Bank of Ireland (ADR) (IRE)

greystroke76 (67.65) Submitted: 1/1/2009 9:52:38 AM : Start Price: $4.84 IRE Score: -89.44

I am a long-term holder of this stock and did my due diligence. I even read the financial statements. I did not understand why it was dropping other than some sort of general "banking panic" until I cam across an article (quote below), which explained it is an issue of solvency and manipulative accounting and practices to delay the inevitable defaults. Let's just say, if it were not for the absent of "mark-to-market" rules in ireland, this bank would have gone iinsolvent months ago.
Having said that, with continued government bailouts this bank may be a long-tome survivor. But expect another share crash, another bailout (ganble), and then a sustained recovery. Sell now, short it even, and after the next financial statement shows the true color of their loan quslity buy it after the crash if you are a believer. This stock si THE classical falling knife!

"The second and more serious problem, (which, it must be said, remains unacknowledged by bank management, the financial regulator and the Irish government) is solvency. The question concerning solvency has arisen due to domestic problems in the crashing Irish property market. Bank of Ireland, like most Irish financial institutions, has exposure to property developers in their loan portfolio. These property developers are currently suffering from gross over-supply of property, much still unsold, while demand has evaporated. The massive immigration from Eastern Europe which had propped up demand has now reversed due to rapidly rising unemployment in Ireland. Irish property developers own speculated billions of Euros of overvalued land parcels such as urban brownfield and greenfield sites, and also agricultural land at an average value of €23,600 per acre ($32,000 per acre or €60,000 per hectare)[12] which is several multiples above the value of equivalent land in other European countries.

Irish banks correctly identify a systematic risk of triggering an even more severe financial crisis in Ireland if they were to call in the loans as they fall due. The loans are subject to terms and conditions, referred to as "covenants". These covenants are being waived[13] in fear of provoking the (inevitable) bankruptcy of many property developers and Irish banks are thought to be "lending some developers further cash to pay their interest bills, which means that they are not classified as 'bad debts' by the banks"[14]. Furthermore, Bank of Ireland's impairment provisions are not being increased correspondingly on their balance sheet. Their accounts for the last financial year states a bad debt provision of only €46 million which is a reduction of 8% from the previous year[15]. This does not appear to be consistent with the real negative changes taking place in property market fundamentals. It should be said, however, that this is in line with most financial institutions' projected figures; doubtless a more realistic estimate will be made when next their accounts are published"