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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