Heavy fall in Irish banking stocks over capital fears

Thu, Jun 19, 2008, 01:00

IRISH BANKING stocks came under pressure in Dublin trading yesterday on concerns about new capital requirements in a report from a US stockbroker and investment bank.

In a research note to investors, Keefe, Bruyette Woods Ltd (KBW) said Bank of Ireland and Anglo Irish Bank have lower tier 1 capital, a measure of financial strength, than most European banks.

It said Ireland was among the countries that would need to raise the most new capital under Basel II, which aims to modernise capital rules to make bank lending and their balance sheets more sensitive to risk. KBW said that when geographic and macro risks to rating downgrades and lower collateral prices are assessed alongside low core tier 1 ratios, Bank of Ireland appears to be one of the banks most at risk from rating downgrades and lower collateral prices.

The bank suffered heavily in the sell-off of financial stocks yesterday. By the close of business, its shares were down 6 per cent as it shed 42 cent to €6.56.

However, the bank said yesterday that it raised €1.25 billion in longer term funding by issuing two-year public debt, the first of its kind by an Irish bank in almost a year. The two-year floating note was priced at just over 6 per cent or 1.05 percentage points over the three-month euro rate at which banks lend money to one another (Euribor). More than 85 investors, almost all European, across 21 countries subscribed to the issue.

Funding costs have risen sharply due to the credit crisis. Bank of Ireland's last public issue in July 2007 cost substantially less - the bank paid 0.1 percentage points over Euribor. The bank said its latest issue was expensive but showed that funding was available.

A bank spokesman said: "It shows we can access the market. This is the first public issue of this type, not just by Bank of Ireland, but by an Irish bank since last July." The KBW report also said that Anglo Irish Bank faces similar macro economic risks to Bank of Ireland, but has a slightly higher core tier 1 ratio. Anglo Irish Bank shares fared better but still traded down 2.5 per cent as the stock closed 18 cent weaker at €7.

The broker regards "Spain, Ireland, Denmark and the US as the countries most at risk due to GDP forecasts being cut, unemployment rising considerably and houses prices that are either high or have already started to fall."