I reproduce my contribution to the discussion board, Ask About Money, where Seantheman had “accused” me (politely) of probably being a disenchanted BOI shareholder.

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To Seantheman

No, I never bought BOI, but it may now be time to do so. For those with loose cash–that excludes me !- it could be the opportunity of a lifetime. Remember, you never make real money following the herd…be a contrarian !

Especially this week it could be time to buy AIB, before their results are announced. In my humble opinion, all possible downside risk to the share price is already factored in…a few times over. You can buy a share for c. 40% of its expected core profits per share. !!!. That’s probably the amount it would normally pay out in dividends…So, you buy on a notional dividend yield of 100% (- or is it 1?…I’m not sure how its described)

Would you be a shareholder in a bank?

Of course AIB will have to face its NAMA -related write downs. Up to 8 bn. it seems. But I think it has already provided half of this from 2008 and expected 2009 profits. So that leaves 4 bn more–maybe the next two years profits?…After that you’ve got a bank earning 2 euros per share, which should therefore be valued at 20 euros +, just applying other Eurozone bank p/es. So, discount that by 50% to be safe…and you’ve got ten times profit on your investment, certainly within a few short years…its a no brainer

Oh, Yes…they must dilute their equity to bring in more capital…Em…maybe!…But at what price? They would be crazy to bring in private capital at one euro per share…They will do a deal at 5 euros, with some “strategic investor”, who will take, say, a third of the new equity, secured, if necessary, on the Polish or US operation. (The mechanism might be the new “coco” hybrid bonds, or a combination of these and other arrangements.)

This solution might be predicated on the EU not forcing AIB to sell off Poland or US. But I don’t think the EU has any case against AIB or BOI, considering that they’re paying 8% (!!) on the State’s preference share injection, and considering what easier deals banks all over the EU have received from their governments, in the way of State aid. (Also considering how much ordinary Irish individual shareholders have lost–all those people who voted for Lisbon !- compared to the much smaller percentage losses of other comparable eurozone banks in difficulty)

So, NAMA, plus debt management + the new strategic investor, if required, will fix the immediate write down problem and free the bank to make profits and apply them to repaying the preference shares and to get back to paying dividends within three years. The (bigger) funding problem will also be greatly assisted by these developments. Then, some will say, the bank must face the problem of valuations on the residential mortgage book. But, in that matter, we must keep in mind that accounting rules for treating banks impaired assets (mortgage loans for example) are very likely to be changed this year, permitting banks to spread the “expected” losses over the maturity periods of the loans. Given that most of these mortgages are for 30 year periods, the bank only has to take 1/30th of a hit to the P/L and Capital account in any year. Then, the bank should re-estimate the likely losses every year and make appropriate adjustments…so, the losses in earlier years will gradually be written back as profits in later years.

In summary, buy the banks now, quickly ! (BUT…I’m not an investment adviser, nor an investment or finance specialist in any sense…Follow my advice at your own risk)…I think I’ll copy this to my own blog

By the way, buying the bank shares now is the patriotic thing to do!. The banks are both currently majority owned by individual Irish residents, not by foreign funds or speculators. Let’s keep it that way, so that the management and deployment of a couple of hundred (?) billion Irish owned deposits will stay in domestic hands and may be used for Irish economic development as a priority
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