Did Buffett Buy Allied Irish Banks?

That's the question Andrew Bary asks in his fourth recent article on Berkshire in Barron's Online. In his shareholders letter, Warren Buffett writes about losing most of Berkshire's investment in two Irish banks, that he didn't name:

What might have attracted Buffett to Allied Irish? Assuming he bought the stock, we suspect that he was motivated by the same reasoning that attracted Michael Price, a former mutual-fund star who runs MFP Investments.

At the Ira Sohn investment conference last May, Price recommended Allied Irish Banks, then trading around $41. Price said the stock looked cheap because it held a valuable stake in Buffalo-based M&T Bank (MTB). Excluding the M&T stake and another investment, Allied Irish was trading for just five times annual profits, Price asserted.

One reason we think that Buffett bought Allied Irish Banks is that Berkshire is the second-largest holder of M&T Bank at 6.7 million shares, behind Allied Irish Banks at 26.7 million shares. Buffett may have known about the Allied Irish holding in M&T, a bank that Buffett has praised in the past.

M&T, like other regional banks, has been slammed, falling to $33 from over $90 last spring. The other Irish bank whose shares were purchased by Berkshire could have been Bank of Ireland.

The Irish bank losses weren't material to Berkshire, whose equity portfolio ended 2008 at $49 billion and may be down 30% so far in 2009. However, it does show just how much Buffett underestimated the problems in the global financial system. Berkshire has been stung by losses in its equity holdings in American Express, Wells Fargo and U.S. Bancorp.

My hunch is that Bary's speculation is on-target. Value players tend to swarm. And, besides Michael Price, Allied Irish was bought by Southeastern Asset Management and Cundill's flagship value fund in Canada. And probably several others I'm not aware of.

This is a good reminder that, no matter the company you keep, if our stock turns out to be a Titanic, well, you know. ;-)

Comments

[Tariq Ali]

I remember Geoff Gannon's post on Irish banks a while back: http://www.gannononinvesting.com/2007/11/pompous_prognostication_irish.html In hindsight... eeesh

[John]

Tariq: Thanks for the link. Geoff was certainly in good company with Buffett, Price, Cundill, Mason Hawkins, etc.

I would've joined them, but I was too busy losing my shirt on GM, Media General and two Japanese consumer lenders. ;-)