UPDATE: Irish Banks Slide After Anglo Irish Nationalization
January 16 2009 - 7:49AM
Dow Jones News
Irish bank shares fell sharply Friday, underperforming the
European finance sector, following the nationalization of
scandal-hit Anglo Irish Bank Corp. (ANGL.DB).
At 1155 GMT, Allied Irish Banks PLC (AIB) shares were down
EUR0.29 or 15% at EUR1.65, Bank of Ireland PLC (IRE) down EUR0.06,
or 6.7% at EUR0.84, while Irish Life & Permanent PLC (APM.DB)
was EUR0.09 lower, or 4% at EUR2.16.
The Stoxx Europe 600 banks index was up 3.3%, buoyed by news
that the U.S. plans to provide Bank of America Corp (BAC) with an
additional $20 billion.
The cost of insuring sovereign bonds issued by Ireland against
default rose significantly, traders said. Early Friday, Irish
sovereign credit default swaps were quoted at 240/290 basis points
by one trader. Another trader said he had seen the contract bid at
230 basis points but that there had been no offers to sell
protection during the morning.
CDS are tradable, over-the-counter derivatives that function
like a default insurance contract for debt. If a borrower defaults,
the protection buyer is paid compensation by the protection seller.
Swap buyers may be protecting investments they own or simply making
bearish bets against companies or countries.
The spread widening was in reaction to concerns that, by
nationalizing Anglo Irish Bank, the Irish government has increased
the amount of risk on its balance sheet.
"The nationalization of Anglo-Irish is yet another intervention
too many," said Societe Generale fixed income analyst Ciaran
O'Hagan, adding that governments need to be more selective in who
they rescue.
However, Irish bank CDS spreads were quoted tighter across the
board, with Anglo Irish bank five-year senior CDS around 250 basis
points tighter, with subordinated CDS a huge 450 basis points
tighter.
Five year senior CDS written on Bank of Ireland and Irish Life
& Permanent were around 20 basis points tighter, while Allied
Irish tightened around 35 basis points.
Anglo Irish requested that its shares were suspended Friday on
the Irish and London stock exchanges. The Irish government said
late Thursday it will take control of Anglo Irish to secure its
continued viability after taking hits from an accounting scandal
and the broader financial crisis.
Company Web site: www.angloirishbank.ie
-By Vladimir Guevarra, Dow Jones Newswires, +44 (0) 20 7842
9486, vladimir.guevarra@dowjones.com
(Michael Wilson and Mark Brown contributed to this item.)
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