Shares in Ireland's battered banks sparked into life yesterday as investors digested the terms of the Irish Government's scheme to take billions of euros of bad loans off their books.
Bank of Ireland finished the day ahead by 18 per cent at €3.38 (£3) but that looked pedestrian compared to Allied Irish Banks which gained a spectacular 31 per cent to €3.39.
Analysts said the market had jumped because of the certainty provided by the National Asset Management Agency, which will take on €77bn of assets from the banks. In return for this it will pay €54bn, although that is still some €7bn more than the asset's market value.
The rises came despite a gloomy trading statement issued by Bank of Ireland which warned that total income would fall by "the mid teens" in the six months to 30 September while impairments will come in at up to €1.8bn.
The bank said trading conditions had deteriorated as had credit quality and the economic environment, particularly in Ireland. Operating profits, before impairments, are expected come in at below expectations. Some €16bn of BoI loans will be covered by Nama. Both Irish banks could yet tap the stock market for fresh cash.
However, despite the statement, analysts still rate the two biggest Irish banks as the cheapest in Europe. They had been left listing while the details of Nama were worked out. The dramatic recovery in the banks' share prices sparked a heated debate in the Irish Dail with opposition parties claiming that speculators and bankers – who they blame for creating the spectacular property bubble that burst with disastrous consequences – had been bailed out.
Taoiseach, Brian Cowen, mounted a defence of the Nama plan, insisting that a return to bubble prices was not needed for the agency to be a success. He said that paying over the odds for the banks' toxic and property loans was in the best interests of Irish taxpayers, warning that Ireland would be condemned to a period of stagnation without it.
Ireland has been one of the worst affected developed nations by the downturn. Said one businessman living outside the once traffic strangled capital: "I used to have to leave home at 6.30am to get into Dublin by 10am. Now I don't have to leave until 8.30am or 9am."
Many of the arguments levelled by opponents of Nama have been similar to those levied in Britain over the Government's bail-out of the banking system and creation of an "asset guarantee scheme".Reuse content