IRISH BANKS:IRISH BANK shares dropped sharply early yesterday before recovering some ground later during an unprecedented day of turmoil in the US financial sector following Lehman Brothers' decision to file for bankruptcy protection and the sale of Merrill Lynch.
Irish Life Permanent, the largest mortgage lender in the country, fell the most, closing down 13.3 per cent at €5.85, although Anglo Irish Bank, which has a heavy exposure to the commercial property sector, dropped 21.6 per cent at one point in trading yesterday before closing 7.7 per cent lower at €4.65.
AIB and Bank of Ireland dipped to their lowest intra-day levels of recent years during trading yesterday. AIB dropped 15.6 per cent to €6.73 before closing down 5.9 per cent at €7.50. Bank of Ireland fell 13 per cent to €4.35 before ending 4.7 per cent lower at €4.78.
Analyst Sebastian Orsi at stockbrokers Merrion Capital said the market was "definitely spooked" yesterday morning as it awaited the opening of US markets.
Global stocks plummeted after 158-year-old Lehman Brothers, the fourth-largest investment bank on Wall Street, became the biggest company to file for bankruptcy protection in US corporate history.
Citigroup and the Bank of New York Mellon, which both have operations in Ireland, are among trustees for bondholders owed $155 billion by Lehman.
One of the biggest casualties of the credit crunch, Merrill Lynch, agreed a $50 billion (€35 billion) takeover by Bank of America after accumulating losses and asset write-downs of $40 billion due to the financial crisis.
Insurance giant AIG also worried investors as it requested a financial lifeline from the US Federal Reserve.
New York governor David Paterson announced yesterday that the state had agreed to allow AIG access to $20 billion of its own capital from its subsidiaries to prevent a liquidity crisis.
The Irish State is a shareholder in Lehman through the National Pension Reserve Fund (NPRF), which was set up to fund the cost of social welfare and public sector pensions from 2025. The NPRF held Lehman shares valued at €300,000 at the end of last week.
The NPRF, which has more than €13 billion invested across 2,500 stocks globally, held €20.2 million worth of shares in Merrill Lynch and €8.6 million in AIG shares at the end of last week.
A spokesman for the NPRF said it had taken a cautious approach to stock market investments since the credit crunch began and that it holds substantial cash balances.
Central banks moved to reassure investors with the European Central Bank (ECB) allotting €30 billion in a one-day liquidity auction to banks.
A spokeswoman for the Central Bank in Dublin said it had participated in the ECB's one-day auction. "We are carefully monitoring the emerging developments on the global financial markets," she said.
The amount owing to the ECB by Irish financial institutions dropped to €43.3 billion at the end of last month from €44.1 billion a month earlier, although overseas banks with operations in Ireland account for most of the borrowing.
As US inter-bank lending rates jumped to triple the official target rate set the US central bank, the Federal Reserve said that for the first time it would accept stocks for cash loans.
Ten of the world's top banks also agreed to establish a $70 billion (€50 billion) emergency fund of temporary reserves, allowing any one of the banks to access up to a third of the money.
This will allow banks to withdraw short-term cash and will increase the level of borrowing again to banks in need of funds.
