Irish Bank, Property Stocks Lead Slide After Sinn Fein Surge

(Bloomberg) --

Irish stocks slid on Monday after polls put Sinn Fein in place for a possible role in government, fueling declines in banks and property shares given that the party’s policies include a wealth tax and a freeze on residential rents.

The benchmark ISEQ Index slid as much as 1.4%, with Bank of Ireland Group Plc and AIB Group Plc falling as much as 7.8% and 6%, respectively. Among real estate stocks, Irish Residential Properties REIT Plc slid as much as 8.3%, the most since June 2016, while Glenveagh Properties Plc fell 7% and Cairn Homes Plc dropped as much as 6.2%.

Polls indicate that no party won a majority in Saturday’s election after a surge in support for Sinn Fein, whose economic policies are more left-wing than those of Ireland’s other two main political parties, including a public housing program and lowering the retirement age. Talks on government formation will likely begin in the middle of the week, with attention focusing on the role Sinn Fein might play.

Banking Backlash

Bank stocks are particularly in focus as Sinn Fein seeks to raise revenue from increases in the bank levy and halt the ability to use deferred tax assets, according to Davy analyst Diarmaid Sheridan.

Also negative for the sector would be the party’s plans for greater intervention in areas such as loan pricing and retaining the state’s majority stake in AIB, Sheridan said in an email.

Policies on mortgage rates may also be a focal point for investors in bank stocks, as well as corporate and general taxation concerns, according to Goodbody analysts led by Eamonn Hughes.

“The fact that both Fianna Fail and Sinn Fein are focused on mortgage rates will also likely drive investor concern on rate implications for the banks,” Hughes wrote in a note. “All in all, share prices of the sector are likely to struggle in the days ahead.”

Property Uncertainty

Property stocks are also under pressure. Some of Sinn Fein’s housing policies, such as cutting Help to Buy, increasing social housing provision on sites to 25% from 10% and initiating a rent freeze would “ultimately be negative for supply,” according to Davy analyst Colin Sheridan.

While these stances are likely to soften in prospective negotiations with the opposition Fianna Fail party, “the length of these negotiations will also impact stocks in the sector and country more generally,” he said in an email.

To contact the reporter on this story: Morwenna Coniam in Dublin at mconiam@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Paul Jarvis, Lukas Strobl

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