What is the outlook for shareholders in financial stocks? The major Irish stocks have recovered a little ground recently after being heavily hammered following Bank of Scotland's arrival.
Anyone who invested in either of the two big bank stocks at the start of the year, however, is sitting on heavy losses. AIB shares are down more than 20 per cent from January while Bank of Ireland has fallen in excess of 15 per cent. Overall the banks have under-performed the ISEQ index by more than 30 per cent, on Davys stockbrokers calculations and are now ranked very lowly compared to their European peers.
The weakness of the banks results from a range of factors: new competition in the market, the general malaise in the Irish market due to fears overseas that the economic bubble is about to burst and the reallocation away from the Irish market by fund managers here. This has left most Irish analysts rating them as a buy - although the only one to bounce convincingly in recent weeks has been the Irish Life & Permanent, partly due to speculation that Ulster Bank might come on the market.
IL&P has recovered from €10 to €11, but could still go further if ABN-Amro's valuation of €12 is correct. Speculation on the future of Ulster, and how IL&P might pay for any move on the group, will dominate the stock in the short term.
Looking at the financial sector in general, the major stocks - whatever their short-term problems - must surely represent a long-term buying opportunity for investors. But with ICC and possibly Ulster on the block, the DIRT inquiry ongoing and fears remaining about the valuation of the US market, a short-term bounce cannot be guaranteed.
