M&A Watch: Pain in Irish Style Bank Mergers (AIB, IRE)

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If you have watched Allied Irish Banks plc (NYSE: AIB) or Bank of Ireland (NYSE: IRE) recently, you will have figured out that the banks are not just in trouble.  These banks could literally be wards of the state after one or two more sets of financial hiccups.  The pending stress tests are putting two more banks at risk of nationalization, making the Irish banking merger trend perhaps the worst form of merger ever for shareholders and creditors.

Ireland is set to release its stress tests on Thursday on Allied Irish Banks, Bank of Ireland, Educational Building Society, and on Irish Life & Permanent.  The fear is that Irish losses will be far worse than what has been released to date.  Frankly, we have stopped tallying it up.  Think California thrifts in the early 1990s, but on a national scale.

The risk here is that Ireland cannot handle this alone.  Let’s call it a bailout on top “The Last Bailout” on top of many prior bailouts.  It still seems as though most feel that Allied Irish Banks and Bank of Ireland will get to survive as public entities.  Bank of Ireland could lose its relative independence by losing its majority-private stake, but Allied Irish is more than 90% owned by the state already.

Allied Irish is down almost 2% at $2.53 per ADR today, while Bank of Ireland is down almost 5% at $1.73 per ADR.  Investors and speculators have found it painful trying to play the game of catching knives in Irish banks.  This is a situation where bottom fishing has become bottom sniffing.

Usually M&A is a good thing for creditors and investors.  That might not be the case in terms of Irish M&A.  The one hope could be a Wilbur Ross intervention.  He has done it before.  Just be advised that he generally prefers to come in after the owners and creditors have been mostly wiped out.

JON C. OGG