US woes hit Irish banks as shares drop €1bn in value

IRISH BANK shares endured another tough day yesterday as concerns that the US government might have to provide further support to mortgage giants Freddie Mac and Fannie Mae drove financial stocks down across Europe.

Stocks fell for a second day in Europe and the US as concerns deepened that global banks will post more credit-related losses and that the US government would have to nationalise Freddie Mac and Fannie Mae.

The Dublin-based banks were among the worst hit in Europe, shedding more than €1 billion, as the Isef index of financial stocks dropped 6.3 per cent, trailing a 4.6 per cent fall in Irish shares overall.

Irish Life & Permanent (IL&P) suffered most, dropping 7.5 per cent. Bank of Ireland shed 7 per cent, while AIB fell 5.25 per cent and Anglo Irish Bank declined 4.7 per cent.

Sebastian Orsi, analyst at stockbroking firm Merrion Capital, said the bank shares were hurt by falling US stocks yesterday and that concerns about funding and the poor economic outlook continued to affect financial stocks.

A new survey also showed an increase in the supply of rental properties in Britain where Bank of Ireland and IL&P have substantial buy-to-let loan books.

This is likely to lower rents, which could put investors under greater strain.

A former chief economist at the International Monetary Fund added to concerns about the severity of the financial crisis when he said the credit market turmoil may topple a large US bank.

Kenneth Rogoff, a professor of economics at Harvard University, said the crisis would deteriorate further and that a large US bank was likely to collapse in the next few months.

At a conference in Singapore, he said despite hopes the US economy was showing signs of recovery, "the worst was to come".

Banks globally have amassed losses of about $500 billion (€338 billion) due to the financial crisis.

Funding costs at Freddie Mac have risen as higher mortgage delinquencies prompted some analysts and investors to question whether the company needs more capital to remain solvent. - (Additional reporting, Bloomberg)