Shares in AIB rose the most in more than a month in Dublin trading after analysts at Royal Bank of Scotland recommended buying the shares and more than doubled their price estimate.
AIB gained as much as 14 per cent, the most since March 5th, to €1.43 and traded at €1.38 as of 2.35pm. Bank of Ireland rose 3.6 per cent to €1.86 before falling back to €1.75, a loss of 2.2 per cent.
RBS analysts raised Allied Irish to "buy" from "sell" and set a share-price estimate of €1.75. The upgrade comes a week after the lender began transferring toxic loans to State asset agency Nama and said it would sell US and Polish assets to boost capital and meet a new target set by the financial regulator.
"While we accept that a degree of uncertainty and high execution risk remains over the coming months, we believe this provides a buying opportunity for investors," RBS analyst Asheefa Sarangi said.
AIB, which needs €7.4 billion in total, may generate €3.9 billion in capital from the asset sales, RBS said. The Government may have to inject money into the bank to make up the shortfall, which could give it a majority stake. The state already holds an indirect 25 per cent stake in preference shares.
"AIB is fully aware of the difficult task in front of it," RBS said. "Given how hard the bank has fought to remain out of majority government ownership thus far, we expect the bank to do its uppermost to limit the full €3.5 billion conversion of the government preference shares."
RBS analysts also raised Bank of Ireland's rating today, to "hold" from "sell". They increased the share-price estimate to €1.70 from €0.52.
Referring to both banks, RBS said "uncertainty will remain" until the recapitalisation plans are "fleshed out", all loans are transferred to the asset agency and the European Union rules on the lenders' restructuring plans.
"Given AIB's plan to divest all of its major foreign assets, we believe the risk of a negative surprise from the EU is more likely at Bank of Ireland where the develeraging process has been slow," the analyst added.
Irish Life and Permanent, which is not involved in the National Asset Management Agency (Nama) was trading up 4.7 per cent at €3.06.
Elsewhere on the market, shares in Aer Lingus gained 1.3 per cent to 76 cent, outperforming rival Ryanair, which lost 1.1 per cent to €3.93. The no-frills airline yesterday announced it would increase baggage charges for the peak months of July and August. Today, Ryanair said it carried 5.3 million passengers in March, a 13 per cent increase on the same period a year ago.
Building stocks also showed some movement, with CRH losing 1.5 per cent to €18.81. Kingspan, meanwhile, rose 2.5 per cent to €6.97 and Grafton Group gained just under 1 per cent to €3.08.
The overall Iseq index was down 13.20 points to 3278.99.
Additional reporting - Bloomberg