Yday we did our first, of many, Spaces. Topic was Irish Banks. We were v impressed by the quality of the audience and questions. Keep sending us your q's and thoughts.

We hoped to record it, but couldn't. For those that weren't on it, here is a thread on why we love Irish Banks
To start, Irish banks have an obv troubled past. Near death during GFC, huge NPL's, declining loan balances, declining earnings, low ROE's...

And they are eurobanks... A terrible sector

But that misses the promise they have going fwd
When we write PD we say we link the macro to micro, and vice versa. Irish banks perfect example.

Macro: Fastest GDP growth in EU 4% to 5%, fastest population growth 1.2%, Youngest population, ~38yrs old on avg.

Going fwd, loan balances are growing and so are house prices.
Macroprudential rules have also made the balance sheet v safe.

Mortgages have a cap at 80% LTV and 3.5x to 4x income ratios. Average mortgage in Ireland is LTV of 74%. Loan books are very safe.

Key point, mortgage rates are second highest in EU at 2.75%!
On micro side:

Low earnings forced Irish banks to cut costs dramatically. And they are now consolidating.

From 5 Irish banks, there are now 3. Remaining 3 are buying loans from the banks exiting.

They banks are now gaining scale.
Higher scale, more high yielding mortgage loans, on more efficient cost basis means much more profitable banks. This is before any benefit from higher rates!

What were once 2% to 4% ROE banks are now going to be more than 10% once all acquisitions close and integrate by ~2023!
Despite these improvements and promising futures, Irish bank multiples still trade at depressed levels in the 0.38x to 0.65x range.

If you consider higher ROEs, book values, growing economic backdrop and the multiples oligopoly banks trade at, you can see why we like these banks
Thesis is a long-term investment, and we are talking about over the next decade. There are of course many big risks here (political, regulatory, inflation, etc.), and everyone should do their own work (this isn't investment advice). But we are personally long Irish banks.
Dylan and Tim have written about Irish Banks extensively in Popular Delusions. Alongside other topics, like uranium, SPACs, inflation, carbon credits, MBS, niche fund strategies, etc.

We publish twice a month subscribe here!


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