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Bank of Ireland Drops Most in Ten Months After Regulator’s Move

Bank of Ireland Drops Most in Ten Months After Regulator’s Move

(Bloomberg) --

Bank of Ireland Group Plc’s shares fell the most since February amid concerns the lender may be forced to hold more capital in reserve.

Shares in Ireland’s biggest lender dropped as much as 7.2% in Dublin after the Bank of England published its latest round of stress test results and doubled its counter cyclical capital buffer - which is designed to release funds into the economy if conditions deteriorate - to 2%. That could force Bank of Ireland to hold an extra 30bps of capital, according to Goodbody analyst Eamonn Hughes.

”Both Bank of Ireland and AIB have been caught up in the sell off in U.K. lenders post the stress test results,” Hughes said in an email response to questions. “Sentiment is clearly against the sector today.”

While the Bank of England will work to insure the change has little overall impact on U.K. banks, Irish lenders’ so-called Pillar 2 minimum capital levels are set by the ECB, so the move will likely have “knock on consequences for the Irish banks,“ Hughes said earlier in a research note Tuesday.

Shares in AIB Group Plc dipped as much as 4.4% in Dublin. The buffer increase may add about 20bps to the lender’s capital requirement, Hughes said.

Bank of Ireland shares were down 5% to 4.85 euros in Dublin at 11:16 a.m. AIB shares were 3.15% lower at 3.19 euros.

“Increasing the countercyclical capital buffer is a surprise, however, and will, in our opinion, constrain capital returns in the U.K. sector,” Davy analysts Diarmaid Sheridan and Stephen Lyons said in research note. “It also negatively impacts both BOI and AIB, already facing the prospect of a systemic risk buffer.”

To contact the reporter on this story: Peter Flanagan in Dublin at pflanagan23@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Dara Doyle

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