Irish market falls 5.5 per cent as European shares suffer heavy losses

Irish shares prices have fallen by almost 5.5 per cent today as a heavy sell-off sweeps across European markets. Among the biggest fallers was Bank of Ireland, whose shares dropped 10 per cent per cent this afternoon to just over 25 cent, affected by negative sentiment towards the financial sector across European markets.

Market sources in Dublin said the volume of trading was not particularly high, but stocks were getting marked down heavily in nervous trading European equities hit a 16-month low, extending the previous week’s hefty losses, with cyclical sectors such as banking and automobiles bearing the brunt of a broader sell-off. There was a particular focus on the financial sector across Europe, as investors worried about pressure on profit margins in a low interest rate environment and the impact of low economic growth.

Traders in Dublin pointed to the consistent sharp sell-off in international financial stocks as one of the factors causing nervousness in the markets, with share drops of 30 per cent plus in many big European bank stocks since the start of the year. The massive drop in LinkedIn shares late last week has also put the market on edge and on Wall Street shares are down over 2 per cent this afternoon.

Investors are now assessing the valuation of a whole range of shares and concern is growing based on fears that global growth is slowing.

The FTSEurofirst 300 index of top European shares fell by over 3 per cent to 1,244.36 points by mid-afternoon, hitting its lowest levels since October 2014.

The STOXX Europe 600 banking index, down 5.6 per cent, was among the top decliners. The index is down more than 24 per cent so far this year on concerns about banks’ earnings and profitability in a negative rate environment.

The cost of insuring the European financial sector’s senior debt against default also climbed to its highest level since late 2013.

Shares in Deutsche Bank, Commerzbank, Credit Suisse, HSBC and BNP Paribas were all among the losers.

“Concerns are increasing that in a climate of negative interest rates and prolonged dovish monetary policy, banks’ profitability will be squeezed,” Jaisal Pastakia, investment manager at Heartwood Investment Management, said.

“Weak investor sentiment has been accentuated by the Bank of Japan’s decision to apply negative interest rates on excess reserves, which follows moves already taken by the European Central Bank, Sweden and Denmark. A high level of unprofitable loans on banks’ balance sheets impacts the broader economy by stifling both domestic demand and bank lending growth.”

Earlier this month, Credit Suisse reported its first full-year loss since 2008 after booking a big impairment charge at its investment banking business, while Deutsche Bank posted a record loss for 2015.

Energy stocks also lost ground, with the European oil and gas index felling more than 2 percent after crude oil prices slipped again after earlier gains.

Other European sectors sensitive to macroeconomic activities, such as autos, media, construction and technology, also fell.

“It’s a difficult market environment. I would have hoped for a rebound in the market but after the last week’s actions, this is certainly off the table. The economic newsflow has to improve. So far it hasn’t on a decisive scale,” Gerhard Schwarz, head of equity strategy at Baader Bank in Munich, said.

European and US shares fell sharply on Friday after US jobs data showed employment gains slowed more than expected in January. Some recent economic numbers from China, the world’s second biggest economy, have also disappointed.

- Additional reporting Reuters