Banks' share performance reflects strategy

The differences in the growth and development strategies at AIB and Bank of Ireland are resulting in a sharp divergence in the performance of their shares.

So far this year AIB's share price has risen by more than 65 per cent, while the Bank of Ireland share price is up about 25 per cent. Brokers expect this gap to widen.

The financial performance of both banks is benefitting from the dynamic domestic economy. But differences in their overseas growth strategy is one factor holding back the share price performance of Bank of Ireland. The bank is heavily involved in the British mortgage market which generates about 28 per cent of group profits and is looking for a further acquisition in that market.

But in deteriorating economic conditions with slow loan growth and tightening net interest margins, Bank of Ireland's exposure to the British mortgage market is now looking somewhat less attractive.

While Bank of Ireland shares are now seen as a play on the domestic market and on the British mortgage market, AIB is seen as a more broadly-based operation geographically with about one third of earnings coming from the US market.

AIB, which last week produced half-year pre-tax profits of £401 million, has a potentially very lucrative business in Poland which it plans to develop as Poland moves towards EU membership.