Analysts' gloom sees Anglo fall 21% to 12-year low

ANGLO IRISH Bank plunged to its lowest level in more than 12 years yesterday, falling 21.8 per cent. The sharp drop extends the bank's decline this year to 96 per cent.

The bank dropped to 40 cent at one point in trading before closing at 43 cent, valuing the bank at €326 million, down from €8.1 billion at the start of the year.

Analysts at Goldman Sachs cut its recommendation to investors on Anglo to "buy" from "conviction buy", targeting loan losses of 1.5 per cent of Anglo's €73 billion loan book over each of the next three years, higher than the bank's forecast of 0.8 to 1.2 per cent.

Goldman's analysts said the main issues for Anglo will be whether it will try to rebuild capital in the near term and developments in the Irish property sector.

"Key risks to our . . . price target include a sharper-than-expected slowdown in the UK, Irish and US property markets, a rights issue and any possible changes to the Irish funding guarantee," said the analysts.

Analysts at Merrill Lynch sharply reduced their forecasts for Anglo on Monday, saying that they expected the bank to post losses in each of the next three years. The analysts said they expected Anglo to raise money from shareholders in a €3.341 billion rights issue underwritten by the Government.

Goldman's analysts forecast profits over the next three years.

Anglo reported a 37 per cent drop in annual profits to €784 million last week and an almost ninefold increase in loan losses. The bank said it could post loan losses of about €700 million a year over the next three years and make similar profits each year, adding this to the bank's capital reserves.

Anglo said it would consider the interests of shareholders first if the bank were to raise additional capital faster than it intended to.

Brokers said the mortgage sector continued to weaken in recent months and was unlikely to recover anytime soon.

The latest survey from KBC Ireland (formerly IIB Bank) and the Independent Mortgage Advisers Federation show that 80 per cent of brokers reported weaker activity over the past three months, while just one in 14 said that business had improved.

Some 57 per cent said they saw a further decline in the first three months of next year, while one in four see some improvement.

Brokers said poor sentiment has been driven by worries about job security and economic outlook, further house price declines and tighter borrowing rules. Lower interest rates will help the market to improve next year but may not be enough, brokers said.

"The fear of job loss is deterring people from making major long-term spending commitments," said Austin Hughes, chief economist at KBC, the State's fifth-largest mortgage lender.

It has emerged that Mallabraca, one of four private equity groups that has engaged in talks with Bank of Ireland about a possible investment, met Richard Bruton, finance spokesman for Fine Gael, and Joan Burton, Labour's finance spokeswoman, over the past week to discuss its interest in the bank.

Ms Burton described the discussions as "very general". Mallabraca's representatives stressed that the group was Irish-led but involved significant investment from overseas, she said.

She said the consortium was "very eager" to make an investment, and stressed that it was not targeting significant job cuts or sharp reductions in employment costs as part of their investment.

"They didn't envisage large-scale job losses or redundancies," said Ms Burton. "We made the point that we were not in favour of private equity investing in a dominant way in the Irish banks."

Three other private equity firms, JC Flowers and Kohlberg Kravis Roberts from the US, and UK firm Apax Partners, have also held talks with Bank of Ireland.