Irish investors were not immune from a fresh bout of jitters on global stock markets yesterday, as concerns that a host of big US and European financial institutions are nursing serious problems relating to the troubled American mortgage market created a new wave of turbulence, writes Laura Slattery.
Equity markets tumbled in the US and Europe, with particularly sharp falls in the share prices of big banks and other financial groups, such as those that insure mainstream debt instruments.
The Iseq index fell 2.1 per cent, with global sentiment wiping €2 billion off its value. As banks around the world - from big US institutions such as Citigroup to European counterparts such as Barclays and Unicredit - took a tumble, the Irish financial stocks proved no exception.
Bank of Ireland and Irish Life & Permanent suffered most, falling 4.6 per cent, while AIB dropped 3.1 per cent and Anglo Irish Bank fell 2.7 per cent.
These signs of rising tension came as the US Federal Reserve redoubled its efforts to ease conditions in the money markets. The Fed added $41 billion (€28.4 billion) in temporary reserves to the banking system yesterday, the biggest one-day cash infusion since September 2001. But the large injection did not stop the cost of interbank funds remaining above the Fed target yesterday.
Concerns are intensifying that more western banks have yet to reveal losses relating to the US sub-prime mortgage market.
However, Minister for Finance Brian Cowen told the Institute of Bankers last night that the Irish financial system had proved itself to be "resilient" in what have been testing times for the international financial sector.
Speaking earlier in the day, the Tánaiste also told the Leinster Society of Chartered Accountants that the growth rate of public expenditure must slow down in accordance with the moderation in the rate of economic growth.
An "appropriate incomes policy" and a flexible labour market were necessary to arrest the deterioration in the State's competitiveness and help it absorb economic shocks, he said. - (Additional reporting Financial Times service.)
