Irish, British Banks Head Towards Zero On Nationalization Concerns

Equity prices in the three remaining Publicly Traded Irish Banks Collapse after Anglo Irish Bank was nationalized.

In afternoon trade, Allied Irish shares were down 62%, Bank of Ireland fell 49% and mortgage and insurance specialist Irish Life & Permanent dropped 41%.

Analysts said shares in Allied Irish and Bank of Ireland were being hit particularly hard because of growing investor fears that the banks' existing shares will be heavily diluted when both banks formally accept billions in government investment this spring. Shares in the Dublin-based bank had fallen 98% over the past year on the back of bad debts and corporate scandal.

The government had previously proposed taking a 75% stake in Anglo Irish at a cost of 1.5bn euros (£1.36bn; $1.97bn). But it dramatically opted for a full takeover on Thursday, on the eve of an emergency shareholder meeting called to approve the earlier government investment.

Nationalization Concerns Sink RBS

Bloomberg is reporting RBS Plummets Amid Concern Bank May Be Nationalized.

Royal Bank of Scotland Group Plc slumped by the most in two decades in London trading on concern the government may have to take full control of the bank after forecasting the biggest loss ever reported by a U.K. company.

The stock dropped 67 percent, the most since September 1988, to 11.6 pence, paring the Edinburgh-based lender’s market value to 4.6 billion pounds ($6.7 billion).

“Nationalization at zero value is implicit in the price,” said Derek Chambers, an analyst at Standard & Poor’s Equity Research Ltd. who has a “hold” rating on the stock. The stock price “is an option on the vague chance that it doesn’t get nationalized.”

“I am angry at the Royal Bank of Scotland and what has happened,” Prime Minister Gordon Brown told reporters in London today. The bank took “irresponsible risks,” in investing in U.S. subprime mortgages and ABN Amro, he said.

“The numbers are truly horrible,” said Robert Talbut, who helps manage about $31 billion at Royal London Asset Management. “The government is very clearly in the driving seat, and I would expect RBS to shrink back to being a more U.K.-focused bank.”

The bank will cut lending in international markets which saw “most of the excess balance sheet expansion” under Goodwin, Hester said today. “We are going to restructure and retrench to our most valuable customer franchise business,” in the U.K.

Darling today rejected calls from lawmakers in his own party to temporarily seize the whole banking industry to get credit flowing to households and companies. “We have a clear view that British banks are best managed and owned commercially and not by the government,” Darling told Parliament today. “That remains our position.”

My position is Darling is saying one thing and doing another. When does Obama follow suit?

No respite for Europe’s banks

The Financial Times is reporting No respite for Europe’s banks.

After enduring a torrid previous week Europe’s banking sector failed to rally on the British government’s planned intervention for its own banks. German financial shares were hammered again as investors reeled from the RBS announcement and weekend press reports that the 20 largest German banks had written down just a quarter of the €300bn of toxic assets on their balance sheets.

This caused a continuation of the wave of selling that last week drove Deutsche Bank down 17.5 per cent and saw Postbank lose over 30 per cent of its value. The beleaguered German bank Commerzbank initially rose in morning trade but eventually succumbed to the torrent of selling hitting its peers, falling 4.5 per cent to €3.04. Its larger rival Deutsche Bank fell 10 per cent €17.85 and Postbank shed another 13 per cent to €7.46.

Denmark’s Danske Bank was another of the financials that started the session well only to fall back into the red. Having gained 2.5 per cent to DKr59.75 after the Danish government unveiled an $18bn credit package it fell in afternoon trade to DKr57.

Belgian bank KBC suffered heavy selling for a second session as worries mounted over its exposure to bad collateralised debt obligations and predicted writedowns. KBC fell 17 per cent to €13.14. Pressure on KBC was exacerbated by rumours circulating that a large shareholder in the bank was about to sell its stake.

French banks also suffered, with BNP Paribas falling 9.7 per cent to €26.16 and Société Générale down 9.5 per cent to €28.76. Credit Agricole, which surged on Friday after a Credit Suisse “buy” rating, was 7 per cent lower to €7.69.

Swiss bank UBS enjoyed a brief bounce after announcing it had agreed to buy the commodity index of troubled US insurance group AIG. The bank said it will pay $15 million after the deal closes and another $135 million over eighteen months depending on future earnings of the index.

If you get the idea that the global banking system is insolvent, you have the right idea.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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