Strong early bank share gains wiped out in the afternoon

IRISH BANKING shares experienced a topsy-turvy day yesterday with strong gains early in the session being wiped out before the close of business.

Following morning reports that plans regarding the establishment of Nama were on track, shares in the State’s largest banks made significant ground.

Bank of Ireland’s price increased by almost 15 per cent to €2 early in the session, while AIB shares followed a similar pattern, jumping €0.12 to €2.07.

However, those early gains were erased before the close of trading and both banks closed down on the day. Bank of Ireland lost 7 per cent finishing the day at €1.70, and AIB eventually closed down 4 per cent at €1.87.

Traders said news the Nama legislation had passed the Dáil committee stage was positive and that it was difficult to put a finger on what had caused the afternoon slump. One broker said there was some aggressive selling in the US and Irish bank stocks had simply fallen in line with disappointing performances in other countries.

Banking analysts reacted positively to a number of the amendments included in the Nama legislation, particularly around lending practices and a surcharge being placed on banks’ corporation tax bills if Nama should make a loss.

Anna Lalor of Goodbody stockbrokers said the lending amendments in the Nama legislation should make it easier for banks to access capital.

Ms Lalor said the Government guarantee on bank deposits had helped to free up some capital, but that the cost of deposits had remained quite high. She said liquidity among the banks should improve once Nama is in place.

“People who buy bank debt or banks who lend to other banks have been concerned about their ability to repay,” she said.

“The bonds the Irish banks will receive with Nama will add a lot of high quality liquid assets to their balance sheets. People will be willing to lend to the banks at a better price, which should make them more willing to lend to the public.”

Emer Lang of Davy stockbrokers said the decision to replace a levy on banks with a corporation tax surcharge could allay the fears of some investors. “There was concern that if there was a legislated levy all the loans might not be able to come off the balance sheets because there could be a contingent liability,” she said.