If You Believe In the Luck of the Irish…

You may want to start considering investing in Ireland. Depending on your investment profile this may be the grand slam home run that your portfolio will need in the coming years.

The reason it may be a grand slam home run is because the Irish Stock Exchange (ISEQ) is deeply underappreciated. Granted, the country went through what was considered to be “the most expensive financial crisis in world history” and the country is experiencing pandemic liquidity problems alongside the other PIIGS nations which include Greece. Yet the semi-good news from Greece should be a hint that the market has bottomed for the PIIGS. 

Looking at the facts, the central bank of Ireland had to bailout the “Big 4” major banks of Ireland which include the Bank of Ireland. At the beginning of February, 2009 the Bank of Ireland ingested €3.5B in capital to maintain day-to-day operations alongside the other 3 major Irish banks. Now, the central bank of Ireland has commissioned a potential €70B in capital to the ailing banks.

Taking it into perspective, their crisis is ongoing; whereas in the U.S. people typically agree that there has been a recovery since 2010. Recall the U.S. bank bailout of major banks that were “too big to fail”. 

 

Citigroup had famously hit the tank breaking the barrier of a penny stock just like Bank of Ireland has done. Citigroup had increased five fold and garnered a market value equivalent to the amount of capital injected into it from the bailout, after an infusion of capital from the Federal Reserve. Markets like capital injections!

In the second week of February, 2009 after the central Bank of Ireland had received €3.5B do you want to guess what happened to the stock? It went up five fold. In fact, Bank of Ireland’s market value went up 29 times from trough to peak! This trough was the ultimate low that the company had experienced since its noble inception of 1783!

Of course you haven’t missed out on this once in a lifetime opportunity, if you think like a billionaire investing in Bank of Ireland would be a lifelong investment. There’s another reason you haven’t missed out though because the price has fallen to the ultimate low again of £0.12 as quoted on the London Stock Exchange.

And this time the central bank is potentially injecting 10 times what it did in February 2011 under the agreement that the “Big 4” shrink their balance sheets by the amount of capital procured; €70B. Speculatively speaking, investing in the Bank of Ireland is sheer gold especially when considering the stellar price recovery of distressed U.S. financial stocks.

Ireland’s situation is different given the austerity precept that pervades the industry now, and there may be a pledge for bank nationalization which would effectively be a government buyout of the company. The government has made a deal where they may own up to 70% of the bank. However, it wouldn’t be all too surprising to see the Bank of Ireland trading at 10 or even 20 times what it’s at now in the coming years. All emotions and speculation aside, this is a once in a lifetime opportunity to buy a stodgy bank for pennies on the dollar. Also, investing in Ireland is a very good idea.

 

UPDATE:

Bank of Ireland passes EU stress test with flying colors! They have posted a tier-1 capital ratio of over 8% which means they are well enough cushioned for adverse scenarios and would remain solvent. Currently, Bank of Ireland and Allied Irish Bank are awaiting EU clearance for more aid and they will have to remit a restructuring plan to the EU by the end of July.