Irish Bank Shares After Ireland Bailout Agreed
By Margot Patrick
Of DOW JONES NEWSWIRES LONDON -(Dow Jones)- Shares in most Irish banks tumbled Monday after Ireland ministers said the banks will need more capital as part of the country's massive bailout package agreed late Sunday.
Ireland said it has applied for a bailout worth tens of billions of euros from the European Union and the International Monetary Fund, sparking a rally in the euro, euro-zone government debt and Asian stocks overnight.
Irish bank shares sank, though, after Ireland Prime Minister Brian Cowen on Sunday said more capital will likely be put into the country's banks to reassure investors, and that the banks will be made smaller "so that they can gradually be brought to stand on their own two feet once more."
At 0832 GMT, shares in 36%-owned Bank of Ireland PLC (BIR.DB), which could end up in further state control as part of the bailout, fell 10% in London to EUR0.44, while Irish Life & Permanent (IL0.DB), which so far hasn't received any state aid, was off 13% at EUR1.00.
Shares in Allied Irish Banks PLC (AIB), which is already planning a rights issue that will take the government's stake to more than 92%, was flat at EUR0.45 in London trade, reflecting the reduced scope for additional shareholder dilution compared with its peers.
"The extent of dilution facing shareholders is likely to be significant, and will ultimately be determined by the results of the stress tests combined with the new regulatory thresholds to be reached," said Ciaran Callaghan, a banks analyst at NCB Stockbrokers.
Shares in Royal Bank of Scotland Group PLC (RBS), which has about GBP54.4 billion in direct exposure to Ireland, were up 0.3% at 42 pence, while Lloyds Banking Group PLC (LYG), with around GBP27 billion Irish loans, were up 0.7% at 67 pence.
Finance Minister Brian Lenihan said the bailout package will include a contingent fund for banks to draw upon to cover bad loans, and to serve as "a powerful demonstration of the firepower behind the banks."
Further efforts will be made to downsize the banks by selling overseas and non-essential assets, he said.
Already, Allied Irish Banks has raised about EUR2.5 billion by selling its Polish unit to Spain's Banco Santander SA (STD), and made a capital gain of around EUR900 million from the disposal of its 22.4% stake in M&T Bank Corp. (MTB) last month. But it put on hold a plan to sell its U.K. unit earlier this month, citing insufficient bids.
The bank Friday said it would raise around EUR6.6 billion from a larger-than-expected rights issue later this month that will take the state's stake above 90%.
Anglo Irish Bank Corp., which was fully nationalized last year, and Bank of Ireland are also trying to dispose of assets.
Other state assets after taxpayer bailouts include Irish Nationwide Building Society and the Educational Building Society.
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