| Economy - General | | Written by Administrator | | Wednesday, 30 March 2011 13:21 |
Are Ireland’s banks as bad as many fear? There’s no doubt that the Irish Banks face colossal damages from a collapsed residential market. However, will every bank be nationalized? Could Ireland really afford to shut down its entire banking sector? The media and rating agencies certainly haven’t helped the situation by constantly punishing the banks causing further liquidity issues as depositors flee to protection. But things may not be as bad as they appear, and more than likely a slightly negative result that is far better than the Armageddon forecast by journalists may have a much better impact than an artificially polished report. While Allied Irish Banks plc (NYSE: AIB) was already nationalized earlier in the year, Bank of Ireland (NYSE: IRE) and Irish Life & Permanent (who’s share were suspended from trading on Wednesday) are feared to expect the worst tomorrow when Ireland publishes its latest stress tests results. Ireland has been debt burdened with a gargantuan 85 Billion Euro rescue package provided by the European Union (EU) and the International Monetary Fund (IMF). The bewildered Irish banks were expected to need an additional 8 Billion Euros to be injected last February however, due to political elections, the funds were never deposited and where put off until after the March Stress Tests due out tomorrow. Journalists have been throwing around a calculated number somewhere just south of $35 Billion Euros that the banks will be required to have to pass the new stress tests. Using Residential Real Estate as the culprit. The new stress tests are using a key level of a 62% drop in Real Estate Values from 2007 to 2013. Much of Ireland has already experienced such losses which may have already been reflected in the last stress test. Undoubtedly the current stress tests will be far worse than the original stress tests conducted last year. But, not all banks will necessarily face the same dooming result. Bank of Ireland Chief Executive, Richie Boucher, and Chairman, Pat Molloy, met yesterday with Finance Minister Michael Noonan to reportedly make a last ditch effort to keep the bank from becoming fully nationalized. Earlier in the year Bank of Ireland made significant steps in raising capital to cover their 2 Billion Euro gap from the previous stress tests, and even paid a dividend payment of 250 Million Euros to the Irish Government just last month to fend off any additional dilution of the Bank. At that time, Bank of Ireland showed some optimism that they felt they would be able to pass the March Stress Tests or meet them with very little additional capital. We haven’t heard much from the bank since those statements. However, one can assume that if the bank made a 250 Million Euro payment to fend off additional dilution of shareholders, one can also assume the Bank still has some playing cards left in their deck. Following tomorrows stress tests, good or bad, as long as the tests show a clear and trustworthy picture of the banks financial position, I think we’ll see banks such as Bank of Ireland trend towards a price more suitable to their valuations, and while those evaluations may not be as high as some hope, the markets have already priced in the worst case scenario so the chances of those evaluations being much higher than current valuations is very likely. Disclosure: Long IRE. http://www.fearthevix.com/...ner-for-valuations-&catid=49:general |
Thread abonnieren
