U.K. Stocks Fall; Financials Slump as Ireland Agrees to Bailout

Nov. 22 (Bloomberg) -- U.K. and Irish stocks retreated after the international bailout for Ireland failed to stem concern that Europe’s sovereign-debt crisis will spread to other indebted countries such as Portugal and Spain.

Bank of Ireland Plc plunged 19 percent as investors speculated that the bailout will dilute their holdings in the lender, while Royal Bank of Scotland Group Plc, the U.K.’s biggest government-owned bank, fell 4.6 percent. Pearson Plc increased 0.9 percent after the publisher made an acquisition in South Africa.

The benchmark FTSE 100 Index decreased 52, or 0.9 percent, to 5,680,83 at the 4:30 p.m. close in London, extending the gauge’s 1.1 percent decline last week. The FTSE All-Share Index slipped 0.8 percent. Ireland’s ISEQ Index tumbled 1.4 percent.

“There are unresolved issues in particular regarding Portugal, and whether this is just a liquidity problem or a solvency problem,” said Jonathan Fayman, a fund manager at BlueBay Asset Management Plc in London, which oversees about $38 billion.

Ireland became the second euro area country to require a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency.

Irish Finance Minister Brian Lenihan told reporters late yesterday that Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($129.3 billion), will help Ireland to avoid selling bonds.

Ireland’s Credit Rating

Moody’s Investors Service said it may lower Ireland’s credit rating by more than it previously anticipated because the aid plan from the EU and the IMF threatens to boost the country’s debt.

The aid will “crystallize more bank-contingent liabilities on the government balance sheet and increase the Irish sovereign’s debt burden,” Frankfurt-based Moody’s analyst Dietmar Hornung said in an e-mailed note. The increases in state debt “being discussed exceed the expectation we had in October when we put Ireland’s Aa2 rating on review for downgrade. A multinotch downgrade” is “now the most likely outcome,” he said.

Bank of Ireland Plunges

Bank of Ireland plunged 19 percent to 38.9 euro cents, the largest decline in the Stoxx Europe 600 Index. Irish Life & Permanent Plc slumped 26 percent to 85.5 euro cents in Dublin trading, while Allied Irish Banks Plc slipped 6.2 percent to 40.8 cents as concern mounted that the new state bailout will dilute existing investors’ stakes in the lenders. RBS slumped 4.6 percent to 39.8 pence.

Compass Group Plc climbed 1.9 percent to 539 pence as rival Sodexo’s Chief Executive Officer Michel Landel said “we have reimbursed debt.” Sodexo reduced its net borrowings to 656 million euros at Aug. 31 from 889 million euros a year earlier.

Pearson gained 0.9 percent to 939 pence after the education publisher announced that it has agreed to buy a 75 percent stake in CTI Education Group of South Africa for 31 million pounds ($49.4 million) in cash.

Severn Trent Plc increased for the third day, rising 1.4 percent to 1,459 pence. The U.K.’s second-largest water company will say on Nov. 23 that it aims to raise its dividend by 3 percent more than inflation each year for the next four years, the Mail on Sunday reported.

To contact the reporters responsible for this story: Adam Ewing in Stockholm at aewing5@bloomberg.net.

To contact the editors responsible for this story: David Merritt at dmerritt1@bloomberg.net.