USUALLY, NOT much happens on the Irish stock market whenever Wall Street takes a holiday. But as the US celebrated Martin Luther King Day yesterday, there was “complete panic” to contend with, as investors grew increasingly spooked by the idea that the equity value of Irish banks was moving inexorably to zero.
"It looks very, very grim," said one dealer, while another admitted that it was "very hard to put a positive slant on it". A third dealer told The Irish Timesthat it was the worst day he had experienced in the 10 years he had spent buying and selling equities.
Curiously, despite falls of 50 per cent or more in the share price of the three remaining Irish banking stocks, the overall Iseq index closed down just 7 per cent, indicating the kind of minnows that the banks have become.
The market capitalisation of AIB is now €528 million. In February 2007, when the Iseq peaked, AIB was worth €20.9 billion. Bank of Ireland, which was worth €18 billion two years ago, now has a market capitalisation of €341 million, while Irish Life Permanent’s market cap has disintegrated from €6.2 billion to just €304 million.
The “ultimate fear” is that AIB and Bank of Ireland will go the way of the newly nationalised Anglo Irish Bank, an event that hasn’t exactly generated good PR for the Irish economy. If that happens, shareholders would face the possibility that a State-appointed assessor could judge their holdings to be worthless or as good as.
But even before the massive slumps in AIB and Bank of Ireland’s share prices prompted such concerns, investors were alarmed by the idea that the State would have to buy straight equity rather than preference shares in order to recapitalise the banks – a move that would dilute share values.
“No one wants to have shares in a bank that is 75 per cent owned by the State,” said a trader.
Amazingly, the Dublin and London stock markets opened up yesterday, with something of a rally in share prices. But in a manner that market-watchers are becoming increasingly used to, the positive mood soon evaporated. By lunchtime, “financial carnage” had ensued.
Today sees the inauguration of Barack Obama as president of the US. At the time of his victory, it was suggested that Mr Obama would be bad for the Irish economy because he would stem the flow of multinational jobs to Ireland. However, Mr Obama’s highway-resurfacing infrastructure plan to drag the US economy out of recession is now practically the only thing propping up the Iseq, helping as it does to keep its now dominant stock, cement-maker CRH, from tanking.
