A WARNING from Bank of Ireland that its profits continue to weaken amid the economic slowdown and "dislocation" in global markets sparked the worst decline in Irish financial stocks for 15 years.
Irish banks ranked among the biggest losers as European financial stocks went into retreat on foot of concern about further writedowns among international banks and the likelihood for additional capital requirements to bolster balance sheets weakened by the credit crunch.
Bank of Ireland dropped 10.87 per cent to €4.51, having changed hands at €4.36 earlier on a day in which 24 million of its shares were traded. These were new lows for a share that changed hands a year ago at €15.50.
It was no different for the other Irish financials, with Irish Life & Permanent's (IL&P) 13.25 per cent decline to €4.65 the worst performance on a day in which it lost almost 20 per cent in earlier trading at €4.26. The latest drop, as 14 million IL&P shares changed hands, brought its market capitalisation to €1.28 billion, less than half its €2.62 billion capitalisation a month ago. "Clearly the markets are being dominated by sentiment rather than rational analysis at the moment," said IL&P's spokesman.
AIB dropped 9.69 per cent to €8.10 and traded at one point at €8, a new low for an institution whose shares were worth €21.22 last September. There was no comment from AIB, which is in a close period ahead of its interim results.
Anglo Irish Bank, down 7.03 per cent at at the close at €5.09, reached €4.77 yesterday.
London investment bank Collins Stewart reiterated a "sell" recommendation on Bank of Ireland, citing its management's failure to comment on earnings guidance. "Overall this trading statement reads negatively for the company," Collins Stewart said.
Davy analyst Scott Rankin said the management statement was "understandably" very cautious in tone and content.
"We have spoken to management this morning and they acknowledge that the environment has changed considerably since the full-year results in May."
Momentum has slowed, he said, adding that there was a an obvious potential "read-across" for other other banks, AIB in particular.
Bank of Ireland dismissed a report in yesterday's Daily Telegraph which said it had it has mothballed lending for three months. "We continue to be open for business and we expect to grow our lending this year," the bank's spokesman said.
"However, in the context of the continuing impact of the credit crunch and slowing economies we are taking a prudent and selective approach to growing our business."
Bank of Ireland and its ICS unit have passed on last week's interest rate rise to customers, a move likely to be followed soon by rivals.
