BoI leads share price surge on back of new plan for government
BANK of Ireland shares shot up as much as 11pc yesterday, leading an Irish stock market surge turbo-charged by increasing certainty a Government will be formed and the prospect of a stimulus package.
AIB (+9.16pc) and landlords Hibernia Reit (+3.5pc) and Ires Reit (+1.46pc) were also swept higher as the market digested the implications of the programme for government (PFG) published on Monday.
The ISEQ 20 index of major Irish shares outperformed European peers yesterday, led by the banks.
Davy analyst Diarmaid Sheridan said global shares were up anyway yesterday after fresh support from the US Federal Reserve and Bank of Japan.
In Ireland, the increased likelihood of a centre-right government gave an added boost to bank shares in particular which had sold off sharply after the February 8 general election on the prospect a leftwing Sinn Féin-led government might emerge, he said.
Concrete moves to put a Fianna Fáil/Fine Gael/Green government in place by the end of this month have removed that perceived risk.
The prospect of a stimulus plan including retro-fitting and mortgage supports for homebuyers is also seen as positive for banks, said Mr Sheridan.
Builders Cairn and Glenveagh and builders suppliers such as Kingspan also saw shares rise.
The incoming government will inherit stakes in AIB, Bank of Ireland and Permanent TSB that have been in State hands since the bail-outs. The PFG says the incoming coalition is ideologically in favour of privatising those stakes, but only at attractive prices.
A collapse in banks’ share prices in the last two years in particular means share sales are unlikely for now.
“We do not believe that there is a long-term case for the State to remain as a shareholder in the Irish banking sector. However, we should not sell our current holdings until such a time as we are likely to recoup a significant portion, if not all, of the State’s investment,” the PFG states.
On Monday, Minister for Finance Paschal Donohoe said it could take another decade to divest the stakes, and he admitted that heeding a call two years ago from NTMA CEO Conor O’Kelly to sell bank shares would have netted a better return than is currently available.
In February this year, Mr O’Kelly repeated his advice, warning policy-makers not to try to call the market or wait for a share price recovery.
He said the State should cash in its holdings in AIB, Permanent TSB and Bank of Ireland, and use the proceeds as a matter of policy regardless of timing the sale to optimise a recovery.
‘We should not sell until we are likely to recoup investment’