ABOUT €3.5 billion was wiped off the value of Irish shares in Dublin yesterday as the market felt the chill wind blow in across the Atlantic from the fire sale of US investment bank Bear Stearns.
The large loss was the result of the Irish stock market's heavy gearing towards financial and construction-related stocks, which took a hammering yesterday.
All of the Irish bank stocks declined in value. Anglo Irish Bank fared worse, losing just more than 15 per cent of its value to close in Dublin at €6.96. At one point yesterday, the bank was down by 22 per cent.
Anglo, although highly profitable, is heavily exposed to the commercial property market and a corporate slowdown, and has been the subject of negative market rumours of late.
A spokesman for the bank said it had issued a detailed trading update on March 6th and "nothing has changed since then".
In that trading statement, Anglo maintained its full-year guidance of 15 per cent earnings per share growth.
"There are, however, risks associated with further financial market disruption and the potential impact of a protracted deterioration in the wider economic environment," it added on March 6th.
That disruption was felt yesterday with news that Bear Stearns would be acquired by JP Morgan Chase for just $2 a share, a 93 per cent discount on its closing price last Friday.
Central bankers and regulators around the world scrambled to shore up confidence in financial markets as panicky investors reacted to the news that Bear Stearns's equity was close to worthless and fears that the investment bank may not be the last casualty of the credit crunch.
On Wall Street, markets fluctuated wildly all day, veering between negative and positive territory as investors were buffeted by rumours which sank shares at a number of financial groups, including UBS and Lehman Brothers, which reports today, and which at one point saw its stock fall 46 per cent.
The US Federal Reserve's move on Sunday to offer emergency finance to all its primary dealers initially appeared to spook the markets further.
President George W Bush, opened the door to further emergency actions by US authorities.
"We obviously will continue to monitor the situation and when need be, will act decisively, in a way that continues to bring order to the financial markets," he said.
It emerged that the US government has agreed to take on any credit losses suffered by the Fed on its $30 billion loan to Bear Stearns.
In Asia and Europe shares tumbled, led by financial stocks, and the dollar plumbed fresh lows against the euro amid growing concerns that other financial institutions could suffer the same fate as Bear Stearns.
Analysts said that Sunday's Fed-sanctioned takeover of Bear Stearns by JP Morgan Chase for just $230 million - one hundredth of Bear's valuation a year ago - had caused investors to flee shares of financial institutions.
Shares in Bear Stearns were down nearly 90 per cent at $3.70, while JP Morgan had risen 8.8 per cent on news of the deal.
Investors switched away from assets perceived as risky, pushing down the price of oil from recent highs, and moved aggressively into safe havens.
The S&P 500 was down 2.2 per cent at 1,265.11 and near its day's low in early afternoon trade. The S&P investment bank index was 14.5 per cent lower and has lost more than 50 per cent since its high last June.
In London, the FTSE 100 fell 3.86 per cent to 5414.4. The Hang Seng lost 5.18 per cent and the Nikkei closed 3.71 per cent down. (Additional reporting Financial Times)
