Irish Banks: When Wards of the State Leave the Orphanage (AIB, IRE, NBG)

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If you have been following the crisis news regarding the PIIGS, or the PIGS, nations, Ireland seems to currently be overlooked due to the immediacy of the Greek woes.  The problem is that the Irish banks are melting all over again and the headlines are becoming even more troubling.  It is like teaching a child to say “De ja vu, all over again.”

If you take a look at the ADRs of The Bank of Ireland (NYSE: IRE) and Allied Irish Banks plc (NYSE: AIB), these have not exactly had a good week.  They are both actually still very active in the U.S. and for all practical purposes they are wards of Ireland.  Investors today might want to consider that investing new money into these stocks may be a bit like buying into an orphanage rather than investing into a bank.

Bank of Ireland (NYSE: IRE) shares were above $1.50 last Friday and the stock hit a low of $1.20 this past Tuesday and shares closed at $1.27 on Thursday.  Now its 52-week range is $1.20 to $4.86.  Allied Irish Banks plc (NYSE: AIB) shares were at $2.66 last Friday, shares hit a low of $2.40 on Wednesday and closed at $2.42 on Thursday.  The adjusted 52-week range is $2.00 to $15.25.  The news this last week only sets up for more drama to come this summer.

Where this gets interesting is that AIB and BofI creditors are pushing back yet again.  Concessions have been made, haircuts have been taken.  Dow Jones wrote this week that a group of AIB bondholders are challenging Ireland’s new powers, saying that the government is bullying and demonizing creditors as AIB is set to impose losses of up to 90% in the subordinated debt.

Bank of Ireland has been in talks with bondholders as it is trying to raise new capital with buying back junior debt for issuing new shares under a rights issue.  It is this new rights issue price talk that is still out to late June and the talk was around 11.3 to 11.7 cents in Ireland on the local exchange.  In Dublin, those ordinary shares trade at 13.5 cents and the 52-week range is 0.133 to 1.75 in local terms.  With restructuring and creditor discussions taking place all summer and with a deep discount expected, suddenly it is no wonder that ADR shares here in America keep putting in new lows.

What we cannot help but wonder is why on earth these banks have not considered a state-side (U.S. that is) discussion.  American institutions seem more than eager to invest in garbage if trash is sold cheap enough.  Maybe the worry is that hedge funds will be able to overpower the specialists in these shares at the NYSE.