Royal Bank of Scotland Group plc (ADR) (RBS), Allied Irish Banks PLC (ADR) (AIBYY): Investing in the New Pillar Banks

Among the survivors would be National Bank of Greece (ADR) (NYSE:NBG), Alpha Bank A.E. (ADR) (OTCMKTS:ALBKY), PIRAEUS BANK SA (OTCMKTS:BPIRY), and E F G EUROBANK ERGAS (OTCMKTS:EGFED). However, this four pillar bank system does not reduce competition down to as few players as the Irish two pillar bank model. Regulators in Greece were even against the mergers of banks seen when they blocked a merger between National Bank of Greece (ADR) (NYSE:NBG) and E F G EUROBANK ERGAS (OTCMKTS:EGFED) out of fears the combined institution would find it too difficult to raise sufficient capital.

But Greece’s top concern right now is not as much about bank competition; it’s more about bank solvency. However, recent recapitalizations, with some funds coming from private investors and others coming from the Greek government, have at least temporarily calmed these fears. While the need for future capital injections cannot be ruled out, Greece’s banks and their investors are more focused on a Greek economic recovery than on future aspirations of a bank oligopoly.

Post crisis banks

Investors looking to capitalize on an Irish or Greek economic recovery need to have a long-term horizon for their investment. In the case of these nations’ banks, the pillar bank system is expected to result in fewer competitors in the largest bank part of the industry. This could give these banks an advantage in terms of economies of scale and a possible position of oligopoly. However, this does come with its fair share of risks and costs. Most of the Greek and Irish banks are partially, if not majority, government-owned, throwing the uncertainty of politics into the mix. Recent events surrounding Royal Bank of Scotland Group plc (ADR) (NYSE:RBS) show that this can be a drag on share prices with the future for government-owned banks remaining unclear. If treated like the American banks, a recovering economy could have these Irish and Greek banks re-privatized rather quickly. But this is still all up in the air, and the next few years will play a critical role in shaping the future of these banks and the value of their shares.

Alexander MacLennan has no position in any stocks mentioned. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Investing in the New Pillar Banks originally appeared on Fool.com is written by Alexander MacLennan.

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