buying bank shares

mickdw

Can someone outline the possible pitfalls relating to bank shares at the minute.
If say anglo is taken over by another bank, what happens existing share holders etc?

BuffyBot

moved to Investments & Markets.

Rob987

Hi,

Not sure I'd go anywhere near Anglo. For a good synopsis of Anglo's position, read Richard Curran's piece today in the Sunday Business Post (markets section, p.2). On the other hand, as long as the shares are traded, you could make a few quid in the short term. As a long term option, there is in my opinion significant downside risk including S&P's recent report on them, the fact that the bank still has as yet unascertained bad debts which will only be properly unwound over the coming years (not months) and recent senior management resignations. Witness the share price movements in the 3 main banks last week following the Gov's announcement re capital injections. AIB/BOI were up slightly but Anglo went down. Anglo has the look of a rudderless ship at present, which doesn't imbue one with confidence.

I would agree with Curran's view about September being the right time for the Government to have cut both Anglo and Irish Nationwide loose (with perhaps a guarantee of their deposits only, not all debt). They are arguably not systemic to Irish banking in the same way as the clearing/retail banks are. I attended a talk last week where Brian Lenihan was the keynote speaker. His key points re Anglo were deposits and the message that an Irish bank failure would send to the international markets. I have dealt with the deposit point above. The latter point is a more difficult one, however witness the US approach where some banks were allowed to fail by the US administration for this reason, while systemically important ones were saved.

As for the other two banks, they're both down over 90% from their highs of the last few years. One one view, they could well represent excellent value now. Positives would be a more varied balance sheet but they're still going to get a roasting (in terms of bad debts) over the next few years. The markets are not reacting well to the fact that current management are still in place. As for long term prospects, I'll have to reach for my crystal ball...

Just my views. I'm sure others here will argue otherwise.

Rob

Hanley

Rob987 wrote: »

The latter point is a more difficult one, however witness the US approach where some banks were allowed to fail by the US administration for this reason, while systemically important ones were saved.

Lehman Bros?

Rob987

Yes, the likes of Lehman Bros and Washington Mutual were allowed to fail by the US administration. Systemically important institutions such as Citigroup and AIG were supported through massive bailouts by the taxpayer. Unfortunately our government has backed itself into a corner by guaranteeing all deposits and debt of the covered institutions including Anglo Irish Bank.

If it were to allow Anglo to fail now, the taxpayer would shoulder the burden (costing billions more) unless perhaps some form of structured sell off/hive across of impaired assets was possible - presumably at a large discount to reflect the inevitable write downs. There's nothing new about selling distressed debt, the main thing is that the bank owning it has either written it off completely or very substantially in its balance sheet. However, this will affect capital. I've met a number of insolvency specialists in town over the last number of months advocating various types of funds to purchase/restructure such debt. The reality is, until these debts are unwound, this crisis has a long way to go. It's about solutions now and not prolonging this mess. See also Morgan Kelly's piece in the Irish Times last Saturday which is scathing of the current approach. We're taxpayers and therefore have a vested interest in seeing our hard earned money put to good use.

To the OP, personally I wouldn't go near Anglo stock at the moment!

Cantoris

Rob987 wrote: »

Yes, the likes of Lehman Bros and Washington Mutual were allowed to fail by the US administration. Systemically important institutions such as Citigroup and AIG were supported through massive bailouts by the taxpayer.

If the US had to do it again, they would not have let Lehmans go. While not systematic, they did not realise the pain they would inflict on insurance companies and those that had Lehmans as counterparty. BOI lost €35m from the Lehmans fall out, other banks lost a lot more. September was a turning point, downwards, in banking circles. It has been depressingly bad since that decision was made and any little hope of a short exit from the current mire disappeared when the actual effects of letting Lehmans go came to light. The US made a fundamental mistake with Lehmans which has effected the rest of the world.

Hanley

Cantoris wrote: »

If the US had to do it again, they would not have let Lehmans go. While not systematic, they did not realise the pain they would inflict on insurance companies and those that had Lehmans as counterparty. BOI lost €35m from the Lehmans fall out, other banks lost a lot more. September was a turning point, downwards, in banking circles. It has been depressingly bad since that decision was made and any little hope of a short exit from the current mire disappeared when the actual effects of letting Lehmans go came to light. The US made a fundamental mistake with Lehmans which has effected the rest of the world.

My point exactly. Thank you.

Time Magazine

mickdw wrote: »

Can someone outline the possible pitfalls relating to bank shares at the minute.
If say anglo is taken over by another bank, what happens existing share holders etc?

The possible pitfalls include losing everything. If Anglo are taken over by another bank, the return to the share-holders depends on the price paid by the other bank. That could be reasonably (~20%) above the current market price (what typically happens with healthy, profitable companies), or it could be next to nothing (larger companies have been sold for less than €1).

Investing in any bank now without having done a lot of research is a pure gamble to be honest with you.

Cantoris

I get the feeling that the gov don't truely understand the Anglo model and have focused on a lot of the big loans they have. What about all the smaller stuff. Anglo was always an expensive bank so the only reason you wen to them was because no-one else would give you the money. So a lot of their small business loans and personal loans are going to be in serious trouble in 2009. A hundred of these could be 200m and there will be thousands of them. I had a drink with a central banker last week who told me they knew exactly what was in Anglo.....scared me how little they knew. I'd like to be a fly on the wall when the board kisses and tells.

ranger4

Cantoris wrote: »

I get the feeling that the gov don't truely understand the Anglo model and have focused on a lot of the big loans they have. What about all the smaller stuff. Anglo was always an expensive bank so the only reason you wen to them was because no-one else would give you the money. So a lot of their small business loans and personal loans are going to be in serious trouble in 2009. A hundred of these could be 200m and there will be thousands of them. I had a drink with a central banker last week who told me they knew exactly what was in Anglo.....scared me how little they knew. I'd like to be a fly on the wall when the board kisses and tells.

Are we likely to see the same pitfall with aib and boi with bad loans etc.

Cantoris

Don't think so. I think Anglo were unique in this respect. I'd imagine there will be fewer surprises elsewhere.

Baird

Cantoris wrote: »

I get the feeling that the gov don't truely understand the Anglo model and have focused on a lot of the big loans they have. What about all the smaller stuff. Anglo was always an expensive bank so the only reason you wen to them was because no-one else would give you the money. So a lot of their small business loans and personal loans are going to be in serious trouble in 2009. A hundred of these could be 200m and there will be thousands of them. I had a drink with a central banker last week who told me they knew exactly what was in Anglo.....scared me how little they knew. I'd like to be a fly on the wall when the board kisses and tells.

Complete speculation and scaremongering in your post mate.
The PWC audit will give the gov a better view of what everyones loan book is
like, probably a better picture than the banks have themselves.
Anglo at 0.17c is basically priced to go bang. Its now a penny stock so
frankly who gives a crap about its loan book at this stage.
Its 70% nationalised and should be funnly nationalised and let its loan book
run off and then closed IMHO. Pointless business model in the new financial
climate and its nothing but a white elephant now.

Cantoris

Baird wrote: »

Complete speculation and scaremongering in your post mate.
The PWC audit will give the gov a better view of what everyones loan book is
like, probably a better picture than the banks have themselves.
Anglo at 0.17c is basically priced to go bang. Its now a penny stock so
frankly who gives a crap about its loan book at this stage.
Its 70% nationalised and should be funnly nationalised and let its loan book
run off and then closed IMHO. Pointless business model in the new financial
climate and its nothing but a white elephant now.

Its not complete speculation.....I have one of the personal loans and I'm just an ordinary joe! I'm not sure how much PWC could have garnered in a few weeks. At the end of the day, we have not seen the PWC report and it cannot possibly be in that much detail and would have focused on a specific scope of work which would have been defined by the gov. This would probably have focused on the bigger loans and developers. But you are right, it is assumed the bank will go wallop. Only problem is that we, the tax payer, will be making up any shortfall in interest payments and debt to third party debt providers so we have a very very real interest in this. It is not simply a case of letting the loan book run off, we will take some big hits here as a nation.

Baird

Cantoris wrote: »

Its not complete speculation.....I have one of the personal loans and I'm just an ordinary joe! I'm not sure how much PWC could have garnered in a few weeks. At the end of the day, we have not seen the PWC report and it cannot possibly be in that much detail and would have focused on a specific scope of work which would have been defined by the gov. This would probably have focused on the bigger loans and developers. But you are right, it is assumed the bank will go wallop. Only problem is that we, the tax payer, will be making up any shortfall in interest payments and debt to third party debt providers so we have a very very real interest in this. It is not simply a case of letting the loan book run off, we will take some big hits here as a nation.

There is not much point even replying to that post.
Anglo have a 70bn + loan book with the majority being to larger property developers.
Smaller guys are much less of a risk and are not going to cripple the bank even if a lot of them completely collapse.
Stop scaremongering

Cantoris

So Baird, have a look at their loan book split in their financial statements and have a go at where the bad debts will be. I'd be interested to see how little risk you think is in the buisness and personal stuff. It is not scaremongering but you haven't exactly provided any support for your view. Care to share some more specific views on individual components of their loan book. What you will find is that you cannot because unless you work at a high level in Anglo, you are in the same boat as the rest of us.....guessing.....and using our own anecdotal evidence and experience of the beast.

Baird

Cantoris wrote: »

So Baird, have a look at their loan book split in their financial statements and have a go at where the bad debts will be. I'd be interested to see how little risk you think is in the buisness and personal stuff. It is not scaremongering but you haven't exactly provided any support for your view. Care to share some more specific views on individual components of their loan book. What you will find is that you cannot because unless you work at a high level in Anglo, you are in the same boat as the rest of us.....guessing.....and using our own anecdotal evidence and experience of the beast.

Guessing about a loan book and then taking the worst case from that guessing
is scaremongering in my book and is exactly what you just did.

Anglo has a loan book of 70bn
Its irish exposure is 45% of that

The irish loan book is 45% investment, 26% Business loans, 14% Res development, 12% commercial development and 4% personal loans.
You are saying that the business and personal loans are going to be a major cause for concern, lets have a look.
As of the 3rd of december Ango had 10,000 business banking loans rougly.
They had 28 out of that number impaired at the moment and 450 on watch.
So for you to say that this loan book will crumble when it hasnt at all so far
despite almost 9 months of a global recession is a bit of a stretch in my book.

rugbyman

i have read and re read the last few posts and i am not sure if you two are not saying the same thing on occasions .


Cantoris is suggesting that there are far more bad things yet to emerge from Anglo, among the lower ranked loans........ and Baird ,especially in the last post says def not.

but Baird said

Anglo at 0.17c is basically priced to go bang. Its now a penny stock so
frankly who gives a crap about its loan book at this stage.

should I stick to the tabloids?

daveirl

This post has been deleted.

Cantoris

Baird wrote: »

The irish loan book is 45% investment, 26% Business loans, 14% Res development, 12% commercial development and 4% personal loans.
You are saying that the business and personal loans are going to be a major cause for concern, lets have a look.
As of the 3rd of december Ango had 10,000 business banking loans rougly.
They had 28 out of that number impaired at the moment and 450 on watch.
So for you to say that this loan book will crumble when it hasnt at all so far
despite almost 9 months of a global recession is a bit of a stretch in my book.

There are a few points worth considering here though. You assume that the 450 on watch mean that the other 9,550 are ok. Yet this comes from a bank that only a month ago reclassified 8% of its loan from investment to development loans, much to the irritation of the investment market. What else is misclassified?

Also, there is an assumption that the businesses that are going to go bust should have done over the last 9 months. Is that how it works? Most retail/services businesses are in survival mode at the moment, using cash reserves to stay afloat, but when the rough times hit in Jan to March, the real fall-out of the recession will impact on businesses, particularly if the banks will not lend the life blood of most businesses, working capital. As a matter of interest, do you know the 10,000 business types Anglo have lent to? I know of a few and the types of businesses and these businesses will be in trouble next year. Not sure what the rest of this part of book looks like but you might know and let us know.

And then there's the 4% personal loans.....or €3bn which includes the Fitzpatrick 100m but also a shed load to lawyers, accountants, doctors etc etc. It is not hard to imagine a lot of these professionals with big mortgages, lowering incomes and on top of that the personal loans for assets which, if bought over the last few years, will struggle to pay off the debt. There are a lot of non-developer people in Dublin up to their gills in debt and I'd imagine Anglo has a few of these.

The fact that different people have different views goes to show that there is not a lot of transparency at the moment.And maybe it's better that we don't know. Clearly the senior management in Anglo didn't know either as they kept telling us for months that they were ok. So how can you trust what they have produced.

Baird

daveirl wrote: »

This post has been deleted.

True true will just leave it at that.

stepbar

Fair enough about the stats that you have given Baird but what about the currency risks involved (Eur, STG and US Dollar)? You can be guarenteed that a number of loans are exposed to currency risks and could be (in effect) in breach of covenants.

femur61

What is the problem with the government owning 75% of Anglo,? I know that would mean that the government would subsequently own 3/4 of the shares. Would that not mean they are more secure.

pocketdooz

femur61 wrote: »

What is the problem with the government owning 75% of Anglo,? I know that would mean that the government would subsequently own 3/4 of the shares. Would that not mean they are more secure.

Can you name one large organisation that the government run efficiently and profitably ?

Now try letting them run a dying bank.

You get the picture ?


.

ranger4

pocketdooz wrote: »

Can you name one large organisation that the government run efficiently and profitably ?

Now try letting them run a dying bank.

You get the picture ?


.

How long will anglo survive on life support.

Bytheway

Have a look at what is No. 1 for "10 of the most interesting stocks for 2009" on Seekingalpha.
http://seekingalpha.com/article/114146-10-most-interesting-stocks-for-2009?source=front_page_most_popular_articles

Its AIB.

pocketdooz

ranger4 wrote: »

How long will anglo survive on life support.

As a profitable institution, it's already dead.

ranger4

Bytheway wrote: »

Have a look at what is No. 1 for "10 of the most interesting stocks for 2009" on Seekingalpha.
http://seekingalpha.com/article/114146-10-most-interesting-stocks-for-2009?source=front_page_most_popular_articles

Its AIB.

Buy buy buy.

Tiesto

I bought Anglo @0.215
Up over 50% so far.
What ye wreckon? When should i bail?

Time Magazine

Definitely.

femur61

If the governement own 75% of the bank does that mean nay dividend is watered down by 3/4.?

Baird

femur61 wrote: »

If the governement own 75% of the bank does that mean nay dividend is watered down by 3/4.?

Dividend will not be paid more than likely.
And yes it does mean dilution of your shareholding.

Bytheway

If i had to buy into a Bank, I would purchase shares in is the Bank of Georgia. I think its a far better bet than any Irish Bank and it hasn't been hit by the sub prime crisis and doesn't seem to be dire straits at all.(unlike Anglo)
By all accounts it has won many awards up to the time when it was being attacked.( like Anglo)
I can imagine the criticism I am about to get, but if you interested in banks and delve into it and research it, you may be surprised.
Bank of Gerogia LSE: BGEO
Article :MoneyWeek 24 DEC

Baird

Bytheway wrote: »

If i had to buy into a Bank, I would purchase shares in is the Bank of Georgia. I think its a far better bet than any Irish Bank and it hasn't been hit by the sub prime crisis and doesn't seem to be dire straits at all.(unlike Anglo)
By all accounts it has won many awards up to the time when it was being attacked.( like Anglo)
I can imagine the criticism I am about to get, but if you interested in banks and delve into it and research it, you may be surprised.
Bank of Gerogia LSE: BGEO
Article :MoneyWeek 24 DEC

It has won many awards and hasnt been hit by the sub prime crisis.
How on earth are either of those reasons to invest in a bank can i ask?

Bytheway

Bank of Georgia lost 90% of its shares primarily due to the Russians troops moving in, but these things will always happen when you are neighbors with Russia.

2004 -valued at $25m
2006 -listed on LSE, value $1b
2006- The World Bank named it the most reform friendly economy in the world.
2007 -Foreign direct investment over 5 years was 51% of GDP.
2007 - net income rose to $47m- twice its market cap of 2003

150 branches, more than a million clients, 30% market share

Country has recieved $4.5b market package, $1000 per person living in Georgia



GDP is expected to slow from 10% a year to 3% in 2009
America Express has chosen it to be its exclusive partner in Georgia
PE = 0.3
As i said, if i had to invest in a bank, this would be the one.
It is said to be of low leverage and a good liquidity position.....
I think it may rebound faster than most banks talked about on Boards.ie


National Bank of Georgia (“NBG”) requires
Tier 1 Capital Adequacy Ratio (“CAR”) - at least 8%
Total CAR – at least 12%
On 30 September 2008, the bank’s Capital Adequacy Ratios were as follows:
By NBG standards: Tier 1 CAR – 18.2; Total CAR – 15.5%
Capital
By BIS standards: Tier 1 CAR - 24.7%; Total CAR – 25.3%
Due to high weighting assigned to all foreign-currency denominated loans
under NBG standards and high dollarization of the loan portfolio, the bank’s
CARs calculated by NBG standards are typically well below corresponding
CARs calculated by BIS standards
On 30 September 2008, the bank’s leverage ratio (total liabilities to
shareholders equity) was 3.27x down from 3.35x in June 2008
Leverage
NBG requires Georgian banks to maintain the Liquidity Ratio of at least 20%
Bank of Georgia’s NBG Liquidity Ratio stood at approximately 34% on 31
July 2008 and decreased due to the Conflict to 27% as of 30 September 2008
Liquidity
still well above the NBG requirement of 20%

ranger4

Will anglo crater tommorow or could it possibly have a mini rally if recap is recieved better than expected by shareholders?

Time Magazine

ranger4 wrote: »

Will anglo crater tommorow or could it possibly have a mini rally if recap is recieved better than expected by shareholders?

Trading will be suspended. If those of you who invested in Anglo don't lose a large portion of your investment, you will have been extremely lucky we have a wholly incompetent government.

ranger4

The Economist wrote: »

Trading will be suspended. If those of you who invested in Anglo don't lose a large portion of your investment, you will have been extremely lucky we have a wholly incompetent government.

well thats it then anglo are full nationlized as of this evening, Could we expect a simmiler fate down the road with boi-aib or at least a larger percentage of government ownership possibly 30-40% instead of the mentioned 20%?

I feel sorry for anyone that has held onto bank shares tbh, although holding them for this long in the current climate was probably a stupid move imo

ranger4

rarnes1 wrote: »

I feel sorry for anyone that has held onto bank shares tbh, although holding them for this long in the current climate was probably a stupid move imo

The government are very unlikely to nationalize aib-boi, where will the funds come from? they had to be pushed to the edge to nationalize anglo, 2-3 years from now we will look back and say why didnt we buy back then.

silverharp

ranger4 wrote: »

2-3 years from now we will look back and say why didnt we buy back then.

its a bit like saying buying Nasdaq stocks in 2001. I wouldnt be picking at the bones of a dead industry. Looking at Ireland we are not near the bottom of land or house prices, that means more marking to market for the banks.

Baird

The Economist wrote: »

Trading will be suspended. If those of you who invested in Anglo don't lose a large portion of your investment, you will have been extremely lucky we have a wholly incompetent government.

Could you explain how you think this highlights government incompetence ?

Time Magazine

Baird wrote: »

Could you explain how you think this highlights government incompetence ?

They should get nothing imho. If they do get something it's because the government haven't the balls to face up to shareholders (who have votes) and re-direct that funding to other uses. I call that incompetence.

Idu

I heard on Newstalk this morning a guy mentioning that when the assessor finishes the share price could be anywhere from 22c to €5!:eek:

Is he on drugs or what?

Baird

The Economist wrote: »

They should get nothing imho. If they do get something it's because the government haven't the balls to face up to shareholders (who have votes) and re-direct that funding to other uses. I call that incompetence.

Sorry thought you meant that the government were incompetant for nationalising the bank.
Heard somewhere this morning that any shareholders who have outstanding loans with the banks will definitely not recieve any sort of compensation.
Unlucky for you sean quinn etc