Some €1.4 billion was wiped off the value of Irish shares yesterday as the latest US accounting scandal triggered turmoil in global stock markets. News that telecoms group WorldCom had owned up to a near-$4 billion (€4.04 billion) hole in its accounts shattered already-fragile investor confidence and sent the Irish market to its lowest levels since last September.
"What we're seeing is another accounting irregularity, essentially fraudulent," said Mr Dara Fitzgerald of Hibernian Investment Managers. "It raises huge questions in investors' minds as to the veracity of what we're receiving."
The Irish stock market closed more than 3 per cent lower on the day at 4,697.32, although it recovered some ground in the afternoon after earlier dipping by 4.5 per cent to hit a nine-month low. At one point during the day, the Irish market was among the worst hit globally as the two leading banks, Elan and CRH all took a battering.
In London, some £24 billion sterling (€37 billion) was wiped off the value of the FTSE, which closed 100 points or 2.2 per cent lower. Vodafone was among the big losers, shedding 4.7 per cent of its value.
Early sharp falls on European stock markets were partly reversed after a steadier-than-expected opening on Wall Street. Although the tech-laden Nasdaq dropped to a three-and-a-half year low, it recouped losses to close up 5.43 points at 1,429. The Dow Jones ended 6.7 points lower at 9,120.1.
That it didn't go into meltdown helped reassure European investors and German shares trimmed earlier losses to close 2 per cent lower, having earlier shed more than 5 per cent. In France, shares closed down 1.7 per cent, also off their lows.
In Dublin, Elan, which is under investigation by the US Securities and Exchange Commission (SEC) because of its accounting practices, led the downward spiral. It lost €1.40, or nearly 18 per cent of its value, to close at €6.50, having earlier touched a nine-year low of €5.90.
Financial stocks also suffered as the sector took a hit internationally amid concerns about its loan exposure. Both Irish banks experienced heavy selling and AIB closed nearly 2 per cent lower while Bank of Ireland lost 3 per cent.
Building materials group CRH, with its large US and dollar exposure, was another casualty of the fallout and finished nearly 3.5 per cent down.
Analysts said it was hard to see investor confidence being rebuilt quickly.
"WorldCom stands to delay the return of investors to equities for another few months," said Mr Colin Hunt, of Goodbody Stockbrokers. He believes it will be autumn before investors return to the market.
However, some fund managers said the Irish market, which has outperformed in the year to date, should be helped by its defensive qualities. It has few stocks in the tricky telecoms and technology sector but plenty of defensive shares like food stocks.
Market sources also said it was unlikely that an Irish WorldCom was lurking out there. Mr Joe O'Dwyer, head of equities at Montgomery Oppenheim, said: "Irish companies are more than adequate in terms of disclosure while the defensive nature of the Irish market will also come into play."
