Irish banking stocks lose over half their value

IRISH BANK stocks crashed in trading yesterday, losing at least half their market value, as investors panicked that their shareholdings would become worthless if the Government’s banking recapitalisation scheme does not go ahead in its proposed form.

AIB’s share price fell 58 per cent, Bank of Ireland plummeted almost 55 per cent, and Irish Life Permanent closed down 50 per cent after a day of trading characterised by panic among shareholders.

Fears abounded yesterday that AIB and Bank of Ireland would have to be nationalised by the Government alongside Anglo Irish Bank. One Dublin-based equities dealer reported that “complete panic” had gripped the stock market, while other dealers described the plummets in share prices as financial “carnage”.

The immediate trigger was the announcement of a new recapitalisation scheme by the British government that would see its preference shares in Royal Bank of Scotland (RBS) converted into newly issued ordinary shares or “straight equity” which would dilute the value of existing shares.

Investors feared that the same step may have to be applied to AIB and Bank of Ireland in order to recapitalise them. Under the Government’s recapitalisation scheme announced in December, both banks were asked to raise €1 billion each. It now looks increasingly unlikely that they will be able to raise this capital themselves.

Meanwhile, the forecast by some banking analysts late last week that the nationalisation of Anglo Irish Bank would bring stability to the rest of the Irish banking system failed to materialise. One dealer described such a suggestion as evidence that people were “living in cloudcuckooland” when it comes to Irish banking.

It now appears that Anglo’s failure and the intervention by the Government has further damaged the reputation of the Irish banking sector among international investors and heightened the “country risk” for shareholders.

The markets are expected to remain in turmoil today, with Wall Street scheduled to reopen after closing yesterday for the Martin Luther King holiday.

Dealers said they were “pretty fearful” of the impact of US investors’ reaction.

The Iseq index of Irish shares opened in positive territory yesterday but, by early afternoon, both AIB and Bank of Ireland had lost more than half their value as investors sold their holdings at prices that would have resulted in heavy losses. Irish Life Permanent was down just 20 per cent in mid-morning before eventually capitulating to the “ugly” mood.

However, Irish banks were not the only ones in crisis yesterday. Ulster Bank/First Active parent RBS fell 67 per cent in London trading yesterday after it forecast the biggest ever loss by a British company. Lloyds fell 34 per cent as investors worried that the institution, which is 43 per cent owned by the British government, will follow RBS in revealing further heavy writedowns.

Further afield, BNP Paribas fell by 6 per cent and Société Générale fell by 10 per cent, with Deutsche Bank and Deutsche Postbank also falling amid fears that banks may need more capital.