Bank of Ireland / Allied Irish Bank Shares

[voyager3]

Regarding IRE/AIB

I have a bit of spare money (a few hundred Euros) available that I would like to invest - I don't particularly care if it is longterm and it would not be the end of the world if I lost most or all of it, I think I want to risk something that has potential to make a lot of money.

The above two irish banks trade at around 0.2euros, buying a 1000 shares each and sitting on it for a year sounds like it could go either way. Does anybody understand whether there is a chance these stocks will go up towards their former prices again, e.g. 1-2 euros per share, or even more?

It is a gamble I know, I just want to "know" more about the outlook. I am obviously a newbie so don't really know where to find a proper analysis, overall these shares seem to be very overlooked and forgotten and not talked about.

Thoughts?

[rffrydr]

The ADR burn is masking a good restructure story here:

"Bank of Ireland announced on Friday an update on its deleveraging plan as part of its PLAR targets. About €5bn of loans were disposed with proceeds of €4.54bn prior to transaction costs. A US commercial real estimate loan portfolio of $1.13bn looks like it was offloaded for close to par, whilst a UK commercial real estate portfolio of £1.33bn made £1.07bn. A UK mortgage portfolio for £1.23bn was sold for £1.13bn. Project finance drawn down of €0.57bn was sold for 89% of par and a UK Corporate portfolio was sold at close to par. The disposals were capital neutral as RWAs reduction broadly balanced the loss on disposal and proceeds will be used to reduce funding from monetary authorities and are worth about 8 percentage points to the loan to deposit ratio (last reported 165%). The bank indicated its plans on further disposals are reasonably advanced.

It looks like the loans incurred a haircut of c.9%, which is much better than expected, as is the timing on the disposals. Our forecasts used an estimate of the PCAR target for losses on disposal (high 20s), so the actual outturn is about €0.9bn (pretax) lower than we would have expected, so potentially adding about 2.7c to our existing 16.8c estimate NAV per share, bringing it to 19.5c. However, bear in mind the Central Bank has allocated €0.51bn of additional capital to be raised by “further LME” by year end as part of the bank’s €4.2bn equity plan (raised €1.96bn in LME to date and €1.91bn in a rights issue). With the bank closing in on its capital target, we find the commercial requirement for further LME by the year end target to be much diminished and therefore unlikely.

Should no LME be pursued, then the net capital generated above target to date would be a net €0.3bn or 1c per share to 17.7c. However, the better performance on deleveraging means we are going to halve our implied haircut on residual disposals due, netting a further 1.6c per share, bringing our TNAV per share to 19.3c from the original 16.8c level. For the record, should the LME be pursued, this would rise by a further 1.7c.

The update on the deleveraging heralds some good news for BOI, with the timing on the disposals and the haircut both ahead of expectations, particularly the latter. Our valuation multiple on the stock is 0.5x (1.25x normalised TNAV discounted back by 20% p.a. from year of ROE normalisation), which implies a fair value circa 9.65c. Bear in mind, with the EU looking at possible sovereign haircuts in its upcoming bank recapitalisation plan, BOI is sitting on €3.2bn of domestic sovereign bonds."
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Banks are different. They get "special consideration." Here's an excerpt from JPM's analysis of BOI second tier debt:

[nodoodahs]

I forgot about the "Death Star" LOL!

How about HIG from the $80s to single-digits to the $30s? C from $500 to the singles to the $50s? BAC from $45 to under $4 to the teens?

Certainly each of these was once an option on the company's survivability ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[rffrydr]

Novastar Financial---no kidding
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Today is the Tomorrow you worried about Yesterday!

[nodoodahs]

[rffrydr]

This isn't a stock, its the last viable bank of a nation state....of all 5 million people! I happen to be heavily into this trade as well so I know wherefore I speak

If we were a regular stock, or a regular bank for that matter, we'd been zero'd out long ago but, as we know, national banks don't go bankrupt. Iceland proves the rule. Yes, it's a call option at this point--on Ireland itself. But it has some curious qualities as far as capital structure goes: All the jr. debt is getting "cleaned" in a strange but wonderful (for stockholders) inversion of the capital hierarchy. Meanwhile the national pension fund has come in heavily and the stock price is pretty much their "marker." And you shouldn't have to wait a year for some upside as the capitalization will be completed next month--with far less money from the Continent than expected. As it becomes clear over the rest of the year that these banks aren't going anywhere deposits will flow back and give the ratios a whole new look. And you've got banks stress-tested with property down a further 20% --with that mark carried to 2040!. Good luck if that standard is applied wide! Meanwhile, unlike Greece, the economy is limping back to life.

The risk here is Ireland itself. If the hedge fund rumor of Greece spinning out of europe comes to pass...... But, if the situation turns dire enough to restructure senior debt then thats just more capital to the bottom line. Several call options here. BOI Tangible Equity something like e7Billion E now, e10B with stabilization at Xmas and e2B in the market. Double if ireland still stands should not be a problem--but govt. overhang and utility bank structure will quickly cap any boost. I've been in and out on the few bits of euphoria and got a nice 10% euro trade out of the country's bonds. Looking for 1.36e to do that again. But the verdict in high finance is that Ireland is a basket-case and all hands, abandon ship. Poland was the peripheral we should have been in, not the country that gave the english language "shenanigan"

Sell the ITM May Puts to get long.

http://www.bloomberg.com/news/2011-05-11/bank-of-ireland-may-avoid-state-control-harris-associates-says.html
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Today is the Tomorrow you worried about Yesterday!

[voyager3]

Also as a quick follow up, what in your personal opinion are similar stocks that have a small change of a potentially large gain? I want to read more and get more familiar - but it is hard to find a good place to start!

[voyager3]

Hi,


thank you for your reply. I am not for one minute claiming that I know enough to make an educated guess. But I suppose being aware of that fact itself is not a bad sign and will stop me from risking too much.

I was pretty much trying to find out if a more knowledgeable person such as yourself would scream a definate "Noooo" about the idea of investing in these stocks.

As you said it won't be much money if I lose it and I am happy to take a gamble- you reassured me that my overall observation about the risk and potential of this (small) "investment" was not too far off.

Thank you.

[nodoodahs]

Theory is that when you buy a stock, you buy a portion of that company's equity, and over the long term (theory is), stocks are priced as such and trade as such. In other words, (theory is) that the stocks of companies that are viewed as viable going concerns will drift with the economic prospects and general profitability trends of the companies underlying them.

My observation has been that when a stock runs rapidly down to the region of 1/8th or 1/10th its former price, it's because the company underlying it is no longer a viable going concern (or there's at least doubt about its going concern prospects). It ceases to trade like a stock, and trades more like an option. In other words, it's a call option on the possibility of the company ever becoming viable again.

Buying them, you would be long a call option. Small risk if you're wrong, poor odds of being right, potentially big payouts if you are right.

There's no sure way to "know" more about the outlook. If you knew or were in a position to know or take an educated guess, your post would look a lot different than it does. So you have to decide if you want to take an uneducated guess, and is it worth it (to you) to spend a few hundred Euros on that guess?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.