Allied Irish Shares Popped: What You Need to Know

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 bank Allied Irish Banks (NYSE: AIB  ) shot up today, gaining as much as 28% in intraday trading on heavy volume.

So what: As the world has been increasingly concerned with the goings-on in Europe, the just-released regionwide banking stress tests gave Ireland's banks a pass. Good news? The short answer is "yes." However, it shouldn't be all that shocking since seemingly endless money has been dumped into the Irish banking system in an effort to shore it up after years of reckless lending.

In related news, the European Commission approved a $19 billion capital injection for the combined Allied Irish and Educational Building Society to help bolster the group's balance sheet. As a condition of the aid, Allied Irish needs to present a revised restructuring plan by the end of the month.

Now what: The future remains very murky for common shareholders of Allied Irish, and I applaud anyone that can come up with a reasonable estimate for what shares are actually worth. While there could be money to be made in Allied Irish shares, the outcome looks an awful lot like a coin flip to me, so I'm looking elsewhere for my banking exposure.

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  • Report this Comment On July 15, 2011, at 6:14 PM, 22PercentSolutn wrote:

    Given that the Irish government is injecting 5 Billion euro by buying 500 Billion shares at .01 Euro each, I would estimate the shares are worth about 1 Euro penny each.Since each ADR = 10 AIB.IR shares this would be about 14 cents U.S. for each US.

    So at 500 Billion shares (who cares about the original 12 billion in private hands) that's a market cap of 60 Billion U.S.

    Let's be generous and say that the bank is worth 2x the 5 billion Euro injected or about 15 Billion US. It looks like this one has another 75% to drop to hit a optimistic outcome.

  • Report this Comment On July 15, 2011, at 6:17 PM, 22PercentSolutn wrote:

    Ah if only the fool gets an edit feature for posts some day. I used the wrong price.... the actual number is worse

    500 Billion shares = 50 Billion ADR times $1.93 = 96.5 Billion market cap which is even more absurd.

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