The immediate crisis in Ireland and other European countries regarding sovereign debt and the uncertainty of the European Union response to it has caused real fear to enter the marketplace.

In the stock market, fear is often a place where opportunity lives – for those fortunate enough to have liquid assets yet available to invest – and the nerves yet to do so.

Those who are getting out of a stock in fear, don’t want to hear a thing more about the stock – other than that their shares were sold and how much they got for their shares.  Many will gladly take any price that the market gives them – and that spells opportunity.

Many have written about Ireland’s recent troubles and the problems they face.  Mainstream media big hitters like Bloomberg Businessweek (Article: Ireland Underwater) and niche blogs quoting academics and financial experts have supplied plenty of content, but leave you without any indication as to whether there is an opportunity present.  They simply feed the fear.

In Ireland, it boils down to the government in September 2008 declaring to guarantee the debts of the banks – without understanding – or simply in denial of the severity of the problem.  Banks backed loans to developers at real estate prices that were extremely high.  The developers are gone now, and the banks have a huge problem with loan assets on their books that are over-valued.

If the “insiders” don’t understand the severity of the problem, then how can we as – outsiders – have any real clue of the real value of the property assets on the bank’s books? We can’t.  But we can make these conclusions –

1. Today, the Bank of Ireland is most likely insolvent.  There’s a crisis because there is no market currently for much of the real estate developed.  If the Bank of Ireland was forced today to “mark” their non-performing real estate assets to “market”, the doors of the bank would be shut.  But the bank isn’t being forced to do that.  Because of government intervention – there is still hope for the bank – and so the price of the stock is $1.70/share in New York.

2. Of the Irish banks, the Bank of Ireland is going to have to raise the least amount of capital in order to achieve “Tier 1” capital levels of approx. +12%.  That’s a higher requirement than U.S. has put on its banks.

3. The Bank of Ireland is receiving a cash infusion from the Irish government from the European Union AND from the Irish pension fund!  That’s like pledging all you have.  “Normally” when actions like this are taken, you have to believe that the person(s) putting up that type of collateral understands the nature of their business and has a very strong reason to believe that the venture will be completely successful.  Unfortunately, the Irish government has gotten this one wrong in 2008 and repeatedly thereafter in their attempts to plug the holes with cash.

Nonetheless, when you pledge your nation’s pension system – and you are a small, island nation – known for your pride – AND success in landing hundreds of enterprises paying a 12.5% flat corporate tax,  we would weigh in on the side of time showing that there will be modest success in stemming this tide.  Of course there are many others making the opposite conclusion – who are drumming fear and selling gold bullion to those most fearful.  That’s what makes a market.

4. There is still plenty of business taking place in Ireland.

5. This is best labeled a liquidity crisis.  (We would also say it’s the consequence of gross-negligence of banking and government).  If the liquidity issues are sufficiently addressed, then there may be enough time for Ireland to pull-out of this tail-spin with budget cuts and other reforms.   In which case, the Bank of Ireland stock is perhaps “on sale”.  On the other hand, the stock may yet be discounted some more.

6.  So far, the government’s actions have declared that the Bank if Ireland is going to be around tomorrow.

In the case of Ireland, Irish bank stocks like the Bank of Ireland (IRE) have again sunk to levels last seen in March 2009, at the height of the world-wide financial crisis.  This may currently be an very good opportunity for long term investors and does not appear that the decision to invest must be made today – there may be more time for further price discovery.

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