Failed Bailout?

Bank shares tumble as bailout contagion fears continue

The markets are officially over the Irish bailout: bank shares are diving, while bond yields are still on the up.

FEARS AMONG INVESTORS that the worries about Ireland’s economic future have continued today, despite Sunday night’s approval by the European Union’s finance ministers of a bailout for the country and its banking sector.

Shares in Ireland’s banks have continued to plummet in value today, following the indication that the banks would have to be “radically downsized” as part of any funding being drawn down from the international contingency fund currently being negotiated between Ireland and the ECB and IMF.

As of 1:30pm this lunchtime, AIB shares were down 6c to 35c each, while shares in Bank of Ireland had shed a massive 11c to lie at just 28c apiece.

Irish Life & Permanent – which fell by almost 40c yesterday – has also lost another 3c to lie at 81c each.

Central Bank governor Patrick Honohan this morning admitted that there was ongoing “market concern about tail risk in the banks’ portfolios”, telling Chartered Accountants Ireland that injecting new capital to the banks would be “costly, especially for dealing with tail risks”.

There’s little good news on the bond markets either, where fears about Ireland’s political future – and Olli Rehn’s declaration that the bailout discussions demanded that the Fianna Fáíl-Green Party budget be passed – have sent the cost of borrowing shooting up, with investors preparing for a potential return to the bond markets by the Irish state.

10-year bonds for Ireland have returned to 8.341% as of 1:45pm, up by almost a quarter of a percentage point since opening, while 8-year bonds stand at 7.955%.

The spread between the cost of Irish ten-year bonds and German ten-year bunds has reached 5.764%.

Fears over Ireland’s future have also sent the cost of borrowing for Spain to a record within the lifetime of the Euro, standing at 4.886% for ten-year bonds.