Bank shares enjoy Budget bounce as nationalisation fears fall

IRISH BANKS continued to benefit as the prospect of nationalisation receded yesterday, but stockbrokers believe that the detail of how the toxic asset agency will work will have to be established before they finally stabilise.

The Budget announcement by Minister for Finance Brian Lenihan that the Government is to establish an agency to take over the banks’ bad debts ensured that AIB and Bank of Ireland outperformed European finance institutions on stock markets yesterday.

AIB was up over 9 per cent at €1.28 when the Irish Stock Exchange closed. Dealers said that it touched €1.35 earlier in the day.

Its biggest competitor, Bank of Ireland, saw its share price make similar progress, closing 8.92 per cent up at 96.5 cents. Investors bought a total of 22 million shares in both banks in Dublin yesterday.

Bank of Ireland shares are now up almost 400 per cent since the beginning of March.

Stockbrokers told The Irish Timesyesterday that investor interest has been growing in both banks since last week. At that stage it had become clear that the Government intended focusing on taking bad property debts off their books instead of taking ownership of both institutions.

Their share prices collapsed earlier this year as international markets feared that they would follow Anglo Irish Bank into State ownership. They have since recovered strongly and their shares are worth about twice what they were a week ago.

However, dealers said that they could face further fluctuations until it is clear how the new agency which will take over so-called toxic debts will work.

In his Budget speech, Mr Lenihan said that the new body would operate under the aegis of the National Treasury Management Agency (NTMA), which is responsible for the national debt and pension fund.

Elsewhere, banks and insurers pushed Europe’s bourses lower amid fears that the amount of toxic debts in the financial sector could be bigger than expected.

Germany’s Commerzbank fell 3.6 per cent to €4.30. Reports have been circulating that the bank is planning to sell its Eurohypo subsidiary in order to gain European Commission approval for state aid, which is pending.

Peer Deutsche Bank lost 4 per cent to €33.51 while BNP Paribas fell 3 per cent to €33.85. Société Générale fell 2 per cent to €33.50.

In London Lloyds Banking Group sagged 8.5 per cent after Credit Suisse downgraded it to “underperform” from “neutral”.

Standard Chartered dropped 6.3 per cent after UBS downgraded the Asia-focused lender to "sell" from "neutral" after it said an 80 per cent rise in the stock in a month had left the bank "ahead of itself". – Additional reporting: copyright The Financial TimesLimited 2009