If you have been following the crisis news regarding the PIIGS, or the PIGS, nations, Ireland seems to currently be overlooked due to the immediacy of the Greek woes.  The problem is that the Irish banks are melting all over again and the headlines are becoming even more troubling.  It is like teaching a child to say “De ja vu, all over again.”

If you take a look at the ADRs of The Bank of Ireland (NYSE: IRE) and Allied Irish Banks plc (NYSE: AIB), these have not exactly had a good week.  They are both actually still very active in the U.S. and for all practical purposes they are wards of Ireland.  Investors today might want to consider that investing new money into these stocks may be a bit like buying into an orphanage rather than investing into a bank.

Bank of Ireland (NYSE: IRE) shares were above $1.50 last Friday and the stock hit a low of $1.20 this past Tuesday and shares closed at $1.27 on Thursday.  Now its 52-week range is $1.20 to $4.86.  Allied Irish Banks plc (NYSE: AIB) shares were at $2.66 last Friday, shares hit a low of $2.40 on Wednesday and closed at $2.42 on Thursday.  The adjusted 52-week range is $2.00 to $15.25.  The news this last week only sets up for more drama to come this summer.

Where this gets interesting is that AIB and BofI creditors are pushing back yet again.  Concessions have been made, haircuts have been taken.  Dow Jones wrote this week that a group of AIB bondholders are challenging Ireland’s new powers, saying that the government is bullying and demonizing creditors as AIB is set to impose losses of up to 90% in the subordinated debt.

Bank of Ireland has been in talks with bondholders as it is trying to raise new capital with buying back junior debt for issuing new shares under a rights issue.  It is this new rights issue price talk that is still out to late June and the talk was around 11.3 to 11.7 cents in Ireland on the local exchange.  In Dublin, those ordinary shares trade at 13.5 cents and the 52-week range is 0.133 to 1.75 in local terms.  With restructuring and creditor discussions taking place all summer and with a deep discount expected, suddenly it is no wonder that ADR shares here in America keep putting in new lows.

What we cannot help but wonder is why on earth these banks have not considered a state-side (U.S. that is) discussion.  American institutions seem more than eager to invest in garbage if trash is sold cheap enough.  Maybe the worry is that hedge funds will be able to overpower the specialists in these shares at the NYSE.

Irish banks still need more capital.  When a round of capital gets injected, it just turns out that even more is needed.  Late last year came a bailout package north of 60 billion euros from the E.U., the E.C.B, and the I.M.F.  Estimates from the Irish central bank and from economists still call for 20 to 25 billion more euros needed.

A fresh report today notes that the European Central Bank lent over 102.3 billion euros to the banking institutions in May.  That was actually down from April.

Ireland was a great bubble and that bubble has burst.  When Ireland was joining in the Euro way back when the country had low property prices, relatively low wages, and a strong education system.  As capital chases cheap markets, Europeans and others bought up Irish property and then the locals were forced to pay higher and higher prices that rose at a much faster pace than did the average Irish worker’s income.  The best analogy for Americans is that Ireland became much like California but on a nation-wide basis.

Most Irish banks have failed.  Only a handful of real financial institutions are viable in Ireland, and you already know that they are dependent upon continued capital.  What the government ownership of the Bank of Ireland (NYSE: IRE) and Allied Irish Banks plc (NYSE: AIB) will be by the end of summer is anyone’s guess.  Its seems that the only reason that government ownership of Irish banks is not 100% is because then Ireland might formally be on the hook to honor all of those banking liabilities.

To be fair, pain must be shared at least somewhat.  The woes of Ireland cannot be noted without the woes of Greece.  After all, it is the Greeks who have been dominating the news this week.  The ADRs for National Bank of Greece SA (NYSE: NBG) have been active this week.  The NYSE closing bell price on Thursday was $1.39 and the 52-week range is $1.27 to $3.23.  Last Friday those ADRs were at $1.51 and shares hit a low of $1.29 this week before recovering on the bailout and austerity news.

Maybe there is one other lesson to be learned here in a post-restructuring world for whenever that day comes.  It was not that long ago that Iceland (not Ireland) was effectively bankrupt as a nation.  Protests, or at least demonstrations,  continue in Iceland to this day.  That tiny island-nation has endured volcanoes since, yet this week there was news that the nation of Iceland sold $1 billion in government bonds due in 2016 at roughly 4.875%.  Maybe the end of the world is not as close as it might seem at the time.

JON C. OGG

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