A perceptive comment got me thinking about the current value of Irish banking stocks. I haven't seen or heard a coherent explanation (other than rumours) for the steady appreciation of the values of AIB and BOI. Can someone please enlighten me? Here's the value of both AIB (red) and BOI (blue) from July 2008.
My guess - and I don't work in the industry, so it's just that - is that investors see that the Irish government is not going to nationalize and instead is going to take on some of the debt. As a result, a couple of lean years as the banks push their bad stuff onto NAMA, and then it's back to the very profitable days...
Sound plausible?
Thanks for the comment Ronan, but the problem I'm having is the reaction is very, very slow, relative to the potential bump in the price of these banks' stocks. There's a buy low, sell high thing going on here, yes, but the nature of the bump is *very* gradual. Why doesn't the value of the stock jump right up, all of a sudden? We don't see this happening. It's puzzling, no?
Maybe investors are slowly coming round to the idea that NAMA etc is going to work, at least ideas about how it is going to work are filtering out.
Hi Kevin, thanks for your comment. That's a sensible answer, and it may be true that information about NAMA is percolating through slowly, but when it comes to cash, people aren't very sensible, and the NAMA info is pretty well distributed, so far. If I think NAMA and successive bailouts, plus a healthy dose of national pride and regulatory capture will keep these guys afloat no matter what, why aren't I buying the stock, and why isn't everybody, which should be bidding the stock price up high enough to really notice a bounce, rather than the gradual trend we're seeing. I'm sure the answer is simple, and I'm just too stupid to see it. Maybe you've hit the nail on the head, and I've not got enough coffee on board to see it 🙂