The Irish stock market saw its sharpest one-day fall in more than 25 years today as governments across Europe were forced to bail out three banks and the $700 billion plan to rescue American financial institutions failed to unlock money markets.
The Iseq fell by 493.25 points, or 13.0 per cent, to drop back to 3,291.52 points, its greatest decline in a quarter of a century and greatest ever one-day drop.
Prices fell across the board with only three stocks finishing the day in positive territory – McInerney, TVC Holdings and Prime Active Capital – despite the US government’s $700 billion intervention to rescue American financial institutions.
Financial stocks led the sell-off on the Irish market, as investors expressed their severe concern about the Irish banking sector. The sell-off was described by a broker as being even more sinister than usual, due to the lack of activity from short-sellers, which were banned from trading in financial stocks by the Financial Regulator last week.
Anglo Irish Bank suffered the most, as its share price was almost halved, declining by €1.98 or 46.2 per cent, to €2.30. This is the steepest drop experienced by the bank since at least January 1987.
Irish Life & Permanent also declined drastically, as it saw its share price shed €2.18 or 37.9 per cent to hit €3.57. Ireland’s two largest banks performed marginally better than their counterparts, with Bank of Ireland shedding 83 cent or 20.2 per cent to fall back to €3.27, and AIB dropping €1.00 or 16.7 per cent to close the day at €5.00.
Construction stocks were also hit hard, with CRH losing €1.58 or 9.3 per cent to fall back to €15.37 and Grafton declining by 30 cent or 8.7 per cent to close the day at €3.15.
Defensive stocks performed a little better, with Kerry Group losing just 15 cent or 0.1 per cent, while property firm McInerney went against the trend to increase its share price by 4 cent, or 12.9 per cent to €0.35.
The credit crisis hit the financial sector right across Europe today as three European banks, Fortis, Bradford & Bingley and Iceland’s Glitnir were partially nationalised, overshadowing the agreement reached on the US rescue plan last night.
Money markets remained frozen with banks refusing to lend to one another for all but the shortest periods, prompting the European Central Bank to offer additional funds.
After emergency talks with European Central Bank President Jean-Claude Trichet yesterday, the Belgian, Dutch and Luxembourg governments agreed to inject €11.2 billion ($16.4 billion) into Fortis in the first major bank crisis to hit the euro zone in 13 months of global turmoil that began in the United States.
The three governments nationalised Fortis in a bid to avert US-style financial contagion, but the European sector's troubles appeared to be spreading. Fortis is a partner with An Post in Postbank.
In Britain, mortgage lender Bradford & Bingley became the second British bank to be nationalised since the global credit crunch began last year.
The British government will take control of the bank's mortgages and loans, while B&B's £20 billion savings business and branches sold to Spain's Santander.
British Chancellor Alistair Darling said investors had lost confidence the bank and that the government was moving to stabilise the wider financial sector. He said the move would protect us from any
He also said that taxpayers were being protected from B&B losses.
Shares in German lender Hypo Real Estate lost three-quarters of their value today after it struck a loan deal with a consortium of German banks. Its shares fell to €3.39, before a slight recovery to 63 per cent down at €5.
Hypo Real Estate did not reveal the names of the loan banks, or the deal amount, which may be up to €35 billion.
Hypo Real Estate and its subsidiary Depfa Bank both have operations in Ireland. “The nationalisations have an incredibly negative read across for the sector,” said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton.
“The contagion is spreading to mainland Europe and everyone's asking: who's next?" he added.
The crisis has taken on a more international complexion with B&B and Fortis ... There is a worry whether there is the ability or the willingness within Europe for a US-style response,” Calyon senior currency strategist Daragh Maher said.
The European Commission said Competition Commissioner Neelie Kroes was consulted on the Fortis rescue and was in close touch with the Belgian government all weekend.
“We will look at any state aid involved as a matter of urgency,” EU spokesman Jonathan Todd said. Under EU rules, rescue aid must be limited to six months and to the minimum required to ensure the company's survival.
Meanwhile, the US proposal to establish a $700 billion fund to buy illiquid securities will be sent for a Congressional vote this evening after days of tense negotiations and compromises.
Additional reporting: Agencies