Bank shares gain over 20% in new year trading

IRISH BANK shares were up again yesterday with both AIB and Bank of Ireland enjoying gains of 23 per cent and a 21 per cent respectively over the two-day period since the markets reopened on Monday.

However, analysts continued to play down reports that the impact can be attributed to comments made by Minister for Finance Brian Lenihan earlier this week when he said he intended to complete the recapitalisation of the banks by the end of the first quarter of 2010.

While the remarks may have underpinned the banks, many analysts instead pointed to wider market influences including a strong performance by the sector internationally and a clean slate provided by the start of a new trading year.

Alan McQuaid, chief economist with Bloxham Stockbrokers, said that, while Mr Lenihan’s confirmation that he will be staying in his office had reassured the market, this was not the “be all and end all” when it came to the banks’ performance over the past two days.

He said the surge is linked to a strong international performance in the sector amid hopes that the worst of investor sentiment toward the banks is now past.

“Banks aren’t out of the woods yet – there are still a lot of unanswered questions out there. It was a reassuring statement – markets like reassuring statements – but I think the markets are well aware ... that you can’t take anything for granted and that it’s very much a wait-and-see game.”

Sebastian Orsi of Merrion Stockbrokers said that it was unlikely that Mr Lenihan’s comments on the recapitalisation of the banks would have had an overwhelming effect in driving the stocks up.

“It was a positive contribution but it is hard to say they were specifically up because the stocks were up in advance of [Mr Lenihan’s statement], he said, adding that part of the current surge in the banking sector could also be partially attributed to a “fresh sheet” at the start of a new trading year.

Eamonn Hughes, analyst with Goodbody Stockbrokers, noted that, while Irish banks opened strongly on Monday, this was based on relatively low volumes, just 40-45 per cent of typical levels as investors were still making their way back to work after Christmas.

Another market analyst said that, while Mr Lenihan’s comments were welcome, volatility in the banking sector was likely to continue pending more clarity surrounding the National Asset Management Agency (Nama).

“The market will be watching and waiting for the first transfers to Nama but before that we won’t really know,” she said, adding that the banks’ recovery had to be taken in the wider context of the overall sector and the strong performance posted by the UK banks and other lenders in the European markets.

In an interview with RTÉ News on Monday Mr Lenihan said the Government will provide more capital to the country’s banks if needed, adding that he intends to resolve the crisis in the banking sector in the first quarter of 2010.

“Clearly Nama is going to accelerate losses in Bank of Ireland and Allied Irish Banks and these banks will then require capital to make up those losses and if they cannot raise funds on markets . . . then the State will have a greater public ownership of these institutions.

“So all of these matters will work themselves out in the first quarter of this year and they must work themselves out because we cannot have any continuing doubts about the viability, about the capitalisation, about the standing of the banking sector. With an economic recovery under way later in the year we need a banking system that will support that,” Mr Lenihan said.