IRISH LIFE & Permanent (IL&P) dropped more than 30 per cent on the Irish Stock Exchange yesterday, falling heavily for a second day after a company notice to the market failed to ease investors' fears about the size of its exposure to the Icelandic banks that have been taken into state ownership.

The company was the worst-performing bank stock on the Irish market, as it closed down at €2.15, adding to a 12 per cent drop on Thursday when it first revealed that it had an exposure to debt issued by the Icelandic banks.

IL&P said that the situation was "very manageable", but did not outline the size of the exposure.

It will reveal the scale of the debt owing in a trading statement next month. "There is still uncertainty as to how that situation will resolve itself and the level of impairment that will result," the company said.

Anglo Irish Bank has also indicated it has a "small amount" of Icelandic bank debt, which could lead to a write-off of €20-€30 million, Goodbody Stockbrokers said in a research note.

The stockbroking firm said that AIB had indicated any exposure to the Icelandic banks was "negligible".

AIB declined 10 per cent to €3.16, while Anglo Irish Bank gained 2.8 per cent to €1.85.

Bank of Ireland remained unchanged at €1.60.

Minister for Finance Brian Lenihan signed a ministerial order last night confirming that the six Irish-owned institutions - AIB, Bank of Ireland, Anglo Irish Bank, Irish Life Permanent, EBS and Irish Nationwide - had signed up to join the guarantee scheme, confirming their participation.

AIB said its subsidiaries in the UK, Channel Islands and North America have also "executed guarantee acceptance deeds".

A spokesman for Bank of Ireland said that it expected its subsidiaries in the UK to be covered.

The five foreign-owned Irish banks, which have applied to join, have until next week to sign the scheme's formal contracts.

The Government has agreed to cover up to €485 billion in liabilities at 11 financial institutions, but has stressed that any move to take equity stakes in the banks would be a last resort and that it would expect the banks to raise any extra capital required privately first.

Davy, the country's largest stockbroking firm, cut its 2009 earnings forecasts for the four Irish public banks by 11-21 per cent to reflect estimates of what each bank would pay for the guarantee.

The firm said that it was cutting all dividends to zero at the banks "on the assumption that the Government will prefer to see banks improve solvency rather than remunerate shareholders".

Davy said in its weekly comment note: "If the Government is forced to stump up, we believe it will want consolidation first.

"A Government-sponsored recapitalisation has been priced into stock prices. However, recent comments from the Minister for Finance suggest to us that if State capital is forthcoming, the Government would prefer to see some consolidation first.

"Quite how this might be brought about is a moot point," said the broker.

AIB chief executive Eugene Sheehy was quoted by a newspaper saying the bank had ruled out asking shareholders or the State for extra cash by selling new shares.

"We'd rather die than raise equity," Mr Sheehy was quoted as telling clients of Goodbody Stockbrokers at a meeting on Thursday.

AIB had a number of "options for self-help" which did not require raising fresh equity, he said.

Belgian bank KBC, owner of IIB Bank in Ireland, had its debt rating placed on negative watch to reflect the bank's exposure to high-risk credit market investments. - (Additional reporting Bloomberg)