The Irish banks sold off heavily during the COVID-19 crisis, falling almost 75% as investors worried about the impact of rising default rates and falling interest rates on profitability. We highlighted at the time that both AIB and Bank of Ireland traded at price-to-book value ratios of 0.15.
Our argument from the start was that the Irish economy would return to growth after COVID-19, providing hope that loan growth would resume (with AIB and Bank of Ireland having strong mortgage franchises) and defaults would be limited, and that the strong capital position suggested a repeat of the global financial crisis was unlikely. This view has been proven correct, and the banks have, since then, also benefitted from rising interest rates, which increases their interest income.
The chart above highlights the returns from the three listed Irish banks since August 2020. Returns were strong between August 2020 and August 2021, then treaded water for a year, before beginning to increase strongly again in late 2022.
Since August 2020, AIB, Bank of Ireland, and Permanent TSB have produced total returns of 270%, 380%, and 317% respectively – not bad for stodgy mortgage lenders! These strong returns have been driven, to a large extent, by rising price-to-book value ratios.
Following the strong run up in the share prices, is the value now gone or is there room to run for the Irish banks? We have covered this topic a number of times recently in our Weekly Newsletter while we also provide detailed research note on the three banks. For those interested in the Irish banks, you might consider a subscription to our newsletter? Details are available here. Alternatively, you can email us on email@example.com or call 01-2871400.