Irish Life & Permanent shrank first-half losses, defying expectations for a bigger shortfall, and said it expected Irish mortgage arrears to peak this year, sending its shares up 12 per cent at one point.
Irish Life's stock was the only bright spot on the country's financial index on as investors were prepared for yet more bad news when nationalised lender Anglo Irish reports first-half results.
The escalating cost of purging Anglo Irish of a disastrous property binge has pushed Ireland back to the centre of European debt fears and raised the stakes for the country's lenders as they prepare to refinance debt and wean themselves off a government guarantee of their liabilities.
Irish Life, the country's largest life insurer and fund manager, is the only major lender to avoid needing a state bailout due to its lack of exposure to failed property developers and the strength of its life insurance business.
But the group may need to raise capital, possibly via a rights issue, if a bid for is successful and it merges its bank unit with that building society.
"That uncertainty over what is going to happen to the bank, how much capital will they need in the event that there is a merger with EBS? All those issues remain to be resolved and I think, until the market has figures for the capital in particular, that is going to hold the stock back," said Emer Lang, analyst with Davy Stockbrokers.
Irish Life is competing with three private equity groups for a majority stake in EBS and Kevin Murphy, the group's chief executive, said the winner of that auction may not come till the end of next month and there could yet be a third round of bids required.
The group has previously said that it would need to raise about 900m euros (£740m), including some 700m euros from a rights issue.
While operating profits at the group's life insurance business rose 40 per cent, operating losses at its banking unit remained broadly flat at 131m euros and Murphy said permanent tsb would continue to record losses while the life unit's recovery would persist.
"We can see signs that recovery is well under way," Murphy said, adding that he expected Irish mortgage arrears to peak towards the end of this year.
Arrears in permanent tsb's Irish mortgages rose by 28 per cent in the first half.
City A.M. Reporter