Bank of Ireland Plunges on Concern Shareholders Will be Diluted in Bailout
Bank of Ireland Plc, Ireland’s largest bank, fell to a 20-month low on concern that shareholders will be diluted in any government bailout.
Bank of Ireland slid 23 percent to 30 cents in Dublin dropping 19 percent yesterday. Allied Irish Banks Plc, the country’s second-largest lender, fell 19 percent to 33 cents and Irish Life & Permanent Plc, which has avoided a bailout so far, fell 10 percent to 75.3 cents.
Irish banks may get immediate capital injections as part of the European Union and International Monetary Fund’s rescue package, Matthew Elderfield, the country’s head of financial regulation, said in a speech yesterday. Finance Minister Brian Lenihan said on Nov. 18 that the government was considering a “contingency fund” that banks could tap for additional funds.
“That the banks will be obliged to raise further capital now looks assured,” Emer Lang, an analyst at Dublin-based securities firm Davy, wrote in a note today. “The timing of any increase will hinge on the balance struck between ‘immediate’ additional capital injections and ‘top-ups’.”
Irish banks forced the government to seek the bailout after loan impairments surged following the collapse of the country’s decade-long real estate boom in 2008. That year, the government pledged to back most liabilities, including all deposits in Irish banks, a promise that led the government to inject 33 billion euros ($45 billion) to support the lenders. As loan losses climbed, the government put the cost of the rescue at 50 billion euros in September this year, fueling investor doubts that Ireland could afford the rescue.
‘Awaken Doubts’
It is “unsatisfactory that expected losses” among the banks “are clearly higher than provisions already taken” and that any discrepancies “may awaken doubts in the minds of investors,” Central Bank Governor Patrick Honohan told a Chartered Accountants Ireland meeting in Dublin today. “Uncertainty about whether banks have” more losses on their books “certainly argues for higher percentage capital targets,” he said.
Banks may struggle to raise money from private investors, analysts said. The five-member ISEQ Financial Index has fallen about 98 percent from its peak in February 2007. Bank of Ireland completed a 2.9 billion-euro fundraising in June that gave the government a 36 percent stake in the lender. The state is also preparing to take a majority holding in Allied Irish by the end of the year.
“The government is really the only plausible provider of capital to the banks at this stage,” said Ciaran Callaghan, an analyst at Dublin-based NCB Stockbrokers. “Bank of Ireland would find it very difficult to carry out another share sale in the current environment. There is no visibility around what assets it may be required to sell, and hence its future income streams.”
Lenihan said yesterday the government will force banks to shrink their operations and sell assets as part of restructuring linked to an EU and IMF bailout.
To contact the reporters on this story: Finbarr Flynn at fflynn3@bloomberg.net; Joe Brennan in Dublin at jbrennan29@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net.
Rate this Page