AIB shares

Brussels Sprout

Right so my friend fancies a punt on AIB shares. His logic is that they are currently cheap 5/6c and that eventually, one way or another AIB will have to be saved since half the country has their money there. He envisages that at this point the share price will rebound giving himself a tidy profit.

He asked me for my advice. I told him I wouldn’t touch them with a bargepole given that the bank is effectively bankrupt. However I don’t know a whole pile about equity investment so I told him that I’d start a thread for him here so hopefully someone can give some more informed advice.

sozbox

What do you mean by 'saved'? My understanding is that any further capital injection into AIB, either by the Irish Government or through some sort of yet to be defined ESM funded scheme, would further dilute any current shareholding, if not wipe it out entirely, rendering your friend's investment worthless.

If he is hell bent on investing in an Irish bank then BOI shares at 9/10cent are better bet but that said, I would stay away from both for a another few years yet.

Brussels Sprout

Yes, I said that to him but I think he's under the impression that the EU are going to bail out the banks without actually taking any sort of equity in them. (He also believes that if the banks go bust that he won't have to pay back his mortgage!)

NewBeefFarmer

Geeees imagine if investing was this easy. . . . . . .

sounds like he has enough money to not bother investing. .

NewBeefFarmer

i should add, if the government (which is the only option) steps in to save AIB, it will just be nationalised) money gone. . .

BOI on the other hand, while in no good shapes, does catch my eye. . . . best of the 2 if you will. . . . its further away from nationalisation from where it was in 2008/2009

Pawwed Rig

An issue will be if the EU/IMF tell the government to dispose of their shares in the bank. It could well be sold to a foreign bank with a stable share price wherein your friend may see no gains.

roro2

The national pension reserve fund value their shareholding in AIB at less than 1c per share. You would need to pay 6c per share to buy them in the market. Decision made.

AP_MAN

do not touch them, they are worthless. As per the latest stats, 1 in 5 are in mortgage defaulters list, wait you may get them for 1 cent or less...

Slozer

5c is very close to zero. I would steer well clear of financial companies for the time being, especially banks that are recording hugh losses and need to be propped up with tax payers money. If your friend is looking to invest they could do better by looking at the food and energy sectors.

Fitz123

A punt to me sounds like a bet, so long as your friend accepts the fact he may lose it all go ahead. If the bank has to be "saved" again as mentioned by Jason, equity holders will surely suffer if not be totally wiped out.

Once the personal insolvency legislation is fully sorted, Irish Banks are going to realise massive losses, that they have been very reluctant to do to date. How that works out will be very very interesting.

Procyon

There are over 500 billion shares in AIB. At 6c each this gives a market cap. of around €30 billion. So the shares aren't cheap at all. The national pension fund own 99.8% of AIB and it seems that the trade in the remaining shares has little regard to the actual company.

There are plenty of risky investments available that actually have a chance of succeeding, personally I'd rather put my money on a horse than AIB.

liamjames1

Procyon wrote: »

There are over 500 billion shares in AIB. At 6c each this gives a market cap. of around €30 billion. So the shares aren't cheap at all. The national pension fund own 99.8% of AIB and it seems that the trade in the remaining shares has little regard to the actual company.

There are plenty of risky investments available that actually have a chance of succeeding, personally I'd rather put my money on a horse than AIB.

Sensible post.

Think the market cap is c€28.5bn procyon. What do people see as a realistic valuation for the bank? And how are you valuing it?

Really struggling to see how anyone could see any value in investing in this company??
A lot of peoples rationale on here seems to be there really cheap and its one of the only banks so lets invest. Regardless of anything else. Madness.

Procyon

liamjames1 wrote: »

What do people see as a realistic valuation for the bank? And how are you valuing it?

God knows how you could value this bank. They lost €1.2B in the first half of this year and are targeting a return to profitablilty only in 2014 at the earliest.

My guess is that the government will try to re-privatise as soon as he bank looks profitable again. I doubt there will be any real value for the current shareholders.

BTW according to my calculations, there are more shares in AIB than there is in all the FTSE 100 companies combined.

Fitz123

Is there a way to short sell them currently ?

bridgepeople

Fitz123 wrote: »

Is there a way to short sell them currently ?

I doubt it. Not for a retail investor anyway. Even for a hedge fund it would be very difficult given the lack of liquidity.

I think the easiest way to value AIB currently is to compare it with Bank of Ireland. BOI has a market cap of €3 billion and I think that is a fair reflection of its market value. AIB is totally distorted by the tiny amount of shares available to trade which is why we see a market cap of €30 billion (almost twice the size of CRH and Ryanair combined!).

AIB is still considerably more distressed than BOI, so I'd value it at quite a big discount. How big is hard to say, but back of an envelope calc would be around €1.5-2 billion. So the share price needs to fall by about 90% for it to represent any value. I'd suggest to your friend that he leaves it alone for the time being!

Seamus1964

It seems to be more like gambling than investing.
Don't be afraid to bet. If you are not up to it, don't gamble.
Remember, don't bet more than you can afford to lose

At this point, I believe Aib (and BOI) is worth the risk for a long-term "investment"
And - without a lottery ticket, you obviously have no chance of winning the lottery ...

If you've not got the picture yet, dont buy any shares,  spend your money somewhere else.

Pawwed Rig

Seamus1964 wrote: »

t this point, I believe Aib (and BOI) is worth the risk for a long-term "investment"

Have you read this thread? If I was considering AIB before (which I wasn't) this thread would definitely turn me off them

Seamus1964

That is my own personal opinion.
I don't know what the future holds, but nobody knows

I believe that if we just wait a little while, the banks will be fine.

Again, that is my own, very personal opinion.

martyoo

I believe that if we just wait a little while, the banks will be fine.

Yes, but that is not the point. The long term viability of these companies is not the main issue here. The main issues are their assets and their value, future risks such as large scale mortgage defaults, increased regulation (i.e capital requirements) from Europe, and the current value of their stock.

AIB is grossly overvalued and BOI is fairly priced in my opinion.

I'd nearly buy USOP over these dogs

Fitz123

The banks may indeed be fine, but on the way to getting there (which won't be for years) ordinary shareholders may very well be wiped out. More speculation than investment imho particularly AIB.

Pawwed Rig

I reckon the govt (or pension reserve) will offload these shares as soon as they can get a buyer. In the case of a takeover by say XYZ Bank they will only offer the market value of the company say 1 cent a share. This will lock in your losses (if you purchase at 6cents) and you will receive a number of XYZ share instead of your AIB shares.