Last week’s unlikely equities outperformer? One Allied Irish Banks.
Allied managed a more than 40 per cent rise last week (albeit from low levels) which you can see in the below chart. The story in credit, however, was rather different.
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That’s Allied Irish’s five-year senior unsecured CDS jumping 22 per cent t0 1089.06 basis points, before coming back to settle at 905bps on the back of Friday’s no haircuts-for-bondholders joint statement. According to CreditSights, Allied’s equivalent subordinated CDS widened more than 400bps last week.
And here’s some commentary from CreditSights’ European team:
The divergence between the markets was so extreme in the case of Allied Irish that , as well as being the horror of the credit world, it was the most spectacular gainer in equities, with a 44% rise. This was apparently on the availability of continuing institutional support for Ireland (continuing ECB liquidity, plus potential EU/IMF facilities), which for shareholders does not come with the new threat of burden-sharing that is such a troubling prospect for bondholders to get used to … Still equity investors should not underestimate how long they might be doing their own burden-sharing in the form of depressed returns: at the end of the week, Bank of Ireland (-4%) gave us a reminder of how hard it still is for the banks to cope with the fundamental problems of their own books, as opposed to NAMA’s.
How times have changed.
Related link:
Allied Irish Banks’ burden-sharing bonus – FT Alphaville