Ireland’s two largest banks rallied this week in the build up to an emergency budget unveiled by the Irish government to take bad debts off their hands.
Such a move had been anticipated in the market, with Ireland’s two biggest banks gaining momentum since the start of March – Allied Irish Banks up 240 per cent and Bank of Ireland 380 per cent. Under the plan, a new National Asset Management Agency will be charged with buying up to €90bn in toxic bank assets at a discounted price.
There was, however, a reversal on Thursday after the Irish government warned it could take a majority stake in its lenders as part of its “bad bank” scheme. Fitch, the ratings agency, also downgraded both banks to A- from A, on fears they might sustain severe losses from the transfer of their property loans to the government agency.
Allied Irish Banks ended the week up 27.2 per cent at €1.12, while Bank of Ireland gained 23.5 per cent to €0.84.
Elsewhere, on Thursday the German government ended weeks of speculation by saying it would buy out Hypo Real Estate at a generous €1.39 a share, in an effort to nationalise the troubled lender. The offer pushed its shares up14.2 per cent to €1.37.
In a week shortened by the Easter holiday break the pan-European FTSE Eurofirst 300 index rose 0.9 per cent to 778.39. France’s CAC 40 gained 0.5 per cent to 2,974.18; and the German Xetra Dax rose 2.4 per cent to 4,491.12.
French technology group Capgemini on Wednesday said it would sell €500m ($657m) in convertible bonds, a move that surprised some because the group already had a strong cash position. Capgemini shares fell 3 per cent on the news, but bounced back 0.8 per cent to €25.50 the following day.
Pernod Ricard, the French spirits and wine group, fell after it launched a €1bn cash call and issued a profit warning due to a recent fall in sales. Pernod also announced the sale of its Wild Turkey bourbon brand to Italy’s Campari for $575m.
Pernod fell 9 per cent to €40.81 over the week, while Campari rose on the news, ending 1 per cent higher at €4.80 as investors toasted the Wild Turkey acquisition.
The decision reinforced expectations of a fresh wave of rights issues from indebted European companies, or those wanting to amass a war chest for future acquisitions.
So far, the majority of the more than €50bn of share issuance in Europe this year has come from UK companies whose simpler shareholder structure makes rights issues easier to orchestrate than their continental European counterparts.
“Rights issues by UK corporates have been helped by a more concentrated shareholder base and a smaller number of retail shareholders than continental European corporates”, said UBS analyst Daniel Stillit.
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