assets.

Meanwhile the financial regulator said its ban on short-selling bank shares remained in place, adding that it is continuing to monitor the ban.

On Friday, Britain ended its ban on short selling, which is selling borrowed stock in the hope of repaying the loan at a profit by buying the shares back at a cheaper price, for financial stocks.

“The Financial Regulator confirmed that the ban remains in place on taking short selling positions, whether through shares or ADRs (American Depository Receipts) of Bank of Ireland, Allied Irish Banks and Irish Life and Permanent in London and other international trading venues as well as in Dublin,” the Irish regulator said. “The Financial Regulator continues to monitor the short selling ban.”

Also yesterday Fitch Ratings affirmed Ireland’s long-term foreign currency issuer default rating at AAA.