Banks 'treated savagely' by market

Investors have treated Irish financial institutions savagely over the last year, but they will ultimately recognise that they are a good investment, according to one leading banker.

Denis Casey, chief executive of Irish Life & Permanent, the Republic's biggest mortgage lender, told the Leinster Society of Chartered Accountants yesterday that the sharp fall in bank shares in recent months was a "huge over-reaction".

"Irish banks were treated savagely by equity markets during 2007. But in time the markets will again come to recognise the underlying resilience of both the Irish economy and of our financial institutions."

Mr Casey argued that the Irish economy was fundamentally sound with low public debt, taxes and unemployment, and was well positioned to deal with a more challenging environment.

"It is more sophisticated and broader than at any time in our history."

He estimated that the US sub-prime mortgage crisis had cost the global financial system about $200 billion, and argued that it was the consequence of big banks forgetting the fundamental principle that you only loan money to someone who has a reasonable chance of repaying it.

He told the society's monthly lunch in Dublin that his company believes the European Central Bank will cut its wholesale lending rates by 50 basis points - half of 1 per cent - by the year's end.

He added that such a move, combined with the slowdown in new house building, should provide a floor for Irish property prices this year.

Mr Casey argued that without the Republic's membership of the EU and euro the recent market turbulence would have hit the State a lot harder. "Just imagine how we would have been tossed about by global markets if we were not part of the euro zone."

He called for a Yes vote in the EU reform treaty scheduled for this year, which, he said, would strike a balance between streamlining the operation of a 27-state organisation and protecting the interests of each member.

He stressed that business had an important role to play in making the case for a Yes vote.