Market Report - Dublin

Executives at AIB headquarters in Ballsbridge and Bank of Ireland in Baggot Street can be forgiven for thinking there is no justice in the investment world, given the pummelling that their shares have taken in the past three days.

There sit the two banks, heavily exposed to an economy with one of the strongest growth rates in the OECD, little or no exposure to economic troublespots in Russia, the Far East and South America and no exposure whatsoever to financially-stretched hedge funds, yet the shares of both lose nearly 10 per cent of their value in the past two days' trading in Dublin.

AIB and Bank of Ireland might be blameless, but just as a rising tide on international stock markets lifts peripheral markets like Dublin, a stream of money moving out of banking stocks worldwide also brings down the likes of the two big Irish banks.

At this stage, the carnage on stock markets over the past few days is being blamed on a fear of global recession hitting corporate earnings and even corporate solvency. Those sort of fears impact immediately on the banks which provide corporates with their funds.

The fact that many blue-chip banks seem to have had extraordinarily lax criteria when it came to lending to heavily-geared hedge funds is just another factor contributing to the negative attitude towards banking stocks.

US Federal Reserve chairman, Mr Alan Greenspan has also come in for some fierce criticism for two reasons - the decision by the Fed to restrict its rate cut to a quarterpoint and Mr Greenspan's leading role in putting together the Long Term Credit Management (LTCM) rescue. The Fed boss, however, was unrepentant and made it clear that he believed that allowing LTCM to go under would have an even more destabilising effect on the markets.

The falls were not just confined to the banks; industrial shares also fell sharply to levels where share buy-backs are likely to be a more common feature.

This week, Independent News- papers and Waterford Wedgwood - both chaired by Dr Tony O'Reilly - went into the market buying back shares and there is strong speculation that other plcs which have seen their shares knocked back savagely will follow their example. Needless to say, the slump in the market has put paid to the supposed flood of flotations on the Dublin market.