Shares in Ireland’s largest mortgage lender Irish Life & Permanent dropped more than 12% today after it said that it was exposed to senior debt issued by Icelandic banks which are being taken into State ownership.

In a Stock Exchange announcement today it said that its exposure, the extent of which was not revealed, was ‘in common with many other banks’. It holds bonds sold by the Icelandic banks.

‘There is still uncertainty as to how that situation will resolve itself and the level of impairment that will result. The Irish Life & Permanent Group enjoys a strong and flexible capital position and we regard the situation as very manageable from our perspective - regardless of what scenario unfolds.The group will be updating the market on this and other relevant issues when we publish our interim management statement in mid November.'

Iceland’s government and financial services authority have taken control of its three main banks - Kaupthing, Landsbanki and Glitnir this month as the country’s financial system has been battered by the credit crunch.

The bank’s share price closed at €3.10 and has fallen more than 70% this year.

Deirdre Hipwell