Irish bank shares hit amid global sell-off

IRISH BANK shares fell sharply amid a global sell-off in equities and the euro, as trading signalled a poor take-up among retail shareholders in Bank of Ireland’s €1.7 billion cash call, weakening AIB’s capital-raising plans.

Shares in AIB lost 12.8 per cent to 90 cent, while Bank of Ireland fell 8.9 per cent to 66.5 cent, compared with the three-for-two offer of 55 cent a share in its rights issue.

The nil paid price – or the cost of buying the right to participate in the offer – plummeted 34 per cent to 11 cent, reflecting poor interest among investors in the opportunity to purchase new shares.

Bank of Ireland’s rights issue, which will raise €1.7 billion of a €3.56 billion capital plan, is fully underwritten by five institutions.

However, a low rate of interest among retail shareholders could stymie AIB’s efforts to raise more than double Bank of Ireland’s capital requirements from a cash call of shareholders later this year after selling overseas businesses.

Irish Life & Permanent may need to raise €700 million from shareholders to proceed with plans to split the life business from its troubled bank, Permanent TSB.

Analysts expect that AIB will be able to raise about €4.7 billion selling its interests in Bank Zachodni WBK in Poland, M&T in the US and its UK business.

Even if it achieved satisfactory value for the assets, the bank would be left with a shortfall of more than €3.1 billion and would need to tap shareholders in a rights issue, said analyst Stephen Lyons at Davy stockbrokers.

If AIB fails to raise sufficient private capital, it may be forced to cede a majority shareholding to the Government by converting the State’s indirect €3.5 billion investment into ordinary shares.

Irish bank shares were among the biggest fallers as European stocks fell to their lowest close in almost nine months.

Financial stocks were badly hit as interbank lending rates rose and fears persisted that austerity measures to be taken in euro-zone countries would damage growth prospects.

The euro fell to the lowest level since 2001 against the yen amid concern that weakness in Spain’s savings banks signals an expansion of Europe’s sovereign debt crisis that may hinder the global economic recovery.

The currency also declined against the dollar for much of the day as the International Monetary Fund said Spain had been too slow to strengthen its banking system, adding to speculation that Europe’s financial institutions may face more losses.

AIB and Bank of Ireland are listed among 58 global banks which may have a capital deficit of more than $1.5 trillion (€1.2 trillion) in a study by Swiss ratings company Independent Credit View. The two banks may need to raise capital equal to 681 per cent and 536 per cent of their current market values respectively, the company said.

Bank of Ireland said it was raising more than the capital demanded by the regulator, while AIB said “a substantial portion” of the capital it required would be raised through asset disposals. – (Additional reporting: Bloomberg)