*****Bank of Ireland’s New Shareholder
*****What’s the Upside?
Thanksgiving is here. I hope you have plans to relax and enjoy a few days
with family and friends. I know I’m looking forward to a few days off. If
you’re traveling, please be safe.
*****The Bank of Ireland is about to have a new majority shareholder.
Ireland’s government is expected to raise its stake in the Bank of Ireland
from 36% to something constituting a majority.
The Irish government is also expected to raise its stake in Allied Irish
Bank to, potentially, 99%.
If this sounds like Ireland is taking a page from the U.S. bank bailout
strategy you’re right. When you’re facing the potential of a run on the
banking system, the government is essentially the last entity that can to
step in and provide a backstop.
I know many of you cringe at the thought of government intervention in a
capitalist system, but the alternative of standing aside and letting banks
fail is no option. Would you want to simply lose money you had deposited in
a bank that failed?
The situation in Ireland is even worse than that, though, because the Irish
government doesn’t have the capital to back its banks, so it has to get a
loan form the European Union.
And, of course, the overall situation is worse still, as Portugal and
perhaps even Spain may have to follow a similar course.
*****The Bank of Ireland (NYSE:IRE) has dropped to around $1.25 a share.
Seeing that the government is prepared to prevent outright failure, we as
investors, we might consider if it’s time to buy a little stock.
After all, anybody that bought Bank of America (NYSE:BAC) or Citigroup
(NYSE:C) when it looked like there was no hope has done pretty well. Since
the March 9, 2009 market bottom Citigroup is up 318% and Bank of America is
Bank of Ireland traded as high as $91 in early 2007. Clearly, the stock’s
not headed back there anytime soon. And it probably never will. But the
shares could pop a little as the government’s bailout plans are
A word of caution to speculators, though. There’s no doubt there will be
bargain-hunters attempting bottom fish the stock. Which means any entry
needs to be well-timed. In pre-market, I’ve watched the stock trade between
$1.27 and $1.35. I suspect that range might give you quick upside.
But let’s not forget that most buyers who enter today are not long term
holders. They will be looking to flip the stock quickly. So if you take a
shot at this one, you should be prepared to sell it quickly. I would expect
much of the gains (if there are any) achieved today will reverse in the
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