Leading Irish bank shares take a hammering

While most of the volume was in the two big banks, Irish Life & Permanent was another to come under pressure

While most of the volume was in the two big banks, Irish Life & Permanent was another to come under pressure. Its shares fell 31 cents to €8.29, wiping £94 million off its value.

Shares of the two main Irish banks have plummeted to their lowest levels for almost three years as a flood of selling hit both AIB and Bank of Ireland shares. Yesterday's selling knocked almost £700 million (€889 million) off the value of financial shares.

Even though the banks are now trading on record discounts to the European banking sector average, analysts in Dublin believe they may fall further before they rebound.

AIB tumbled 47 cents to €8.73 (£6.88) - with some £400 million being knocked off its share price - while Bank of Ireland fell as low as €6 before eventually closing seven cents lower on €6.25, with £69 million wiped of its value.

READ MORE

While most of the volume was in the two big banks, Irish Life & Permanent was another to come under the cosh. Its shares fell 31 cents to €8.29, wiping £94 million off its value.

At these closing levels, AIB is now 20 per cent below its end-1999 level and more than 50 per cent below the €18.15 the share reached last year amid rumours of a takeover bid by Deutsche Bank. The value of AIB has now fallen from €15.7 billion at its peak last year to €7.6 billion while Bank of Ireland has fallen from a peak valuation of €10.4 billion to yesterday's €6.1 billion.

Bank of Ireland's demise has not been quite so dramatic, but the share is still down more than 40 per cent on last year's high of €10.50 and down more than 20 per cent on its end-1999 level.

Dealers said that as each supposed support level has been reached in the past few days, the shares have failed to find any support.

"There's no new reason for all of this; it's the same factors that have driven the shares lower since the turn of the year - fears of rising interest rates, a squeeze on net margins as a result of new entrants to the market, the impact of Internet banking and the belief still harboured by many British investors that the Irish economy is a bubble waiting to burst."

Dealers in Dublin said volumes in both banks were substantial, with the two million AIB shares and five million Bank of Ireland shares traded in London probably matched by similar volumes in Dublin.

Despite the banks' discount to both the British and European sector averages, dealers said there was no sign yet of overseas interest in the shares and that such interest was only likely to return once it became clear that domestic institutions were no longer net sellers of Irish banking stocks.

The uncertainty over interest rates has been only partly clarified by last night's action by the US Federal Reserve. It still remains to be seen what action the European Central Bank and the Bank of England will take, although rising bond yields indicates that the market believes both will raise rates.

While both banks are now trading at not much more than twice their net asset value, the belief is that there is little prospect of any European bank using the low share prices to bid for either. "There's still no sign of a pan-European retail bank taking shape and, even when one does materialise, it might look towards a bigger market than the Irish banking market," commented one dealer.

Bank of Ireland is now trading at less than nine times forecast earnings per share for the current year and AIB at a multiple 10 times forecast earnings. Those multiples compare with an average of 17 for European banks and 12 for the British banks.