Four-day rally in Irish bank shares comes to a decisive halt

THE FOUR-DAY rally in bank shares came to a halt yesterday as financial stocks fell 5.6 per cent.

Irish Life & Permanent shed 18 per cent in trading before closing down 9.9 per cent at €5.45.

Shares in the State's largest life and pensions company and mortgage lender fell as a new report predicted no immediate recovery in the property market, and figures published on Monday showed that life and pensions sales dropped 23 per cent in the second quarter.

The report from NCB Stockbrokers found that 78 per cent of estate agents expected no improvement in the property market over the next 12 months. It concluded that tighter borrowing conditions were becoming a problem as banks passed on higher funding costs to customers with interest rate rises.

AIB dropped 8.1 per cent to €8.05 yesterday after Davy Stockbrokers said it expected the bank to lower its target on earnings growth for the year when it announced half-year results next Wednesday as "trading conditions have deteriorated".

Davy is forecasting a 10 per cent decline in earnings this year, and is not expecting any dividend increase.

Bank of Ireland closed down 4.5 per cent at €5.67, while Anglo fell 1.6 per cent to €5.86.

Davy said conditions in the property market and economy have "deteriorated significantly in recent months", and that this would lead to a spike in AIB's bad debt charges over the coming two years, from its current level, below 0.2 per cent of the bank's loans, to 0.78 per cent in 2010.

"How quickly this happens is dependent on how long the banks continue to support struggling property developers. Unfortunately, these results may give us little incremental insight into what is coming down the tracks."

Wachovia, the fourth largest US bank, fell as much as 11.6 per cent in New York after it posted a $8.86 billion (€5.5 billion) quarterly loss, cut its dividend by 87 per cent and announced more than 10,700 jobs cuts as mortgage losses soared.

The share price later rebounded after the bank said it had no plans to raise capital from shareholders.