Allied Irish Banks Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Irish banking group Allied Irish Banks (NYSE: AIB  ) slipped as much as 13% in intraday trading before recovering substantially.

So what: The beleaguered bank announced earnings today, showing a 2010 loss of $14.7 billion, as compared to a loss of $3.4 billion in 2009. The bank also said that 34% of its loans in the Republic of Ireland are troubled -- whether on watch or currently impaired. The group also plans to cut 2,000 jobs over the next two years.

Now what: Interestingly, Reuters' coverage said that Allied Irish has been "effectively nationalized." While that's true, there's still a very big difference between "effectively" and "fully" for the remaining Allied Irish shareholders. The bank's continued struggles -- along with the $19 billion in needed capital that's expected to largely come from the government -- don't paint an encouraging picture, though. At this point, this stock is a bet mainly for those with a gambling streak who are willing to accept the risk of total loss for the potential of a big gain if Allied Irish does skirt full nationalization. For more conservative investors, this is a definite pass.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2011, at 10:55 PM, vidar712 wrote:

    Sounds like a good candidate for purchasing Call options. Huge gain or total loss. The difference is that Call options would have a time limit.

    Actually if the two possibilities are total loss or huge gain, a straddle would be the preferred strategy. The only problem is there is no known catalyst to tell you when the big move will happen. The stock price could be stagnant until the options expire.

    Too bad they don't have two year options. (But who would sell a Call or a Put with a two year time frame?)

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Allied Irish Banks CAPS Rating: ***