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The bloodletting may be far from over for Ireland's banks as the wheels come off what was once Europe's fastest-moving economy.
The Government said on January 16 it would seize control of Anglo Irish Bank following a scandal that forced the resignations of its chief executive and chairman. Three days later, Brian Goggin, CEO of Bank of Ireland, said he will retire a year early following a bailout announced in December that also included Allied Irish Banks.
"Nobody can stop what's happening," said Ken Murray, CEO of Blue Planet Investment Management in Edinburgh. "It's going to carry on, and governments [will] have to come up with the capital because the market doesn't have it."
Ireland's financial industry fed the so-called "Celtic Tiger" as the economy more than doubled and banking shares increased at least fivefold in the decade ending in 2006. Now the property market is collapsing, Irish financial shares are down more than 90 per cent from a year ago, and some analysts say it's just a matter of time before Bank of Ireland and Allied Irish, the two biggest lenders, combine or end up in state control.
"Merging is one possibility that needs to be actively looked at now," said Ray Kinsella, business professor at the University College Dublin. "The second option is nationalisation, to take them into public ownership for a fixed period of time."
Ireland needs both Bank of Ireland and Allied Irish to survive, said Alan Ahearne, a lecturer at the National University of Ireland in Galway and a former economist at the Federal Reserve in the US. "So it would be reasonable for the Government to put more money into them or even nationalise them," he said.
Bank of Ireland, dropping as much as 33 per cent earlier in the day, recovered to close down 7.5 per cent at 37 euro cents. The shares are down 56 per cent this month, valuing the bank at 372 million.
Allied Irish rose 27 per cent to 57 euro cents in Dublin yesterday, cutting this month's loss to 67 per cent. Still, the company's market value of 503 million is less than Bank Zachodni WBK SA, the Polish bank it owns. The Irish financial index fell 7.9 per cent.
The Government will provide "whatever funds necessary" to enable Allied Irish and Bank of Ireland to finance themselves, Foreign Affairs Minister Peter Power said yesterday in an interview with Dublin-based broadcaster RTE.
Ireland's economy is set to slump 5 per cent this year, Western Europe's worst performance, the European Commission forecasts.
- BLOOMBERG
