Good Afternoon ,
Bank of Ireland rallied +20% today after reprting numbers which were broadly in line with expectations and where the key items were the fact that there is little by way of revisions to previous expectations for credit losses. The credit quality outlook for three-year cumulative loan losses of €6.9B is subject to downside risk, including NAMA transfers but this appears well contained within our €9B forecast as underlying provisions are tracking below our assumptions. Liquidity is improving as credit markets continue to be rehabilitated. The lower than expected risk weighted assets (rwa's), combined with more clarity on the amount of rwa's to transfer to NAMA, could reduce future recapitalisation requirements (we are at €2.4B of equity required to achieve a 6% ETI at end F2011, but this could come down toward €2B).
The recent share price pullback puts the valuation back to attractive levels for what will become a strategically well positioned bank with a cleaner balance sheet and improved capital position. We do like this and do re-iterate the BUY recommendation.
AIB also benefitted and rallied sharply. It is funny that the share prices of AIB mirrors that of Bank of Ireland , I am not sure that givent he unknowns that the market is actualy in a position to differentiate between the two of them , even the media report this morning that the EU might 'force' AIB to dispose of its polish operations was no impedoment to the enthusiasm with which the AIB price reacted to the Bank of Ireland numbers.
it gets me back to the comment from one London based client last wek who told me that you need to own the Irish banks if you are bullish on a global recovery , the Irish banks and the capital market banks in Europe rather than the defensive financials. and indeed to day the markets look brighter with strong rallies across the board and there is more than a ring of truth in the Irish banks being geared beta plays on European sentiment...aboiyt 4x geared on the upside and the downside...
the funniest thing on a bleak day , was the news that the NAM legislation faces discussion of the 135 ammendments in the committe stage. The first ammendent is comes from Sinn Fein , it is a weighty ammendment ...it is that the NAMA bill to be titled in Irish only. An Bille fán nGníomhaireacht Náisiúnta um Bainistíocht Sóchmhainní 2009. Serious economic stuff , you gotta love the Shinners...this peace stuff has been hard for them...
Elsewhere the Building materials stocks jumped too with Grafton bounding towards the 3.40 level. CRH also came in for some strong support today closing at 17.61 , back to last Fridays levels.
Ryanair continues to rise , helped by a US broker report.
There was a strange unemployment report in ireland showing that the live register fell by 3000 fewer people signing on last month...not sure why. Emigration unfortunately a factor here...
In terms of the key US economic stats today , Mortgage applications rose sharply and the slightly weaker Non manufacturing seuvey of the ISM number of 50.6 vs 51.5 expected failed to have a significane impact.
Europe was up +1.5% , London +1.25% , Wall street up 1.2%.
much better feel tonight.
Lets hope Wall street holds its gains.
Have agood evening .
Liam
__________________
Liam Boggan
Merrion Stockbrokers
Tel.: 353-1-2404171
Mob:353-87-2313505
www.merrion-capital.comDisclaimer
www.merrion-capital.com/disclaimer.htmlMerrion Stockbrokers Limited (registration no. 307878) is a limited liability company whose registered office is at Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.
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