In the current environment, no bank escapes its reckoning, but for well-managed, conservative lenders, that reckoning shouldn’t be an eternity spent stoking hellfire. Global Gains pick Allied Irish Banks
AIB is in good shape
Customer deposits, a cheap source of funding, grew faster than loans during the first half; in other words, loan growth is fully funded by customer assets. At a time when U.S. counterparts such as Citigroup
Management assured shareholders that it has no need to come to them with hat in hand -- either now or in the foreseeable future. To drive the point home, AIB had the audacity to raise its dividend, joining a select group of U.S. banks: PNC
... but the loan book continues to deteriorate
There is a dark lining to this silver cloud, however: the quality of the Republic of Ireland loan book (the firm’s largest) continues to deteriorate. Still, even the riskiest sub-sector – residential development loans – appears pretty well-protected, with a loan-to-value ratio of 77% (the average across all property and construction loans is 71.3%). AIB estimates that group loan write-offs will equal 35 basis points in 2008 (a basis point is one hundredth of a percent) and that they will peak in 2009 at 60-80 basis points.
As far as toxic mortgage securities go, AIB is no Merrill Lynch
AIB looks very cheap
A well-run franchise trading at a mid-single digit P/E, Allied Irish Banks looks like it has been sent to purgatory in error. Investors who are beginning to look at financials could do at lot worse than getting to know this sprightly leprechaun.
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