Ireland: Opinions divided as to outcome of bank bail-out

1st April 2011

This week the Irish Central Bank completed a new series of stress tests on its High Street banks and announced another huge, if mostly expected, euro 24bn injection of cash.

On Thursday Irish Prime Minister Enda Kenny agreed to a recapitalisation of the banks without senior bondholders sharing the pain, something he had been demanding, and it is thought that this is the reason the shares have performed so well.

If the Taoiseach cannot impose his will on bondholders, it means the banks can continue to borrow in future with an implicit guarantee of state and international backing. Otherwise borrowing by the banks might have become more expensive which would not have pleased the stock market.

Mindful Money blogger Shaun Richards said deleveraging by Irish banks was "likely to have a downwards influence on the Irish economy at a time when it least can cope with it".

He writes: "If you add all the smaller asset sales to the ones I quoted above you come to 76 billion Euros which is around half of one years economic output."

"The outlook for the Irish property market – commercial and residential – was unclear and adding some 76 billion of asset sales is unlikely to help it is it.

"Also there remain underlying problems with deposit flight from Ireland as otherwise it could start to wean itself off funding from the ECB and its own central bank."

Emily Adderson, financials manager at Henderson Global Investors, said the move was a quasi-nationalisation of the Irish banking system. She added that many UK investors would have exposure to the Irish banking system via Lloyds Group and Royal Bank of Scotland.

In a recorded commentary which can be viewed here she says: "For Lloyds the annoucneent is a positve, the announcement is in line with expectations,  although for RBS there could be further pressure to come through."

The ICB report will have full guidance 

 The BBC sent its very own economic prophet of doom Robert Peston to Dublin. His grimly worded BBC blog on the unbelievable truth about Irish banks is here.

Here The Telegraph provides a roundup of analysts' mixed reactions.

However, the Irish stock market, at least, seems pleased with the outcome as shares in Ireland's two biggest banks rose quite dramatically in early trading.

The rise is reported here in the Irish Times.

The Bank of Ireland was the stock market favourite as it said it was examining other sources of capital raising other than from the state, rising 33 per cent this morning.

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