Category: Archive

Falling euro adds to bank woes

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — Ireland’s banking sector is taking a hammering as shares plunge in the face of new competition, concerns about the economy and lack of confidence that it will be able to compete with new low-overhead internet operations.

Instability in the currency markets has not helped the situation, with the euro sliding 16 percent in the 13 months since it was launched.

In January, the fall of the euro below parity with the dollar resulted in the lowest punt-dollar exchange rate since 1984 and the lowest punt-sterling level since 1981.

It had been expected that the euro would rally in line with the European economic recovery, but that didn’t happen as the U.S. economy has grown faster than observers had expected without generating inflation.

The European Central Bank has increased interest rates and is expected to do so again, but that hasn’t put a brake on the euro slide either.

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Worries about rising inflation and the Irish economy overheating have kept foreign investors out of the Irish stock market and this has added to liquidity problems caused by Irish investment managers rebalancing their portfolio by buying more shares in Euroland zone companies.

The result has seen Allied Irish Banks falling as low as 8.61 euros, from a high of 18.70 euros, and Bank of Ireland hitting 6.50 euros, from a high of 10.50 euros.

The banks have been sliding since they reached highs early last year and the falls have continued this year.

Also suffering problems is the First Active Bank, which changed from being the First National Building Society in 1998. Its shares have plummeted from a high of 5 euros to 1.90 euros.

The beleaguered bank introduced cost-cutting measures before Christmas. However, worries about union problems that might arise from them meant the move failed to shore up the stock price.

Two crisis board meetings have considered a recovery strategy that is expected to involve major senior management changes.

The banking crux has also hit plans by the government to sell off two State banks, the ACC and the TSB.

It had been planned to merge the operations of both banks into a new entity called "Newbank" and ACC employees were hoping for windfalls of about £40,000 from a worker share deal.

Finance Minister Charlie McCreevy has said that a change of ownership in the small niche banks is vitally important to secure their long-term future.

Preparing them for sale is expected to mean cost cutting and job shedding. ACC has a staff of 600 and TSB employs about 1,100.

The merger and flotation of both banks was accepted by the Minister in February 1999 on the basis of a joint recommendation from the boards of ACC and TSB.

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