Shares in the country's two largest banks rose today after they passed an EU-wide stress test to assess the eurozone’s ability to withstand a double-dip recession and a sovereign debt shock.
Allied Irish Banks (AIB) rose as much as 5.4 per cent in Dublin trading to 95 cents as of 8.07am in Dublin., before falling back to trade at 3.7 per cent up, or 93 cents a share, shortly before 3pm.
Bank of Ireland rose 2.6 per cent to 76 cent this morning, and continued to gain to 3.6 per cent up, just under 77 cent this afternoon.
Bank of Ireland was found to have an excess of €933 million above the capital level set as the test’s pass mark, while AIB passed with a buffer of €352 million.
The results show neither bank requires further capital beyond the levels demanded by the Financial Regulator following its more rigorous tests earlier this year.
The test took account of the €2.9 billion already raised by Bank of Ireland and assumed that AIB will raise the regulator’s €7.4 billion capital target either from private investors or the Government.
Elsewhere in Europe, banks gained ground, with Banco Popolare up 3.2 per cent, Societe Generale up 2.8 per cent and Alpha Bank up 3 per cent.
"There was significant disclosure in the stress tests, so it leaves analysts in a position to make up their own mind," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin. "It allows them to distinguish between the vulnerable and the less vulnerable."
Bucking the trend, Deutsche Bank fell 1.3 per cent after traders pointed to uncertainty about the company's exposure to highly indebted euro zone countries following the stress tests.
Just seven of the 91 European banks tested failed the financial health check with a total capital shortfall of just €3.5 billion, sparking fears that the much-anticipated test was far too soft.
Banking analysts had expected between five and 10 banks to fail and estimated the capital shortfall could be up to €90 billion. No large banks failed, as expected.
The EU authorities insisted that the tests took account of “plausible but extreme” scenarios.
The Eurogroup chairman Jean-Claude Juncker said the tests were done "in a very professional way", rejecting criticism that they had not been harsh enough.
Mr Juncker also said that economic recovery in the euro zone remained fragile, with possible downside risks, and that the time has come for monetary consolidation and structural reforms.
"The stress tests have obviously shown that the banking landscape is sufficiently robust," Mr Juncker told a news conference during a one-day visit to Ljubljana.
He urged all 91 banks included in the test to publish details of their results as "this would add to credibility of their operation".
He said recovery in the euro zone was under way but added: "This recovery remains fragile, there are remaining downward risks that we have to take into consideration."
He said euro zone fundamentals were better than those in the United States or Japan, and euro zone exit strategy had to be combined with structural reforms, which he said were a necessity rather than an option.
"In all our (euro group) countries... time for (monetary) consolidation has come."
He declined to comment on the recent euro rebound.
"Don't pay too high attention to the volatity of the exchange rate because the volatility is in fact a phenomenon we should try to avoid, what is important are the economic fundamentals," Mr Juncker said.
Regulators have accused Germany and its banks of reneging on a deal to publish full details of sovereign debt holdings, as part of the stress-test of the country’s banking sector.
Arnoud Vossen, secretary-general of the Committee of European Banking Supervisors, the pan-European banks regulator, said it agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks.
Six of the 14 German banks tested – Deutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin – did not publish the expected detailed breakdown of sovereign debt holdings, although Postbank yesterday disclosed some information.
By 11.40am, the FTSEurofirst 300 index of top European shares was down 0.3 per cent at 1,041.58 points. The Euro STOXX 50 index, the euro zone's blue-chip index, was 0.1 per cent lower at 2,716.65 points, trading below the 50 per cent Fibonacci retracement from a high in April to a low in May at 2,737.62 points - a level which it had breached earlier in the session but failed to hold.
GlaxoSmithKline fell 2.2 per cent after the Wall Street Journal cited a source as saying that the drugmaker made a "very casual approach" to Genzyme, asking to be notified if the US biotech group considered selling itself.
Within the sector, AstraZeneca, Novartis and Roche shed 1.3 to 1.9 percent.
Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC 40 shed 0.1 to 0.3 per cent.
Among other gainers, BP climbed 2.2 per cent, ahead of its second-quarter results due tomorrow. The firm is expected to install an American troubleshooter as chief executive in the next 24 hours, replacing Tony Hayward, who has come under fire for his handling of the worst oil spill in US history.
Additional reporting: Agencies