Back in early September, I pointed out how IRE, the NYSE traded ADR for the Bank of Ireland, was grossly misvalued relative to the price that the bank's shares were trading for in Dublin and London (BKIR.L). At that time, the ADR represented four ordinary shares and traded at $1.24 per ADR, while the ordinary shares traded at about 0.088 Euros. At the time the Euro was worth about 1.43 U.S. dollars, so the ADR should have been trading at about 0.088*1.43*4 = $0.5034, or about fifty American cents. This situation persisted for some time because it was impossible to short the ADR or to convert ordinary shares into ADRs. At the time I pointed out that unless the ordinary shares really take off, the ADR was bound to plunge dramatically. This predication turned out to be accurate, but IRE's fall was masked by a one-for-ten reverse stock split. The reverse split didn't alleviate the pain experienced by the ADR holders, but it might have helped the bank to avoid some bad publicity. Fast forwarding to this morning, the bank was trading at 0.089 Euros in London, and the Euro was at 1.3238 per dollar. After the one-for-ten split, the ADR now represents 40 of the ordinary shares, so a fair price for IRE would have been 0.089*1.3238*40 = $4.7127 per share. As I was able to purchase a small number of shares of IRE for $4.73 this morning, it seems that the price of the ADR is once again aligned with the price of the ordinary shares. If you plan on buying the ADR, it is easy to check that prices are still aligned by looking up the price of BKIR.L and the exchange rate for the Euro on Yahoo Finance (assuming you don't have a Bloomberg). Are the shares worth buying in the first place? I still hold to my original case, but the shares represent only a tiny portion of my portfolio. I expect much more bad news and several more bad earnings reports before prosperity returns to Ireland, but I expect it to return and for shareholders in this bank to be well rewarded when it does.
Disclosure: long IRE and IRLBF.PK (Bank of Ireland Shares traded on the pink sheets, which I purchased earlier when IRE was overpriced).
Disclosure: long IRE and IRLBF.PK (Bank of Ireland Shares traded on the pink sheets, which I purchased earlier when IRE was overpriced).
