Bank of Ireland and Allied Irish: Better Bet Than U.S. Banking Giants

Irish stocks look cheap. Irish banks look very cheap.

The Irish banking industry is highly concentrated; a few players account for the majority of the industry. It's been an excellent business for a long-time; and in the long-term I expect it to continue to be an excellent business.

In the short-term, the Irish economy is going to slow-down, house prices are going to drop sharply (more sharply than in the U.S.), and construction activity is going to drop dramatically (much more dramatically than in the U.S. – where a lot of uneconomic building has continued despite the dire headlines).

Two banks (with ADRs) worthy of your consideration are Bank of Ireland (IRE) and Allied Irish Banks (AIB).

Your time will be much better spent studying these two companies than trying to sift through the rubble and find a gem among the major U.S. financial services firms who face:

1. A tougher short-term credit environment
2. A less promising long-term economic outlook
3. An inferior competitive position

Furthermore, these major U.S. financial services firms – diversified though they may be – have shown no evidence of possessing corporate cultures more inclined to conservativism than the Irish banks mentioned above. So, basically, these great big behemoths are set to sail stormier seas with inferior crews.

I know you think you know Citigroup (C), JP Morgan (JPM), Bank of America (BAC), and Washington Mutual (WM) – and maybe you do. But now's the time to get to know these two Irish banks, which I think you'll find are better buys than the domestic giants that constantly clog the financial media with headlines.

So that's today's pompous prognostication: Shares of Irish banks, Bank of Ireland and Allied Irish Banks, to outperform the biggest U.S. banks.

More importantly, shares of these two Irish banks look cheap for long-term investors, not just relative to the biggest U.S. banks, but relative to just about everything out there – in the U.S. and abroad.

Comments

[granger:]

IRE gets my vote and has for the last few years. I added substanitally today. I am a long term investor and like the diversification it adds to my portfolio.

2007 Nov 14 05:56 PM

[BudFox:]

Not sure I agree with conservative moniker. AIB lost $700 million with rogue trader a few years back. Also Irish banks have been offering 100% mortgages for first time buyers!

2007 Nov 15 02:12 AM

[Paddy Whack:]

On the face of it Irish Banks may look cheap - on P/E, Price to Book and relative to where their share prices have traded. What I would say however is that Ireland has had a property bubble greater than the US and the Irish banks have been financing this bubble. They are very exposed to the Irish property market - on the commercial and residential side. The prognosis for the Irish economy imo for the next years is very poor and Irish banks will continue to underperform.Yes of course every cat has a bounce at some point but I think that you are falling into a value trap here

2007 Nov 16 12:24 PM

[Fliujniligui:]

I am AIB shareholder, there is some risk but seems decent for 5 years + holding time and dollar cost averaging on next years. Indeed more conservative than US banks, but risk seems way higher than with Canadian Banks, with a price lower accordingly with Irish banks when compared to Canadian banks. They should raise capital right now to be sure they run in no trouble, but apart from that, their fundamentals are nice.

2008 Nov 16 07:00 PM