AIB and BoI share prices remain static despite making the grade

THE share prices of the two leading Irish banks remained flat yesterday, despite both meeting expectations and comfortably passing the EU’s much anticipated financial ‘stress tests’.

Although six of the 91 EU banks that were tested failed – five in Spain and one in Germany – both AIB and Bank of Ireland passed.

The point of the exercise, carried out by the Committee of European Banking Supervisors (CEBS) and the European Central Bank (ECB), was to assess an individual bank’s ability to absorb future possible economic downturns and crises.

The Irish banks’ success in these tests was fully expected – mainly because their end-of-year funding requirements, as put forward by the Government and the Financial Regulator earlier this year, meant they should have a higher capital ratio than the 6% threshold offered by the EU tests.

Nonetheless, there was no real positive knock-on effect in their share prices.

AIB remained flat at 90c, while Bank of Ireland rose by just 1c on Thursday’s close to finish the week at 74c.

Finance Minister Brian Lenihan said yesterday’s results vindicated the earlier actions of the Government and Financial Regulator, which he said “have ensured that the Irish banks are in a position to withstand a variety of adverse shocks”.

“Today’s results vindicate the capital levels set by the Financial Regulator and the Central Bank following its prudential capital assessment review last March. This demanding capital assessment took account not only of the impact of transfers to NAMA, but also of the potential losses on other parts of the banks’ loan book,” Mr Lenihan said last night in the aftermath of the results.

Bank of Ireland has already met its 2010 post-NAMA re-funding requirements of €2.7 billion, while AIB is in the process of attempting to meet its €7.4bn target.

In a brief statement last night AIB said it welcomed yesterday’s stress test results confirming that it exceeds capital adequacy thresholds.

The latest tests were conducted on three scenarios – the third being a ‘worst case’ picture – and the pass rates suggested that both Irish banks, the only Irish institutions assessed, would be adequately capitalised no matter how serious the scale of any future shock.

Meanwhile, Fine Gael finance spokesman Michael Noonan said that the post-test onus is now on the banks to effectively give something back to customers – mainly via cancelling plans to increase their variable mortgage rates; the opposite to which Permanent TSB announced yesterday.

“The banks can never be allowed to forget that they only reached this stage because taxpayers have put their collective necks on the line,” Mr Noonan said.