Europe's banks shares rise after Irish rescue plan

 

European bank shares rose early on Monday in a cautiously positive reaction to an 85 billion euro rescue of Ireland aimed at halting the spread of its banking crisis to other euro zone countries.

The bailout included 10 billion euros to recapitalise Irish banks in the coming months and 25 billion more for them if needed, in a move that policymakers said safeguards euro zone financial stability in the face of concern that problems will spread to Portugal and Spain.

By 0810 GMT the DJ Stoxx European banking index was up 1.5 percent at 196.8 points

Irish bank shares rose despite the prospect the state will own more of the top two lenders, and Allied Irish Banks was up 8 percent and Bank of Ireland up 17 percent. Portugal's Millennium bcp added 1.3 percent while Spain's Santander and BBVA each rose 1.5 percent.

Analysts said there was relief that senior bondholders will not be forced to take a "haircut" under the rescue plan, which could have caused financing problems for all Europe's banks.

The reaction was cautious, however.

"Our initial thoughts are that they will do little to alleviate concerns among debt and equity investors in the short term (and may even exacerbate the sovereign debt crisis), although the changes being implemented are the right thing to do morally in the longer term" said Andrew Lim, analyst at Matrix.

European Central Bank policymaker Christian Noyer sought to bolster market confidence in the IMF/EU rescue for Ireland, telling cagey investors they should have faith in the plan's success.