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Shane Ross: Goodbody takes a bath in AIB

DID you ever surrender your savings or pension fund to the tender mercies of Goodbody stockbrokers? Or, for that matter, to any stockbroker?

Goodbody is owned lock, stock and barrel by the mighty, but deeply troubled AIB.

Not a comfortable corner for any poor sinner; but imagine the dilemma of a stockbroker offering independent investment advice on whether its parent bank's shares are a great buy or a stock market dog.

Goodbody invariably sees the rosy side of its parent's prospects. The brokers have a pretty consistent record of rating AIB a 'buy'.

Goodbody is hopelessly conflicted; but most punters know -- by now -- that they should take such conflicted advice with a pinch of salt. It would be a brave, possibly suicidal Goodbody analyst who put the boot into AIB's shares.

So Goodbody's words of wisdom about AIB should always come with a health warning.

Equally Goodbody should be circumspect about its view on the relative merits of AIB against rivals, Bank of Ireland and Irish Life & Permanent. Ideally it should not be telling punters that AIB is better than the others. Or vice versa.

Goodbody has never suffered such inhibitions.

Fair enough. Brass neck goes a long way in the cut-throat world of the stock market.

And Goodbody has brass neck -- in spades.

Last week, Nick Webb and I discovered that Goodbody decided -- back in November 2008 -- that AIB shares were a cut above those of rival Bank of Ireland.

So convinced was Goodbody of its parent's virtues that it made a "house call" to exit Bank of Ireland stock across all its discretionary portfolios and to buy AIB shares with the proceeds.

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Goodbody has the largest private client base in Ireland. A decision to sell discretionary shares means the brokers do not have to consult with the client. They just do it.

Goodbody just did it. They sold Bank of Ireland and bought AIB.

Their big bosses in AIB's Ballsbridge Bank Centre must have been pleased, because Goodbody has massive fire power in the market.

Last week a Goodbody spokesman categorically denied that this was a share support scheme. No doubt, but Goodbody just happened to be great supporters of the shares.

A decision by a giant like Goodbody, the child of AIB, to exit BoI across all their discretionary portfolios and to reinvest the proceeds in AIB shares could alter the market capitalisation of both banks. The fateful decision happened in the frenzied days of November 2008.

Think back to November 2008. The emergency bank guarantee had occurred just a month earlier; panic stalked the markets; prices were see-sawing; overseas sellers were fleeing the Irish banks; AIB shares were tumbling.

In the middle of the storm Goodbody made a big decision on behalf of their discretionary clients -- evacuate the B of I ship, and climb on board AIB.

Today they indignantly insist that the switch was made on investment grounds. At the same time they are pleading that, in some cases at least, they switched free of commission. Now why in God's name would they do that?

More importantly, the manoeuvre was hardly an unqualified success. While Bank of Ireland shares have lost serious ground since November 2008, Goodbody's beloved AIB have plunged by three times as much. In the meantime, scores of pension fund contributors, who had given Goodbody discretion, are nursing nasty losses as a result of the switch.

Yet strangely enough, a smattering of Goodbody's other clients may not be suffering so badly.

Those lucky punters who read Goodbody's circular to clients at the same moment in time may have stuck to the Bank of Ireland stable.

In a bizarre contradiction -- which is hard to explain -- while Goodbody was quietly selling Bank of Ireland for its discretionary clients in November, it was issuing an odd research circular on Irish Financials.

True to form AIB was a 'BUY'.

But its verdict on Bank of Ireland on November 14, 2008 was far more interesting.

"We acknowledge," wrote the brokers, "the significant operational and strategic headwinds in the quarters ahead and the equity issue risk, the stock has collapsed 50 per cent in the past forthnight (sic) and is down 75 per cent from its October 1 level, so our recommendation nudges back up from 'Add' to 'Buy'."

At the top of the circular four words blare out at the reader. The words BANK OF IRELAND and the word BUY -- all in bold.

The contradiction would gobsmack a hardened cynic.

Even more amazingly, Goodbody's research boys were targeting a 57 per cent improvement in the B of I price from €1.21 to €1.90.

What a puzzle. Goodbody was discreetly selling its discretionary clients' Bank of Ireland stock while urging the wider world to buy them.

Which group of clients was receiving Goodbody's best advice?

According to the brokers themselves, the "house call" was to switch the proceeds of the sale of Bank of Ireland into AIB. According to the circular both banks were a 'BUY'.

It is not clear whether Goodbody considered Irish Life & Permanent or even a foreign bank as an alternative. Or even cash. Instead, they seem to have instinctively headed back to the bosom of AIB.

Goodbody insists that the "the decision [to exit B of I] was not made lightly by the Private Client Investment Committee".

What a howler. Discretionary clients should challenge the blue-blooded brokers.

Be fair. Perhaps this was a once-off Goodbody cock-up, a failure of its various experts to communicate with each other. But surely a "house call" is a "house call"? And a brutal one at that.

Maybe Goodbody has shown clients a road to riches elsewhere.

The only Goodbody discretionary fund (as opposed to client) I could track last week was the Goodbody Equity Fund. Perhaps this in-house fund could redeem Goodbody's nightmare outcome on the AIB/Bank of Ireland discretionary fiasco.

So how were the whizzkids performing with the Goodbody Equity Fund?

Surprisingly, the website's figures are four months out of date. They only tell us of the Fund's performance until September 30 last year.

The performance is dismal.

Over one year Goodbody's Equity Fund had lost 11 per cent. Pretty poor compared with the FT World index that had lost only 6 per cent. Even poorer against the average General Equity Fund which had only lost 4 per cent.

Over three months and year -to-date (2009) it showed gains, but its performance in last year's rising market was again far inferior to the same chosen benchmarks. Part of its poor performance could be due to its ingrained weakness for shares in AIB.

Goodbody appears blinkered. Its benign view of AIB was hardly shared by other brokers when it made the "house call" to switch out of Bank of Ireland into AIB. In October 2008 the more gutsy and independent Merrion Stockbrokers gave AIB a "reduce" rating. How right they were.

The giant Swiss investment house Credit Suisse told clients that they expected AIB to "underperform". Ditto.

Credit ratings agency Moodys, the cold arbiters of global banks, gave AIB and Bank of Ireland the same dismal credit rating in mid-November 2008, not a point highlighted by Goodbody.

But the worst aspect of the lot is that any discretionary clients who are still marooned in AIB stock -- after Goodbody had sold their B of I shares -- are losing a mint on the switch.

Perhaps stockbrokers should be saved the embarrassment of being allowed to do discretionary deals in their parents' shares?

It simply fuels the flames of suspicious minds.