Irish Banks: When Financial Delay May Actually Help (AIB, IRE)

Allied Irish Banks plc (NYSE: AIB) and The Bank of Ireland (NYSE: IRE) are both suffering today.  News is out that Ireland’s Finance Minister has postponed making more capital injections into several of Ireland’s troubled banks, including these two banks, until after the elections on February 25.

The goal is to allow the new government to address the issue.  That may mean change, it may not. Ireland’s total $90 billion aid package put high Core Tier-1 capital requirements at 12% as part of the terms.  The E.U. and IMF now may get a different reaction under the new government, depending upon how the election pans out.

Allied Irish Banks plc (NYSE: AIB) is down 4.4% at $0.82 and The Bank of Ireland (NYSE: IRE) is down 3% at $2.29.  What is interesting is that neither ADR is lower on high volume.  Here is the case to consider.  It is possible that outside investors might consider bolstering the banks.  It seems unlikely, but global economies are better even than against just two months ago.  If this gets drug on another month or two, the chances are marginally higher of friendlier help.

As it stood, Allied Irish was going to see its equity hit much more than Bank of Ireland.  How that pans out ahead will be hard to tell.  There are many moving parts.  The notion that less capital will be heading the way of the banks hurts.  The price for that additional bailout might have been too steep anyhow.  There is an obvious catch: without any aid in the past, these banks would have all died a swift and painful death.

The March 31 deadline of the Prudential Capital Assessment Review is still being worked out and both banks have made statements that they are working out the details.  Today’s news is hardly a real help, but it may ultimately carry slightly less restriction if the banks can continue to make their internal books less and less bad each day.  Stay tuned.

JON C. OGG