Ireland's government may be forced to take stakes in the country's four biggest banks as rising loan losses deplete capital levels, NCB Stockbrokers said.
``It seems inevitable that the Irish government will have to provide any new equity the banks do need,'' NCB analysts including Christopher Wheeler said in note today, adding that the government is the ``only investor in town'' for the financial institutions. ``This may take the form of underwriting rights issues or taking direct stakes.''
The U.K. government today said it will pump as much as 50 billion pounds ($87 billion) of capital into the country's banks and building societies to prevent a collapse of the banking system. The four Irish lenders including Allied Irish Banks Plc may need a combined capital injection of 14 billion euros ($19.1 billion), NCB said.
While Ireland has proposed a guarantee for the deposits and borrowings of four banks and two building societies, the government hasn't yet published details of the plan. Prime Minister Brian Cowen today said the plan can't be finalized until it is cleared with European Union authorities.
``It is important to stress again that there'll be a need for discussions on the draft scheme later this week between Irish authorities and the EU,'' Cowen told the parliament in Dublin.
The European Competition Commissioner Neelie Kroes this week said the plan would pass scrutiny with ``some fine tuning.''
``Our understanding is that the Irish authorities are still sorting out the precise details,'' Jonathan Todd, a spokesman for the European Commission, told a regular press briefing in Brussels today. ``We expect a notification of that as soon as those details are finalized.''
Anglo Irish Bank Corp. Plc tumbled 24 percent, or 63.5 cents, to 2.04 euros in Dublin trading, extending its decline for the year to 81 percent.
Allied Irish Banks Plc dropped 16 percent, Bank of Ireland Plc fell 8.8 percent and Irish Life & Permanent Plc fell 21 percent. The banks temporarily pared losses after the Federal Reserve, European Central Bank and four other central banks lowered interest rates by half a percentage point in an unprecedented coordinated effort.
Allied Irish said it will pass on the entire ECB rate cut to its personal, business and mortgage customers.
``The reduction in interest rates today should help to reduce business costs, ease the repayment burden on mortgage holders, encourage investment and reduce strains in the financial markets,'' said John Hurley, European Central Bank governing council member and head of Ireland's Central Bank, in an e-mail statement today.