Financial shares move upward

IRISH banking stocks reacted predictably well to the draft legislation for NAMA — the state’s so-called ‘bad bank’ project — although prices did weaken towards the end of the day’s trading.

By lunchtime, AIB — which is due to publish first-half results next week — was up by nearly 8%, but weakened later in the day to finish at 1.76, up 2.03% or 4c.

Bank of Ireland performed more strongly, with a 9.23% (17c) gain and a closing price of €2.

Irish Life & Permanent & gained 4.94% (16c) yesterday to reach €3.44. The overall ISEQ index was down marginally at 2,791.10 points.

Finance Minster Brian Lenihan said the “ball-park” figure that NAMA will pay for the banks’ bad loans, in order to take them off their books and give them more liquidity, will soon be finalised and should be known in mid-September.

That is one of the most crucial aspects of the NAMA project.

Broker reaction was broadly positive.

“While this will not be the final figure — it will take up to nine months for all of the assets, over 10,000 loans, to be transferred, and all will be valued on a case-by-case basis — it will provide the necessary information that international investors, both equity and bond, have been eagerly anticipating,” commented Dermot O’Leary, chief economist with Goodbody Stockbrokers.

Scott Rankin at Davy Stockbrokers said that timing and a number of other issues explain why the Irish banking stocks finished the week in upbeat form.

“We also had confirmed that the NAMA bonds would pay a very low (ie sub-2%) coupon rather than the 5%+ which had been bandied about in some quarters. One would think the banks, particularly Bank of Ireland, stand a chance of launching a rights issue this side of Christmas and hence eliminating a chunk of the Government’s warrants,” he said.

“We also learned that the banks may get tax relief on their Irish losses.... it could be worth over €500m to AIB.”