Ireland braces for stress test

Marion Dakers
IRELAND is due to announce the results of its banking stress tests this afternoon, raising the spectre of further nationalisations, while Portugal, Spain and Greece continue to grapple with their debts.

Irish finance minister Michael Noonan will announce at 4.30pm whether the country’s banks have enough capital to withstand future financial shocks.

Prime Minister Enda Kenny told parliament yesterday that Noonan will outline the next steps towards a “strong, working, credible banking structure” after the results.

Trading in the shares of Bank of Ireland and Allied Irish Banks, the top two lenders, will be suspended today pending their stress test results and any subsequent announcements, to avoid “the possibility of a disorderly market”, the Irish central bank said last night.

Analysts estimate the four remaining Irish lenders – Bank of Ireland, AIB, Irish Life & Permanent and EBS – require between €18bn (£15.8bn) and €23bn in additional capital.

The government has set aside about €35bn to support the debt-ridden banks. “I think the market is positioned for less [capital than the government has set aside], but it is a pretty enormous figure no matter what,” one trader said.

Meanwhile, Spain’s planned merger of its cajas (regional banks) looked close to collapse yesterday after the Bank of Spain ordered the four banks involved to come up with an alternative plan. Three of the partners in the state-backed Banco Base plan voted against the restructuring yesterday.

And Portuguese and Greek government bonds underperformed other Eurozone debt yesterday following Tuesday’s ratings downgrades, with their yield and credit default swap curves expected to invert further on bets it was inevitable Lisbon will seek a bailout.

Portuguese 10-year yields rose by six basis points to 8.303 per cent, with the three-year debt yielding 8.914 per cent. Five-year Portuguese credit default swaps rose by 15 bps to 565 bps, on track for the highest close on record, according to provider Markit.