German bank Berenberg warns of hung Dáil

The political uncertainty from a hung Dáil would "not be a favourable environment" for Irish banks to operate in and could put pressure on their share prices, according to an analysis from the London office of the privately owned German bank Berenberg.

It also said the re-election of a Fine Gael-led government would be the “most favourable scenario” for Irish banks. “This is due to its commitment to not increase the bank levy or impose caps on mortgage rates.”

Berenberg analysed the impact on Irish banks of the manifesto pledges by the various parties and groupings.

Bank levy

It noted that potential coalition partners for Fine Gael included the Labour Party, which has advocated increasing the bank levy from the current level of €150 million a year to €500 million annually, and Fianna Fáil, which wants to empower the Central

Bank of Ireland

to “intervene to force banks to reduce variable mortgage rates”.

“Polls suggest that a Fine Gael-Fianna Fáil coalition is the most likely outcome of the election,” Berenberg said. “Given their contrasting views on how to lower mortgage rates, we would expect this uncertainty to put further pressure on the share prices of Irish banks.

“We also believe that this government would take some time to form, thereby increasing political uncertainty, which is not a favourable environment for banks to operate within.”

Berenberg’s commentary also focuses on mortgage arrears. “Mortgages in arrears more than 90 days still represent over 10 per cent of all mortgages outstanding,” it said.

“Fianna Fáil proposes a number of measures, most notably an adaptation of the current insolvency regime to allow for a restructuring arrangement solely in respect of the family home. It also proposes to apply a zero interest rate to the warehoused portion of all split mortgages offered to customers in arrears.”

Arrears resolution targets

“Meanwhile, Sinn Féin wants to amend the mortgage arrears resolution targets to no longer accept repossession of homes as a solution. Fine Gael plans to introduce a new scheme to help those who are insolvent and in mortgage arrears on their home to access independent expert financial and legal advice.”

It also noted that Fine Gael intends to dispose of the State's investments in the banking sector when market conditions are right, while Labour plans to proceed with the disposal of a 25 per cent stake in AIB this year.

Sinn Féin “intends to keep AIB in State ownership for the next five years at least, subject to an application for retrospective recapitalisation at its historical value”.

“During that time, a decision will be made on whether to retain ownership or dispose of it,” Berenberg said.

The State owns more than 99 per cent of AIB, 75 per cent of Permanent TSB and 14 per cent of Bank of Ireland.