SHARES IN Anglo Irish Bank recovered from sharp intra-day losses to close unchanged last night as British regulators said they were investigating trading in financial stocks after a spate of rumours triggered exceptional volatility in share prices.
The announcement of an investigation by Britain's Financial Services Authority was seen a direct response to rumours about the financial position of HBOS, whose stock lost as much as 18 per cent in early trading yesterday.
Separately, the Bank of England took the rare step of commenting on the rumours about HBOS, whose Irish business comprises the Halifax branch network and the business lender Bank of Scotland (Ireland). "No meetings have taken place or been scheduled to discuss problems with any institution in the UK," said a Bank of England spokesman.
Senior market participants in Dublin and London believe the volatility in Anglo's share price this week carries echoes of the rumours about the stability of HBOS. They maintain that Anglo has been subjected to market manipulation in the form of aggressive short-selling by London-based hedge funds, but they have not named the hedge funds in question.
Anglo closed last night at €6.90, unchanged in a downbeat market after trading between €7.48 and €6.42. The stock lost 15 per cent on Monday after the fire-sale of Bear Stearns to JP Morgan Chase and it lost a further 1 per cent on Tuesday.
In line with recent trends that have seen Anglo fare worse than other Irish financial stocks in the current market turmoil, shares in AIB, Bank of Ireland and Irish Life & Permanent (IL&P) each recovered some ground yesterday.
AIB closed 0.8 per cent stronger at €12.60, Bank of Ireland closed 1.07 per cent stronger at €8.945 and IL&P gained 3.2 per cent to close at €10.90.
Alex Potter, bank analyst at Collins Stewart in London, said Anglo was a sell at just under €10 a fortnight ago, but said the more recent drop in its share price was overdone.
"Initially with Anglo I think there was a more rapid willingness to accept the fact that rapidly rising euro rates were going to negatively impact the Irish economy. As the Irish bank that is probably most growth geared, if that growth slowed, Anglo Irish would be hit relatively hard," Mr Potter said. "Anglo is now at a record low valuation. It's trading at practically a book valuation and I fundamentally do not believe the business model is fatally flawed. Therefore this seems unduly harsh."
Anglo on Monday said nothing had changed since a trading statement on March 6th, which maintained full-year guidance for 15 per cent growth in earnings per share. On March 5th, Standard & Poors (S&P) reiterated its stable outlook and ratings on Anglo.
In spite of Anglo's most recent guidance to the market, close observers of the bank believe it is suffering unduly due to its exposure to the commercial property sector.
As a prime beneficiary of Ireland's property boom, Anglo's stock rose sharply in recent years.
With the property downturn now well entrenched, the argument goes that Anglo has lost more value than other banks because of the "monoline" nature of its loan book.
As a commercial lender with no branch network, Anglo's deposit base is weighted more heavily towards commercial depositors than retail depositors. Commercial depositors are considered less "sticky" than retail depositors.
However, sources close to the bank said that its statement of March 6th and guidance about the growth in its deposit base and customer retention remained very much intact.
