More than £1 billion has been wiped off the stock market value of Irish banks and £1.5 billion off the value of the overall Irish market. Stock markets in Europe went into freefall yesterday as investors panicked at the prospect of a global recession.
For a change, Wall Street was not the dominant factor, with the 2 per cent fall in New York by the time European markets closed paling into insignificance against falls of 4 and 5 per cent on most of the major European exchanges and a fall by the Japanese stock market to its lowest level in more than 12 years.
But heavy selling on Wall Street in late trading last night indicated that further heavy losses are likely on world markets today. At the close in New York, the Dow Jones index was down another 3 per cent, bringing the fall since the August high to over 23 per cent.
In Dublin, most of the selling pressure was focused on the major financial stocks. Bank of Ireland lost more than £480 million in value as its share price fell by 89p to £11.01. The value of Allied Irish Banks shares fell by £423 million as the price dropped 50p to 930p.
Other financial shares also suffered from the heavy selling pressure, with Irish Life down 35p to 460p and Irish Permanent down 18p to 793p.
The collapse in the value of financial shares comes at a particularly inopportune time for First Active, which is hoping to raise more than £100 million from its members and institutional investors as part of its flotation on the stock market next week.
That offer to institutional investors closes today, but some doubts were expressed last night that First Active will be able to get an acceptable price from institutional investors, given the collapse in bank share prices in the past few days.
The sharp downturn on world markets came despite a cut in US interest rates.
One analyst said: "Rather than rally on the delivery of a Fed rate cut, global stock markets rightly focused on the fundamental economic conditions which actually led to the cut."
The negative impact of the Wall Street collapse was compounded by fresh losses in Tokyo, where shares plunged by a further 1.6 per cent to a new 12-year low on concerns over the future path of the world's second-biggest economy.
The central bank's quarterly report showed business confidence there at its lowest level for four years.
In Europe, banking shares led the downward plunge, with major European banks such as Deutsche Bank, Lloyds-TSB, Abbey Nat ional, Natwest and Credit Lyonnais recording losses of up to 10 per cent.
Dresdner, Germany's third-largest bank, triggered a 7.5 per cent fall in the German market when it said its third-quarter results would take an unspecified hit from its investment in the US hedge fund, Long-Term Capital Management, and its exposure in Russia.
Analysts said the market was locked in a vicious circle in which banking share price falls were fuelling stock market declines, which in turn pulled bank shares lower. Against that sort of background, even the Irish banks, which have a minimal exposure to the world's economic trouble spots, could not remain immune to the selling pressure.
Investors also fear further losses from hedge funds such as the LTCM, which had to be bailed out by its banks this week, and Latin American debt exposure.
"There is a dearth of information about the impact on bank earnings so investors are saying, `We don't know what's happening, so we'll sell,' " said one analyst.