SEVEN INTERNATIONAL hedge funds have bet hundreds of millions of euro that Irish bank stocks will continue to fall.
Although it is normal stock market practice, since last Friday short-selling of the four Irish publicly quoted banks has been banned by the Irish Financial Services Regulatory Authority. While the regulator banned investors from taking new short positions, existing positions can be maintained, reduced or closed.
By maintaining their positions, the hedge funds are betting that Irish bank stocks, already at record lows, are set to fall further. As it is not clear when the initial share trades took place, brokers said the actual monetary value of the bets is unclear.
However, using yesterday's closing prices, the seven funds hold positions worth €279 million in the four quoted Irish banks.
Five US and two London-based funds have disclosed their short positions.
Cumulatively, they have short-sold 4.56 per cent of Anglo Irish Bank stock, 2.25 per cent of Bank of Ireland and 0.88 per cent of both Allied Irish Bank and Irish Life & Permanent.
US-based hedge fund Tiger Global Management holds the largest overall position against Irish banks, while London-based Landsdowne Partners holds the largest single short position of 1.63 per cent of Anglo Irish Bank shares.
Despite early gains on the Irish stock market yesterday morning, stocks were whittled down in afternoon trading as fears about the future of the US government's bank rescue package returned to haunt markets in the afternoon.
The Iseq index of shares eventually closed the day 1 per cent better off at 3,774.93.
At one stage, however, it was trading up about 3 per cent as markets throughout Europe, having benefited from a bounce precipitated by legendary US investor Warren Buffet agreeing to invest $5 billion (€3.4 billion) in Wall Street investment bank Goldman Sachs
This was later overshadowed by ongoing concerns that the US Congress may not pass the $700 billion rescue package for the troubled banking sector, which caused Irish stocks, in line with markets around Europe, to drift off in afternoon trading.
The uncertainty also caused money markets to seize up once again as the rates that banks charge each other for borrowing money soared.
US presidential candidates Barack Obama and John McCain agreed yesterday to work on a common approach to the bailout plan.
Mr McCain has suspended his campaign and called for tomorrow's presidential debate to be postponed until Congress and the White House agree on a plan to address the crisis in the financial system.
However, Mr Obama rejected Mr McCain's call to postpone the debate to work on legislation dealing with the worst US financial crisis since the Great Depression.
"It's my belief that this is exactly the time when the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess," Mr Obama said.
The rescue package must be passed before Friday as Congress is due to go into recess in advance of the presidential election.
Last night, in a move to gain support from a number of sceptical legislators, US treasury secretary Hank Paulson agreed to include provisions in the measure that would restrict executive pay in participating companies.
In what could be a critical concession in efforts to pass the legislation into law by Friday, Mr Paulson told a Senate committee that the government "must" find a way to address the remuneration issue in the plan.
"The American people are angry about executive compensation, and rightfully so," he told the House Financial Services Committee, departing from prepared remarks.
"Many of you cite this as a serious problem, and I agree. We must find a way to address this in the legislation, but without undermining the effectiveness of this programme."