Ireland's Ailing Banking Sector

Ireland's banks have been hard hit this year, and especially yesterday, though the New Ireland Fund (IRL) is up 6% in trading this morning.

John Murray Brown of the FT reported from Dublin that Ireland’s banks suffered yesterday their biggest one-day fall in share price for two decades on Monday as fears swept the Dublin market about their ability to withstand the downturn in the Irish economy amid the global financial turmoil.

The benchmark ISEQ index tumbled 13%, extending its loss this year to 52.5% – the biggest decline in 2008 by a big European bourse. IRL is roughly trading at just 1/3 its high achieved less than a year ago.

Anglo Irish Bank (AGIBY.PK), the specialist property lender, plunged 45% (it has recovered 3/4 of that loss so far today), while Allied Irish Banks weakened nearly 16% (AIB) (recouped today) and Bank of Ireland (IRE) lost 15% (up 10% today).

“Everyone has been spooked . . . investors have turned their guns on the next country which is seen to have issues to deal with and that is Ireland,” said Eamonn Hughes, banks analyst with Goodbody stockbrokers.

Ireland's Celtic tiger economy was just a year ago the envy of the European Union with strong and consistent growth. However, with its construction and property markets in deep decline, last week it became the first country among the 15 members of the euro single currency to declare it was officially in recession.

Comments

[Dividends A...:]

I was in the UK during most of March and each business professional I met with talked confidently about how the US housing & credit woes wouldn't have a contagion effect on Europe or the rest of the world. I heard the usual buzz terms like "well capitalized", "strong lending practice" and "conservative consumer debt".

Its unfortunate but it looks as though "risk" is the word that is being redefined.

2008 Sep 30 12:55 PM

[Greg Pinelli:]

A VERY typical Alpha piece..lots of little "buzzwords"..no analysis and...OF COURSE...one's picture and name. So..what is the analysis...???
Where is AIB going from here?
Is the Ireland property market likely to hold up better or worse than most EU countries?
What are AIBs strengths and weaknesses...what's the story????

2008 Sep 30 08:46 PM

[LittleGuy:]

Agreed, Georealist.

Carl took a blind and erroneous hit on AIB on his last piece. We asked for clarification then and never received it.

I hope you have better luck in holding him acountable.

2008 Oct 01 09:22 AM

[Here's a th...:]

I own shares of IRE and have been following this for sometime. I am way underwater on them of course but I have continued to hold on because I have yet to see any solid or convincing evidence of why. Tough times ahead but people still need banks.

2008 Oct 01 11:35 AM

[Chris B:]

I am underwater on AIB. I bought it cheap and it got cheaper. Yet at a PE of something like 2, and at less than book value, I'll stay aboard. Low prices, after all, are not a good reason to sell anything.

A leading and profitable bank in one of the world's most educated and developed countries, with assets in Poland and the US that it could sell to raise emergency cash if ever needed, and with government backing of deposits that has caused a flood of deposits has got to be worth more than that.

2008 Oct 03 08:50 AM

[swaps:]

I have a few shares of AIB bought earlier this year after it tanked. Several different analysts in different media said it was good buy and was not involved in subprime. Of course, it tanked even more in recent months. It is barely breaking even. So I should do more due diligence than rely on several apparently unrelated experts who agree. And not be sentimental about ancestral Ireland, which now has a half million African and Mideast foreigners there as resident workers. But then the globalists hate individuality.

I bought a few shares of IRL around two years ago, and then added some more earlier this year. So this is further proof that international diversity has to be more carefully thought out and executed.

I will continue to hold both and will add to both in the future to cost average. But no more money goes in right away.

One thing I found interesting in New Ireland's annual report was that it did not list major shareholders. It simply said all shares were held by Cede, the clearing house trust that holds all shares presumably, which is a scary thought. We really do not seem to own our shares. We have a claim on them. Sometimes I wonder what if our benificent government would resolve some future economic calamity by turning everyone's shares held in CEDE to some foreign creditor with claims on the nation and its inhabitants. But that is off topic.

2008 Oct 04 02:42 PM

[jaedi:]

Where do I start?

Maybe I should let RTE's current affairs program do it for me:

www.rte.ie/news/2008/1...

The problem in the Irish financial system is twofold - a lack liquidity due to the international credit crunch - and SOLVENCY which will become all too clear when the Irish banks are forced to reveal all the hidden bad debts on their books from collapsing Irish property market.

Although the Allied Irish Banks (AIB) share price has bounced nicely, we can look forward to extended negative shocks. Both the bank's management, the country's politicians and even the financial regulator, Patrick Neary, are effectively in complete denial about the domestic source of the problem - huge property speculation financed by the banks, and completely useless regulation which permitted the leveraging to explode with no basis in fundamentals. The massive deleveraging process taking place across the globe will be magnified in Ireland.

So why are we not seeing this in their balance sheets? As one Irish senator put it - Irish banks are incestuous - among themselves and with their clients. They're in bed with the property developers and constructors to such an extent that they are avoiding calling in their loans which are massively in breach of the covenants (conditions) already. The values of the assets on the banks' balance sheets is now completely unrealistic and therefore the amount of bad debt is invisible to investors doing their due diligence.

At least, it will be an interesting fourth quarter. Avoid AIB, (ALBK on the London Stock Exchange) and IRL (Ireland ETF) for the moment.

2008 Oct 05 08:01 AM

[Fliujniligui:]

I have AIB. They have 24% stake in M&T Bank in USA. Seems Warren Buffet is in M&T too. For now if you take 24% x M&T market cap, you have something around one third of AIB market cap. If price drops too much, buying AIB will give you more exposure to M&T than buying M&T directly. The Fat P/E, the low amount of writedowns incurred on first half of 2008 and the dividend history seems interesting. Maybe the road will get bumpy but on long term the dividend can be good. Are not low prices and counter-crowd moves the hallmarks of value investing ?

I read annual and half year reports, well it seems good. Maybe some bad assets exists but we can't get a grasp on em really, as with any other bank. That is the risk component of the business. Bought some ING Group shares too with the same idea behind it. Diversification has still its place even when fundamentals are FAT.

2008 Oct 08 10:32 PM