Which Institutions Are Buying Up Ireland?

After its economy went bad, Ireland is attracting a diverse group of value investors.

Jul 4, 2014 at 7:03AM

Many of Europe's peripheral economies were hit especially hard by the recession, but not all investors are running from economic turbulence. Some of the best bargains can be found in downturns and major investors and institutions are looking at these countries for value picks.

In this three part series, I will discuss which prominent investors and institutions are going after a piece of Ireland, Spain, and Greece.

Irish meltdown
As the financial markets fell apart, Ireland experienced the collapse of a real-estate bubble inflated by poor quality mortgages. Ireland's biggest native banks lost billions of euros leading collapses, liquidations, and bailouts, while many international banks reduced their operations or left Ireland altogether.

After the recapitalizations and reorganizations were complete, Bank of Ireland (NYSE:IREBY) emerged as the only major Irish bank under majority private ownership, and even it required billions in additional capital and became 15% government owned, which has since been reduced to 14%.

Picking up the pieces
Reorganizing the Irish financial system has led to a situation where plenty of Irish assets are for sale. A group led by such investors as Prem Watsa of Fairfax Financial, Fidelity, and Kennedy Wilson provided the recapitalization funds that kept Bank of Ireland in majority private hands. Entire businesses have also been for sale with Great West Lifeco (TSX:GWO) taking over Irish Life after its was split from Irish Life and Permanent to raise capital.

The investment in Bank of Ireland has turned out to be a multibagger for its investors, while the purchase of Irish Life gave Great West Lifeco the opportunity to expand in the Irish market.

Irish garage sale
But there are plenty of assets left for sale and even more investors are eying them. In the wake of the collapse, The National Asset Management Agency, or NAMA, was set up to take about 71 billion euros of high-risk assets off bank balance sheets. Today, NAMA is looking to sell these assets to recoup some of the costs of the bailout.

Among those interested include Kennedy Wilson, which helped recapitalize Bank of Ireland, a Cargill unit, and Deutsche Bank (NYSE:DB). Bloomberg notes that the portfolio, called Project Spring, has a face value of more than 400 million euros but is likely to be sold at a discount.

After years of asset sales, Anglo Irish Bank, which turned into Irish Bank Resolution Corp, is finally near the end of its liquidation. Among the least healthy of Ireland's financial institutions, IBRC was wound down by the Irish government as it was too unhealthy even for a bailout. Although two of the bank's former officers have since been convicted of illegally providing loans in an attempt to prop up the share price, Irish taxpayers still have to live with the fact that their nation is out billions of euros for providing a safer landing for IBRC.

Property sales
Not only are loans for sale but properties are as well. In late May, it was reported that Deutsche Bank is buying 680 Irish homes from Danske Bank as the Danish bank retreats from the Irish market.

NAMA is also selling real estate acquired during the bust with its latest portfolio, including 761 apartments. According to the British newspaper The Journal, the portfolio comes from four separate developers that saw their loans taken over by NAMA during the collapse (one of these developers was later forced to pay Ireland's largest ever payment of back taxes and penalties). This portfolio is expected to price around 160 million euros with Canadian investor CapReit in the lead although other buyers may enter the bidding.

Finding the buyers
All sorts of investors have bought pieces of Irish real estate and assets after the nation's economic troubles. Big name investors saved Bank of Ireland from majority state control, Great West Lifeco found a way to expand across the Atlantic, and Deutsche Bank is looking to buy both assets and physical real estate.

As Ireland exits a major recession, contrarian investors have made substantial profits and if the nation's economy continues to improve, investors like those described above are among the best positioned to benefit.

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Alexander MacLennan owns shares of Bank of Ireland. He also has the following options: long January 2016 $40 calls on Deutsche Bank AG. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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