BOI shares steadily rising... Worth a punt?

Bank shares plunge despite 'positives'
February 23, 2010 7:00 PM EST
Bank of Ireland shares closed down almost 6% to €1.11 while AIB also fell 6.3% to €1.01.

Merrion Stockbrokers said although the increased state ownership in Bank of Ireland can be seen as negative there are also a number of positive outcomes.

The Government took a 16% stake in Bank of Ireland on Monday through the National Pensions Reserve Fund (NPRF).

Merrion said the Government as a new major shareholder with a strong vested interest in a successful rights issue should support recapitalisation.

As recapitalisation occurs, recognition of the franchise value of BoI should drive attractive near term returns, said analyst Sebastian Orsi.

Merrion said by increasing the market capitalisation of the bank the share issue will reduce underwriting risk for a potential rights issue.

"The creation of a major common shareholder increases the alignment of the Government's interest with private shareholders. We believe the NPRF will support a potential rights issue, if only to ensure a successful outcome," said Mr Orsi.

He said considerable risks remain to be addressed, in particular NAMA discounts and EC restructuring requirements.

"However, we remain of the view that the franchise value of BoI is attractive after including recapitalisation requirements," he said.

Based on forecasts for normalised earnings, which still offer material leverage through margin expansion and cost reductions over time, Merrion sees share price appreciation potential of 60% on a two-year view to compensate investors for the risk.

"Recapitalisation of the bank, which we expect to occur through Q2 of this year, should act as a catalyst for the share price," Mr Orsi added.

Meanwhile, Fitch Ratings warned that the September 2010 expiry of Irish Government guarantees for certain obligations of Irish banks may have a negative impact on certain bonds issued by the banks here.

The agency warned that the expiry would have a ratings impact on some structured finance (SF) transactions and covered bond programmes and no further actions are put in place.

However, Fitch has received feedback from covered bond issuers that they plan to take mitigating action prior to the expiry of the guarantee and expects similar action to be taken for SF transactions.
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http://www.rte.ie/business/2010/0224/boi.html

pocketdooz wrote: »

T+175 for 2 year risk even with the government backing tells the whole story really

Pocketdooz in all fairness, for one second you could look at the bright side. I don't mean any offence, but all you do on here is be bearish. Whats the point, it's never in a constructive matter, you're very one sided. I've read other posts of your and i know you know what you're talking about when it comes to investing, but on BOI you seem to be pretty set on your views. A lot of the brokers have BOI as a buy, ok the issue of shares to the government wasn't the best thing, but they couldn't anything about it, it's the EU rule. But it means they've got that 250 million in tier 1 capital. You just seem to jump on the band wagon when there's bad news.

Everyone knows "the whole story". Short term=pretty bad, no capital, needs capital or else government will have to step in with a lot of it. With NAMA, proper restructuring of capital and as little a government stake as possible things begin to look up for the future. Is it not better they raise money this way then through the government? Yes. Who cares if they're paying 1.75 points more the usual over a 2year bond, if in two years looking back it meant less government stake then it worked and paying the extra won't really be a problem.

daveirl wrote: »

This post has been deleted.

I really really don't get your post. Whats the point? In fairness you're just insulting people and acting all high and mighty. Anytime i see you on the board you seem to be just yessing to anything pooketdooz says.

gmcpartlan Infracted - consider yourself lucky that you didn't get banned.

dudara

Both my parents have recently retired and have today opened up a goodbody online account and are planning to invest their 35k redundancy package. They are an elderly couple, and none of us have much knowledge to be honest, but they have being advised and convinced to buy into BOI shares once they had moved just below 1e. So possibly tomorrow or Friday!

However i have read through the posts on this thread and they seem to contradict what my parents were told. Is it possible that the share price will go much lower than 1e and they should hold off? And at what price do people think should they buy in? Thanks

Mark27 wrote: »

Both my parents have recently retired and have today opened up a goodbody online account and are planning to invest their 35k redundancy package. They are an elderly couple, and none of us have much knowledge to be honest, but they have being advised and convinced to buy into BOI shares once they had moved just below 1e. So possibly tomorrow or Friday!

However i have read through the posts on this thread and they seem to contradict what my parents were told. Is it possible that the share price will go much lower than 1e and they should hold off? And at what price do people think should they buy in? Thanks

Oh God, get a second or third opinion at least.

Simply put - if they had invested €35,000 in BOI stock 6 months ago it would be worth about €12,000 now. I wouldn't be surprised if it were worth €5,000 sometime soon.

Sorry I missed the party last night. Gmcpartlan, if you're reading this; that kind of personal abuse is not tolerated on this forum. I'd have banned you on your first post was I here.

A word of warning to you all; as BOI and AIB continue to go from weakness to weakness, do not get personal on this board. If you have been on this site long enough, you've been well warned about the downside risks and the probable outcomes.

Everyone has a right to be bullish/bearish for whatever reason. If someone disagrees with you, well, that's what makes a market.

I note a user was critical of pocket for being overly bearish on BOI and not changing his view. Yet, the same user noted how pocket was bul lish on other products and did quiet well on them. Go figure.

Personally, I've held the view that both banks are a piece of crap for years on here. I'm still waiting for someone to tell me how they will actually make money in the future. Forget all the bad loans they already have. Tell me, where will their future revenue streams come from?

Tell me, convince me, and I'll buy one of them (shudder the thought).

Ixus

+1

woodseb wrote: »

just to echo what the other poster said, a recently retired couple should have no business buying shares let alone BOI - anybody who advised that is unqualifed to give that advice or grossly incompetent -at that stage of life they should be concerned with capital preservation in bonds/low risk investments

if they have some surplus money to play with above their needs - they could maybe play the stock market

Mark27 wrote: »

Yes it was goodbody's that advised them but they have decided to hold off for now. Thanks for the info folks!

Irish brokers are the biggest pack of jokes I've ever come across

AARRRGH wrote: »

I hate to say it, but I would imagine 99% of Irish people have learnt nothing from this recession. Most probably think rent is dead money and there is never a bad time to buy...! So the banks could make money of the dumb + naive public waiting for another property bubble.

Saying all that, I agree with you, the banks are dead. In fact, Ireland is dead. I was looking at some numbers tonight and we're now poorer than we were in the 80's. We have roughly the same amount of unemployment, but it was possible to own a home on one income and the national and individual debt was no where close to what it is today.

We are not poorer as a nation than we were in the 1980s. That's just crazy talk. Our GDP per capita (PPP) was under $5,500 in 1980 and among the lowest in the developed world - it's now over $45,000 and among the highest in the world. All tax rates, but most notably corporate and personal income taxes were far higher, with the highest personal tax rate being over 60% and corporate tax at over 30% (vs. 42% and 12.5%, respectively, now).

So, what happened? As we all know there was a property boom and an economic boom, but it was not all smoke and mirrors. There were real benefits. There are very few, if any, slums in Ireland now vs. the 80s. Our infrastructure is far far better now, particularly our road networks, ports and telecommunications networks. Personal disposable income is far higher, the number of people living below the poverty line has plummeted, our social security system has vastly improved, our motor and housing stock is of a far higher quality, we now have free education through third level and the numbers of foreign companies and levels of FDI are also far far higher than was the case in the 1980s.

The average weekly wage in Ireland increased substantially during the Celtic Tiger period (but did not even nearly keep close to the average house price). The average weekly wage was €261.39 (converted from old Irish punt) in 1988 and had risen to €574.29 by 2004. (This figure little more than doubled in a period where the average house price increased by 712%.)

My opinion on the property market:

Granted, there was a great degree of speculation in the property market. But it is also true that there were some underlying fundamentals that caused the property market boom to begin in the early 90's but they don't justify that extreme price appreciation from 2001/2002 to 2006. These were, (i) steadily decreasing interest rates from 1992 onward, from a high of 14% in 1992 down to a low of 3.5% 10 years later. This made houses more affordable and encouraged people to buy more expensive homes than they could previously have afforded. (ii) net Immigration and rising population levels. Our population grew steadily since 1995 when our usual pattern of net emigration changed to a period of net immigration, both of returning emigrants and foreign workers coming here to take advantage of the Celtic Tiger and the opportunities it offered. (iii) the low level of housing stock.

In 1988, the number of housing completions stood at 4,114 and stayed close to this figure until 1993 when it doubled swiftly to 8,483 in 1995 and then doubled again to 15,466 in 2001. The builders were slow to catch on to the amount of demand in the market and this increased demand caused prices to increase rapidly. However, despite these underlying factors, the levels of supply and demand had levelled out by the start of the last decade. The economy began to slow down and the level of net migration decreased from 41,000 in 2002 to 32,000 in 2004. It was around this time also that interest rates started to increase from their historic lows. MOst analysis done of the period after 2002 shows that one of the main correlations with house price increases was the number of mortgages paid out for new houses, indicating that the more people who were buying new homes (including off-the-plans) and seeing their values increase led othes to buy in hope of seeing an increase too - i.e. pure speculation.

*** The property market will bounce back for real estate in desirable areas and great fortunes will, as has always been the case, again be made in the property market. When inflation inevitably returns, houses will rise in line with if not by more than, inflation thus any leveraged investment will provide outsize returns on the equity invested. This is my thesis that I'm currently trying to put together and is a much longer discussion for another time maybe .... ***

Mark27 wrote: »

Both my parents have recently retired and have today opened up a goodbody online account and are planning to invest their 35k redundancy package. They are an elderly couple, and none of us have much knowledge to be honest, but they have being advised and convinced to buy into BOI shares once they had moved just below 1e. So possibly tomorrow or Friday!

However i have read through the posts on this thread and they seem to contradict what my parents were told. Is it possible that the share price will go much lower than 1e and they should hold off? And at what price do people think should they buy in? Thanks

:eek::eek::eek::eek::eek:

There aren't enough emoticons to convey just how awful that advice is!

Recommending any kind of stocks for people close to retirement is incredibly risky and any pension manager in the world will tell you so.

If your parents really want equity exposure, I would be telling them to look at profitable, large-cap companies that already pay dividends. These aren't recommendations, but they're certainly a heck of a lot better than Irish banks.

BP 6.3% dividend
Altria 6.8% dividend
Kraft 4.1% dividend