Next Irish Government Unlikely to Interfere in Banks, Davy Says

(Bloomberg) -- Ireland’s next government should ease investor concerns about state interference in the nation’s banking sector, according to analysts at Dublin-based securities firm Davy.

The proposed coalition government “removes political uncertainty and, in particular, the risk that policies towards the banking system would become more interventionist,” analysts Stephen Lyons and Diarmaid Sheridan said in a research note on Wednesday. Previous attempts by opposition parties to control mortgage pricing and mortgage asset sales are not “contained in the program for government and therefore the risk of either raising concern again should be greatly diminished,” they said.

The country’s traditional main parties, Fine Gael and Fianna Fail, agreed a governing program with the Green Party on June 15. If the parties’ members accept the program, the new coalition government could be in place before the end of the month.

The Irish government holds about 71% of AIB Group Plc, 14% of Bank of Ireland Group Plc and 75% of Permanent TSB Group Holdings Plc. Investors had been concerned that state ownership of the banks left them open to political interference. That concern should now be removed, Davy said.

Bank of Ireland was the best performing stock in the Europe Stoxx 600 Index on Tuesday, a day after the governing program was published. The stock has fallen 62% this year, while AIB has dropped about 61%. Permanent TSB is down 55%.

The new government “will provide a more stable backdrop, while the priorities for government will create green and mortgage lending opportunities,” Lyons and Sheridan said. Ireland beginning to reopen its economy from lockdown to control the coronavirus should also benefit the banks, they added.

Bank of Ireland shares were down 2.2% as of 10:11 a.m. in Dublin, while AIB was down 3.3% and Permanent TSB rose 5%. Davy has outperform ratings on Bank of Ireland and AIB and rates Permanent TSB at neutral.

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