Irish Banks Fall After Davy’s Cut on Guarantee, Deposit Concern

Bank of Ireland Plc and Allied Irish Banks Plc (ALBK) retreated after Davy cut their recommendations on concern amended state debt guarantees may damp profit and result in an outflow of deposits.

Bank of Ireland dropped 4.3 percent to 73.1 cents as of 12:24 p.m. in London, while Allied Irish declined 3.5 percent to 77.9 cents. Ireland’s two largest banks were cut to “neutral” from “outperform” by Stephen Lyons, a Dublin-based banking analyst at securities group Davy, in a report today.

“We assume the guarantee will be extended, the cost of which significantly weighs on our 2011 numbers,” Lyons wrote in the report. An extension in June, which removed guarantees from corporate deposits with duration of less than three months from the end of September “could lead to an outflow of corporate deposits, which would put further pressure on funding,” he wrote.

Ireland’s original guarantee, introduced in September 2008, which covered bank deposits and most securities, is scheduled to expire at the end of this month. A second, more limited, guarantee is due to lapse at the end of the year.

Dublin-based Allied Irish and the nationalized Anglo Irish Bank Corp. have asked for the guarantee to be extended beyond this year. The Irish government stepped in to safeguard depositors and bank debt after the collapse of Lehman Brothers Holdings Inc. in 2008 led to a freeze in credit markets.

Concerns surrounding 26 billion euros ($33 billion) of debt maturing this month for the six lenders covered under the guarantees are “overdone” and ignores fundraisings carried out earlier in the year, Lyons wrote in the report.

To contact the reporter on this story: Finbarr Flynn in Dublin at fflynn3@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

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