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Looks Like Irish Banks Are Heading Towards Nationalization

I had over 4000 shares in AIB before it slumps from 5 to 2 and now I bought 2000 this week and here is why I have now engaged my next year of wage in this company

1) I have non cyclical job
2)The business quality see below :

Well I think it is worth it, I bought 2000 this week and told myself
that in the worst case, I would lose it but that in the advent it
doesn't happens, I won't lose money and this thing will survive and
thrive and be profitable. This business is very well managed and you
should go on their website and read their presentations for 2006, 2007
and half year 2008 + the interim report of november 2008. There you
can see how they managed the business and the risks. Moreover, AIB
owns 24% of M&T Bank (Symbol MTB) and 71 % of BZWBK. Together, the
shares of AIB in these 2 business is worth around 4 times current AIB
market cap, and those companies are profitable and outstanding in
their respective market. This offers a great margin of safety.
Moreover, Irish government is commited to support AIB and IRE trough
the crisis as they are of systemic importance, and they want to avoid
nationalization.
Personnaly I am convinced AIB won't run in life threathening troubles
and that the nationalization and shareholder dilution won't be on the
table. In the case of IRE, I am cautious and I do not buy that. The
principal factors who give some shielding to AIB are the fact they
showed wisdom by making loans at anaverage of less than 70% loan to
value ratio (Means that the collateral against which the debt is
granted can depreciate by 30% before the bank becomes unhedged by it),
they had the insight to avoid massive losses incurred worldwide
following investments in subprime and complex related products, they
had experience with troubles in 2002 when a rogue trader devastated
Allfirst and risk management is more ingrained in AIB culture since
then, they developped partnership with M&T Bank and BZWBK showing that
they are able to detect and assess value correctly and act upon it.
By the way, M&T partnership was decided in 2002 after extensive study
from AIB when they judged that M&T was managed in the same sound
manner as their core business. This is a good sign since M&T has
topped analysts estimates in Q4 2008 and did major profits. For a
bank in USA right now, doing profits is herculean prowess.
Well I told you all I know about this business.
You probably noticed the massive drop in share price over time and
especially over last weekend. It is because government in Ireland
nationalized Anglo Irish Bank, which has the same acronym AIB but
which is very different. This bank, Anglo, did lend to speculative
residential developpers and had not much risk management policies, as
it was relying on an always expanding housing bubble. The director of
Anglo, A guy named Fitzpatrick if my memory is good, also made loans
to himself for 87 million Euros and hid those loans from financial
authoriy for 8 years and he used this money for investments in Anglo,
speculative stuff and also to treat himself well. Facing the
reputation damage to Ireland and systemic risks Anglo failure would
pose to Ireland, coupled to the fact that depositors ran on Anglo when
they knew about scandals and that Anglo was probably insolvent,
government nationalized it. This triggered speculation and great
fears among shareholders of IRE and AIB, regardless to whatever
difference exists between those 3 banks.
From now on, AIB has done an excellent job. They managed with
transparency, talked about risk management in their reports to
shareholders well before 2008, A sign that they did not start managing
risk just after recession fears came in, they passed every rate cut to
consumers which is a sign that they care about team approach to ease
the crisis and that they are financially healthy (You have difficulty
to pass rate cuts to customers when you are in a harder situation
because market knows about it and you can't find wholesale financing
at a rate good enough to be in the money if you lend at the new lower
rate), They did not engage in speculative lending to catch up Anglo
when it did well and their directors did not hide stuff and make
doubtful loans to themselves or known insolvent parties. All the fear
from Anglo nationalization was overstated by the markets and triggered
a drop from 5$ to 1$ in 2 days.
Now, Ireland government is acting to definitely kill viability doubts
about AIB and IRE by accelerating the recapitalization plans to inject
2 billions euros in each in a non dilutive preference share offering
and it is possible that an additional billion be added by the
government and that one could be in the worse case dilutive. At 2$ per
ADR, even a 80% dilution would not change the fact that it is a good
bargain. Personnaly, I think things will ease and that the
recapitalization will just make it loud and clear that Ireland banking
system is strong. This recapitalization move is more political than
essential, but yet I think it is positive on every aspects, especially
for AIB. This buffer will ensure that AIB is not willing to sell M&T
and BZWBK in order to get more capital, and this will certainly
preserve shareholder value as those assets are highly valuable.
Warren Buffett has a 7% stake in M&T, so I am not alone to think it is
worth something. When things improve, AIB will just have to buy back
the shares in the event it received a 1 billion dilutive injections
and it will have to redeem (call back) the prefered shares and then it
will be free to grow and serve us well, the shareholders.
If you read around, there are even people who question Ireland as a
solvent country. For information, Ireland has a debt representing 29%
of its GDP. Highly regarded Canada has a debt of 50% of its GDP, so
Ireland enters recession in a strong position to weather it. USA has
a debt over 100% of its own GDP and despite this, they will, with
reason, incur more debt to invest in themselves to avoid damage that
would otherwise extend far wider than the simple cost of adding the
debt to avoid that damage. I did not go in Ireland yet but maybe I
will and should. From what I know, as we have a lot of Irish people
in Québec who came in 19 th century because of a starvation in their
country, and from what I read on their news paper, Irish are proud of
their country and what they do. They seem to be a cohesive People who
is able to act and mobilize in order to manage acute and important
problems and this bodes well for the current recession.
Right now the bargain is in AIB, and probably IRE but this one has
less layers of protection and is not really cheaper so I stick to
AIB. If market keeps crashing in a wider basis, there is a
probability that the remaining of Irish businesses will be at very
depressed levels and I watch in parallel IRL, the New Ireland Fund
which trades on NYSE. It may become the next big bargain.

Allied Irish: Too Good to Be True?

I have a load of it and it is a bit stressful but at the same time it is promising, especially the batch i bought at 3.87 Friday.

Ireland's Ailing Banking Sector

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.