Ireland’s ‘Citigroup’ Gets St. Patrick’s Day Pop
Bad loans forced the government to purchase a significant stake in this bank, it trades for about $4 a share and its stock price is up 20 percent this year, with most of the gains coming this month. No, this is not a description of Citigroup, but Allied Irish Bank , tradable right here on the New York Stock Exchange under the ticker (AIB).
While Citigroup has been breaking out this month on optimism the U.S. government will exit its ownership stake smoothly, leaving an adequately-capitalized bank, Allied Irish Bank, Hibernia’s largest financial firm by market value, is experiencing a similar optimism. The stock is up more than seven percent today alone.
Allied Irish announced a $4 billion bond swap this week in an effort to raise $550 million. Allied, along with Bank of Ireland are trying to raise capital ahead of a “bad bank” transfer set to begin this month. What’s uncertain is the amount of the haircut that the Irish government will force the banks to take for taking on their bad loans.
“This situation is very similar to the U.S. involvement in Citigroup ,” said Brian Kelly, founder of Kanundrum Capital and frequent ‘Fast Money’ contributor. “The Irish government does not want to plough more money into Allied Irish, so the incentive is to accept whatever amount of capital they can raise as sufficient.”
The results of the bond exchange will be released on March 22, but it is unclear what the new capital requirements will be from the Irish government’s NAMA or National Asset Management Agency. (Acronyms like TARP know no borders.)
“The fact that AIB came to market means that they are confident the deal will be well subscribed,” predicts Kelly.
To be sure, just like Citigroup here, analysts are urging clients to be cautious on diving into the sub-$5 stock because of the risk of a double-dip recession raising consumer credit losses.
“While NAMA removes the excessive property and developer risk from Irish banks, they remain exposed to the cyclical Irish risks,” wrote John-Paul Crutchley, UBS analyst, in a note earlier this month. He rates the shares ‘neutral’.
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