# Irish banking shares in complete meltdown



## Murt10 (29 Sep 2008)

AIB -19%
BOI - 18%
Anglo - 37%
Irlife &P -32%

I kid you not


What on earth is happening.


Murt


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## Brendan Burgess (29 Sep 2008)

We don't allow discussion of share prices on Askaboutmoney.

But as today's movements are exceptional we will allow this discussion. 

All comments will be screened. 





Brendan


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## shanegl (29 Sep 2008)

3 European banks had to be rescued over the last few days.

One factor that can't be blamed this time is short-selling.


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## Sunny (29 Sep 2008)

Murt10 said:


> AIB -19%
> BOI - 18%
> Anglo - 37%
> Irlife &P -32%
> ...


 
Its simply a reaction to what is happening with regard to Bradford & Bingley, Fortis, Hypo Real Estate, Wachovia and all the others. Its absolute carnage or a scale that has never been seen before. One thing for sure is that I don't care what the regulator or government says. Our banking system is at just as much risk as any other Country's. You don't see a 40% share price drop for no reason. And they can't blame short sellers this time. If this keeps going for the rest of the week I am willing to bet that we will be seeing our first Irish casulty.


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## Howitzer (29 Sep 2008)

There's speculation trading in banking shares on the ISEQ might be suspended by the Financial Regulator.

[broken link removed]

Very hard to comment on the ins and outs of why that might be without discussing the mertits and demerits of the individual companies, and their subsequent value re their share price, but suffice it to say that actions such as that are usually an indication that the system doesn't know what's going on either.


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## dereko1969 (29 Sep 2008)

i found this to be a very interesting article on the worst day yet in europe
[broken link removed]
in it he mentions the issue of insuring sovereign debt on the credit default swap market and that the UK and USA are less credit-worthy than many European countries but he didn't mention Ireland and when I tried to google it I couldn't find much, so I'm not sure where Ireland fits in at the moment. 
However an interesting article I found during that search is here
http://www.moneyweek.com/personal-finance/credit-default-swaps-how-to-spot-the-riskiest-banks.aspx
irish banks feature heavily here and it should be noted that the Icelandic bank Glitnir that was nationalised today features at number 3 - a point to note is that this article was written in March this year!


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## z106 (29 Sep 2008)

The ISEQ is down 13%.

Before this the biggest one day decline was 8.8% for black monday back in 1987.

Is this the biggest one day decline ever?


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## Raskolnikov (29 Sep 2008)

I'm afraid the chickens are coming home to roost.

The worldwide banking community has looked at Irish banks and their massive exposure to property and not liked what they've seen. _All_ our banks have lent huge amounts of money to developers to buy land. Due to reckless lending, we were at the mercy of the international credit crunch. Banks suddenly stopped lending, buyers weren't able to get the mortgages to buy property. Builders were then unable to shift their properties, let alone build new ones. This has meant that inventory has surged and prices have fallen. 

So far, the banks have been willing to accomodate developers. They know full well that if they force the hand of the developers, then they may trigger a collapse. 

I have maintained that there would be a property crash for a few years now. However, I always thought that it would be homeowners that would trigger the crash. I thought that the developers would be far too cagey to have allowed themselves to get so exposed. It now looks like this is the opposite case. Homeowners will trudge through the misery of negative equity and we'll see the developers folding and declaring bankruptcy.


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## Brendan Burgess (29 Sep 2008)

Discussing share valuation is a very sensitive issue. Could people please disclose upfront in any post whether or not they own shares in banks. Any posts which don't have such a comment will be deleted. 

I am trying to get clarification from the Financial Regulator as to whether the Markets Abuse Directive applies to Askaboutmoney.



> 17. A person who produces or disseminates recommendations shall -
> (a) take reasonable care to ensure that the recommendations are fairly presented, and
> (b) disclose any interests in or conflicts of interest concerning the financial instruments and issuer to which the recommendation relates.


Disclosure: I have shares in AIB directly and through the ISEQ ETF in all the other banks indirectly. 

This reminds me of the situation during the dot.com boom. It was simply impossible to get people to look at the fundamentals. People were paying multiples of revenue for companies which were not making any profits and which had no real plans to make profits. It was impossible to speak to these people. Optimism ran mad. A company would issue a share split proposal and the shares would rise in value. A share split should not have any impact on value at all. 

It's clear that the profitability of Irish banks is going to be severely affected by the economic crisis. In particular, the banks will have bad debts arising from their property loans. 

But the prices seem to assume things to be far worse than they actually are. It assumes that banks will lose a huge part of their assets due to bad debts and that they won't make profits again for many years. For that reason, I believe that bank shares are good value. Mind you, I did believe that six months ago and have lost around 50% of the money I invested then. 

AIB, for example, derives its profits from Ireland, Poland, the UK and America. That is reasonably diversified. 

Last week, Irish Life and Permanent was valued at the net value of the Life Insurance company on its own. In other words, you were getting to own permanent tsb for free.  This makes no sense to me. 

Of course, investing in shares is risky. There might be an announcement tomorrow that one of our big banks is in difficulty and that the government is not going to rescue it. The other banks may lose heavily because they have lent to that bank. But at these prices, the potential reward well outweighs the risk.

Brendan


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## z103 (29 Sep 2008)

just on cnn.com;
U.S. lawmakers reject $700 billion plan to bail out the financial system, Dow Jones down 600 points.


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## LDFerguson (29 Sep 2008)

leghorn said:


> just on cnn.com;
> U.S. lawmakers reject $700 billion plan to bail out the financial system, Dow Jones down 600 points.


 
Here's the story on Bloomberg and RTE.


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## Brendan Burgess (29 Sep 2008)

Folks

This is really time consuming. I will say this yet again: 

Discussing share valuation is a very sensitive issue. Could people please disclose upfront in any post whether or not they own shares in banks. Any posts which don't have such a comment will be deleted. 

for example



> Disclosure: I have shares in AIB directly and through the ISEQ ETF in all the other banks indirectly.


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## Jethro Tull (29 Sep 2008)

First of all I do not own shares in any bank

I personally think there is a serious chance of a failure/government intervention/nationalisation by the end of the week if the Fed bailout isn't passed (and as things stand the nays have it)

Therefore I'd struggle to buy any Irish banking share


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## Dom.K.Morgan (29 Sep 2008)

Brendan said:


> Last week, Irish Life and Permanent was valued at the net value of the Life Insurance company on its own. In other words, you were getting to own permanent tsb for free.  This makes no sense to me.



Disclosure: I own no banking stocks. 

Unlikley. Life insurance companies were buyers of toxic securities and funds stocked with toxic securities which are impossible to value, so the book value of such companies is meaningless in the conventional sense.


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## Thomas22 (29 Sep 2008)

Brendan said:


> It's clear that the profitability of Irish banks is going to be severely affected by the economic crisis. In particular, the banks will have bad debts arising from their property loans.
> 
> But the prices seem to assume things to be far worse than they actually are. It assumes that banks will lose a huge part of their assets due to bad debts and that they won't make profits again for many years. For that reason, I believe that bank shares are good value. Mind you, I did believe that six months ago and have lost around 50% of the money I invested then.
> 
> ...



Disclosure: I have no holdings in any of the Irish Banks

The only flaw in this analysis is it ignores the possibility that the Irish banks will have bad debts greater than their current capital.

While some may consider this a remote possibility I would think it is almost a certainty. 
The Irish banks have lent massive amounts to developers in the last few years to purchase undeveloped land banks. BOI said recently in a market update that this has already fallen by 40%.

If one of the major developers goes bust it is game over for the Irish banks. They simply do not have the capital to cover these potential loses.

Personally I don't believe they have the capital to survive the likely loses on these loans.


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## regicide (29 Sep 2008)

(No direct interest in Irish banking shares)

I see Ft.com has singled out Ireland on it's front page 

http://www.ft.com/cms/s/0/fa245de0-8e4e-11dd-9b46-0000779fd18c.html

I'm am starting to think there is a certain element of denial on the part of the Irish banking/political establishment. Whenever there is a general slump in shares worldwide, the ISEQ seems to be hit harder than most other indexes. 


reg


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## ecstatic (29 Sep 2008)

I do not own shares in any bank.

AIB is very well diversified and i must say a pain to get a mortgage through as in high strict standards for loans.

Fortis had problems today also and they are also very strict with loans. I have applied through both banks for loans before.

Options can be used as shorts on Irish banking stocks just not naked shorts. Also the ISEQ index is 45% constructed of Banks so another manner in which to short the stock.

If i was to venture in id ensure i picked the best of breed whichever bank looks the best long on it and whichever looks the worst short it. Dont try to be a hero out there on the market.

We are no doubt in a small crisis historically the last 7 in the UK lasted an average of three years each. This is best case scenario here.

Worst case scenario we have had our 7 years of boom and now we have our 7 years bear cycle!


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## Brendan Burgess (29 Sep 2008)

Disclosure - share in AIB and in the ISEQ ETF which has all the other shares.

With the nationalisation of three banks in Europe today, the market is pricing that one or more of the Irish banks will be nationalised. 

Going back to Irish Life and Permanent , the market capitalisation of the company is actually 50% of the embedded value. The embedded value is the cash in the banks + the discounted profits on policies already issued.

Dom says



> Life insurance companies were buyers of toxic securities and funds stocked with toxic securities which are impossible to value, so the book value of such companies is meaningless in the conventional sense.



I have not heard it reported that Irish Life has bought toxic securities. Can you provide any reference to back this up? I doubt if there is any substance in this comment.

Brendan


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## theoneill (29 Sep 2008)

I suppose faced with such staggering losses the only thing to do is to sit tight. I remember a word of advice my father gave me regarding the stock market. “It’s knowing when to sell that’s the key” 
  I have shares with two financial institutions and I know that part of my portfolio involves Irish and international banks. They have taken a hammering but all I can do is wait and bide my time. Hopefully with a bit of luck my little investments will come out of this relatively unscathed though I will have had to leave them in the market for far longer than I would have liked.
  Given enough time things will right themselves we just have to ride it out and with these losses many will have little choice.
  Anyway when I was reading some of the papers today I just smiled to myself, I suppose we are living through a protracted bit of financial history unfolding. It’s got everything; money, greed, wars, banks falling, banks being rescued, a US election featuring the possible first female vice president or the first coloured president you couldn’t make this up. Your grandchildren will be reading about this in their history & economic books.  

Disclosure: I have shares in Irish Life and other Irish financial institutions


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## roro123 (29 Sep 2008)

Q1.Is the Irish Government capable of bailing out any Irish bank if the need arose? - This question is not about any bank in particular as I am aware of the rules of the board , but more about whether anyone would discuss if the Government is in a position to bail out an Irish Bank if ever the need arose? 

Q2. If the Irish Government was not in a postion to, then who would bail out an Irish Bank if ever the need arose.

Sorry I forgot to mention 
Disclosure- I have a tiny holding in BOI

Also is there any board similar to Investor Village/Motley Fool where stocks are discussed specifically for the ISEQ?


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## Nomansland (29 Sep 2008)

Disclosure: I have shares in Bank of Ireland and am indirectly invested in the other banks.

Does anyone know if there is after hours trading on Irish banking shares. If so where could one view the after hours price. I know on  you can get the after hours valuation on any of the US tech stcoks. I don't see anything similar on the ISEQ homepage.

Thanks.


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## MugsGame (29 Sep 2008)

Disclosure: I have no shares in any bank or financial institution (apart from a membership account in Irish Nationwide).

Anyone with a pension fund in Ireland almost certainly has an indirect equity stake in Irish banks and other financial institutions.

I may be imagining it, but I've always detected a bit of Paddy bashing among the UK media when it comes to the Irish market. "If the UK is in trouble, Ireland must be worse".

Fundamental book value of the banks doesn't seem to matter at the moment, it's all about perception. Most banks need cheap liquidity to function. If people believe a bank is insolvent then that bank is vulnerable to a forced merger or takeover to improve the perception and provide liquidity. Shareholders may not be rewarded fairly in such a takeover.


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## Murt10 (29 Sep 2008)

Brendan said:


> Going back to Irish Life and Permanent , the market capitalisation of the company is actually 50% of the embedded value. The embedded value is the cash in the banks + the discounted profits on policies already issued.
> 
> 
> Brendan




I would assume that the same applies to the other banks and they all have a large embedded value. The Financial Regulator has already stated that he is happy with the banks and that they have the funds to cover all possible outcomes.

I suggest that the Government issues a statement tomorrow morning, before the market opens, stating that they will buy any shares that are offered for sale at a lower price than the price at close of business today. This will give them time to decide what to do and will also stop the panic selling that is going on. In the worst situation they will lose some money but if what Brendan says is true, they will end up buying shares at below their true value.

Given the massive fall in the DOW, after the close of business here, I would expect an even bigger bloodbath on the ISE tomorrow. This fall is going to be bad for confidence in the country and for the pensions that we all have in one way or another. It couls also mean that some of the banks have to br nationalised.

At least this way we can buy some time until it becomes clear what is our best course of action.


Murt


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## Brendan Burgess (29 Sep 2008)

The embedded value of a life insurance company is a technical concept. It's not like the book value of a bank which is subject to a lot more estimates and provisions. 

If you are trying to value Anglo for example, you have to second guess the direction of the property market and whether their customers will be able to repay their loans. 

Brendan


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## beekeeper (29 Sep 2008)

I think its very important not to lose touch of why the Irish banks are being hammered so much. Its not because they are unprofitable. Its because they cannot fund themselves.... they cannot get access to money.  Also the big hedge fund players have the Irish banks by the throat and are short both the ISEQ and the basket of financials.  With the fall of nearly 50% in Anglo today unless the govt do something overnight Anglo will trade below 1 tomorrow and could easily go to the wall. This is unfortunate but can the govt step in and pick and choose which bank to support as its only time before the rest of the banks face the same dillema.

Disclosure: I have no shares in Irish banks.


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## kaymin (29 Sep 2008)

I tend to agree with Mugsgame and don't think it is worthwhile assessing a banks worth based on p/e ratios or net asset values in the current environment. 

A bank can become insolvent despite its current profitability because of an unwillingness of other banks to lend it money. If it is suspected that an Irish bank will suffer significant bad debts in the future then other banks will charge it high interest rates and / or withdraw finance entirely. The high finance costs that result from unfavourable sentiment will quickly give rise to unprofitable lending which may result in insolvency.

I don't believe share price movements directly affects a banks ability to survive, however, it does affect sentiment and unfavourable sentiment adversely affects a banks ability to finance its balance sheet at interest rates that allow it to make profits. 

I don't have holdings in any Irish banks.


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## markowitzman (29 Sep 2008)

Irish bank share prices bear no relationship to fundamentals.
I would think now would be a very good time to do a benjamin graham like analysis of irish bank shares. Any value investor boffins out there?

Disclosure
I have no direct holdings in Irish bank shares.


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## kaymin (29 Sep 2008)

markowitzman said:


> Irish bank share prices bear no relationship to fundamentals.
> I would think now would be a very good time to do a benjamin graham like analysis of irish bank shares. Any value investor boffins out there?
> 
> Disclosure
> I have no direct holdings in Irish bank shares.


 

I think it is pointless to try to value Irish bank shares using 'fundamentals' given that it is unfavourable sentiment that is causing the liquidity crisis and the banking failures. I don't think sentiment / excessive risk-taking can be easily factored into such a value based approach yet these are the matters that are fundamental to any buy or sell decision.


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## Meathman99 (30 Sep 2008)

Murt10 said:


> I suggest that the Government issues a statement tomorrow morning, before the market opens, stating that they will buy any shares that are offered for sale at a lower price than the price at close of business today. This will give them time to decide what to do and will also stop the panic selling that is going on. In the worst situation they will lose some money but if what Brendan says is true, they will end up buying shares at below their true value.
> 
> Given the massive fall in the DOW, after the close of business here, I would expect an even bigger bloodbath on the ISE tomorrow. This fall is going to be bad for confidence in the country and for the pensions that we all have in one way or another. It couls also mean that some of the banks have to br nationalised.
> 
> ...




Just wondering why its ok to effectively bail out the banks and not property developers.  I like many others am likely to lose my job soon if theres no upturn in the property markey.    

I have no shares in any banks


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## flusteredma (30 Sep 2008)

i have no shares with nobody not even irish banks.

I am however seriously comtemplating getting some Irish Bank shares now.
Am I crazy or does anybody think along these lines....I have just received my davy telephone share dealing account application in the post...this takes three days or so to set up...which is a long time....thoughts anybody?


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## Duke of Marmalade (30 Sep 2008)

beekeeper said:


> With the fall of nearly 50% in Anglo today *unless the govt do something overnight* Anglo will trade below 1 tomorrow and could easily go to the wall. This is unfortunate but can the govt step in and pick and choose which bank to support as its only time before the rest of the banks face the same dillema.


 
Very astute foresight there _Beekeeper_.

Disclosure:  shares in AIB


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## Kemo_Sabe (30 Sep 2008)

flusteredma said:


> i have no shares with nobody not even irish banks.
> 
> I am however seriously comtemplating getting some Irish Bank shares now.
> Am I crazy or does anybody think along these lines....I have just received my davy telephone share dealing account application in the post...this takes three days or so to set up...which is a long time....thoughts anybody?


 
I have shares in BoI (and exposure to all the rest thorugh my pension fund)

to answer your question: yes, you are crazy!

Don't go near this market until things stabilise, you would be better off going down to your local casino as things currently stand. Nobody, repeat nobody, knows where we are going next - this is completely uncharted territory. Any technical or fundamental analysis would tell you that most banks are screaming 'buys' at present but this market is now being driven by fear - and banks around the world are being driven out of business because of it (Bear, HBOS, Wachovia,B&B,Northern Rock, Fortis, Hypo - these names mean anythign to you?). Stay on the sidelines, there will be plenty of buying opportunity when\if things settle down.


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## JR Rizzo (30 Sep 2008)

Brendan said:


> Discussing share valuation is a very sensitive issue. Could people please disclose upfront in any post whether or not they own shares in banks. Any posts which don't have such a comment will be deleted.


 
The poster disclosure is good idea,
and maybe this would over complicate things,
but wouldnt it be helpful and interesting to know if posters had any
other vested interests in the banks,

eg I work of bank X, or my husband does, my dad is a regional manager at
bank Y, I have a fund with bank B

in examples above these people would probably own shares anyway in bank, and have an even more emotional view of whats happening than
"standard" investors

I know people that do work for a bank, and also have bought LOADS
of shares (most through employee share option schemes) in the bank
they work for!

I always advised against this - doubling your bets on the one company.
(company goes down -> lose job and investment)

I can say although its obviously very depressing, most of them have
buried their heads in the sand and are hoping things will be OK....

JR.

Disclosure: I have no professional association with banks, and own BOI shares directly!


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## Brendan Burgess (30 Sep 2008)

As the urgency has passed, we don't need to discuss Irish banking shares any more.

Brendan


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