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European Banks

In past few weeks I have been researching various European banks - mostly focused on British banks like Barclays, Lloyds and Dutch group ING. However today I noticed that almost all other European banks are also on upswing - two banks from Ireland caught my attention: AIB and IRE. Both of them are up more than 100% in last 5 days. What is happening ?

Is worst over for European banks and hence these explosive moves ? Here is my analysis:
  • Each country in Europe has 2-3 major financial institutions and government cannot let these companies fail at any cost. 
  • Generally European governments have been more creative in terms of bailout terms. For example, Swiss government had "ring-faced" nearly $58B assets ts of UBS long before any other government considered the idea. This is similar to what Uncle Sam did w/ Citibank and Bank of America later
  • After government injection of funds, capital ratios of these banks look much healthier
  • Sub-prime mortgages were not very common outside USA
  • These stocks are selling at very cheap valuations
While investing in these banks is still very risky, if these banks survive (which I believe they would), could double from current prices. We had already seen it with BCS, ING and so on and still have quite a bit of upside left. Check out BCS, ING, AIB, IRE but invest (when market cools down) with extreme caution.

Good luck !

/Shyam

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