Be Fearful When Others Are Greedy (NYSE: AIB)

NEW YORK - Warren Buffett owns two financial institutions in Ireland but the legendary investor known as the "Oracle of Omaha" has never said which two. He has said that he made a mistake in buying them.

Shares of Allied Irish Banks have now rallied 57% since hitting a low of 76 cents on November 8 but it is very puzzling that its cousin theBank of Ireland is flat. As Buffet would say "be fearful when others are greedy." Investors appear to be filling up their bowls on AIB stock.

AIB has seen several 40+% rallies in the last year, in December 2009 the stock rallied from $3.17 to $5.00 or 57% in 2 days. In April 2010, the stock went from $3.20 to $4.49 or 40% in two days. In June 2010 the stock rallied from $2.17 to $2.94. Unless you are lucky enough to time the run, you would have lost almost all of your investment during this time.

Investors are currently rallying the stock around possible European bailout plans of Ireland. Not only is this new information but it was likely never factored into the valuation of AIB over the last year. What is important to note is most people felt Ireland could survive the crisis without European help which would intuitively be better. But now there are reports they need help, which is worse but has sent the stock rallying.

The bailout of AIB is different than that of National Bank of Greece which stock is down significantly since the announcement of the bailout in Greece. AIB is poorly capitalized while NBG has a strong capitalization in a poor country. In AIB's case the bank is in crippling condition and the state has already made every overture to save it. The bailout will ensure Ireland's survival if it comes but it does next to nothing for AIB since the state was already trying to save the bank.

Be Fearful When Others Are Greedy (NYSE: AIB)

NEW YORK - Warren Buffett owns two financial institutions in Ireland but the legendary investor known as the "Oracle of Omaha" has never said which two. He has said that he made a mistake in buying them. Shares of Allied Irish Banks have rallied 40% in the last day while Bank of Ireland has lost 5% in the same period. As Buffet would say "be fearful when others are greedy." Despite the stock being down 99% since 2008 it is still not a time when one should be greedy.

AIB has seen several 40% rallies in the last year, in December 2009 when the stock rallied from $3.17 to $5.00 or 57% in 2 days. In April 2010, the stock went from $3.20 to $4.49 or 40% in two days. In June 2010 the stock rallied from $2.17 to $2.94. Unless you are lucky enough to time the run, then their is little value in Allied Irish Bank.

Investors often rally the stock around a news point, such as AIB transferring loans to NAMA (National Asset Management Agency). A sort of buy the news mentality. The loan transfers are neither positive nor negative. They are widely known and has little effect on AIB's intrinsic value. Its stock value may wildly swing.

Allied Irish Bank Down (NYSE: AIB) (NYSE: IRE)

NEW YORK - Shares of Allied Irish Bank continued to slump. The banking giant from Ireland is down 35% since the bank was nationalised on September 30. However, the stock still trades on the Irish and New York stock exchange despite this occurrence. The stock currently has a market capitalization of $600 million but this does not include the potential for dilution. The Bank of Ireland saw its share count climb by 400% in their last half year year filing and shareholders of Allied can expect even great dilution then this.

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How Much More Capital Does AIB Need?

Ireland’s regulator is studying how much more capital Allied Irish Bank (AIB) will need as a buffer against future losses. It is expected that it will need to raise 7.4 billion euros by year end.

AIB is expecting a 45 percent discount on real-estate loans it is selling to the National Asset Management Agency (NAMA). With approximately 16 billion of loans earmarked for NAMA this would be 7.2 billion of losses and 6.2 billion more than currently provided for.

AIB has already raised 2.5 billion euros by selling Bank Zachodni WBK SA, to Banco Santander.

To see Edwards full report on AIB

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