Banks tipped as good buys

Commerzbank Securities is recommending Allied Irish Banks, Bank of Ireland, and Anglo Irish Bank as buys. It says the sector remains among the most profitable and fast growing in Europe, with an average return on equity of 23 per cent. It says a substantial derating over the last 18 months has left the bank's trading well below fair value, making this one of the most interesting investment opportunities in the European banking sector.

Commerzbank says AIB should be a core buy which it chose for its diversified earnings and management track record. AIB reported increased profits this week.

The brokers say AIB is the bank most likely to benefit from mergers and acquisition speculation. Commerzbank says it is also impressed by the growth and profitability of Anglo Irish's domestic small and medium enterprises franchise and initiates coverage of the stock as a slightly higher-risk buy. "It too, could benefit from domestic mergers and acquisition speculation," it says.

"There remain some concerns over strategy at Bank of Ireland, but the stock also looks inexpensive and on valuation fundamentals is also a buy," it says.