The last 12 months have seen a large downward revision in the valuation of bank stocks. This was underpinned by a significant increase in interest rate expectations, the possibility of enhanced competition from Internet-based entrants and a reassessment of the longer-term earnings potential of old economy industries such as retail banking.

However, Sharetrack investors should not underestimate the ability of existing banks to fight off the threat of financial services offered by non-bank competitors.

For example, players such as Barclays have capitalised upon their strong brand to migrate existing customers online, registering approximately 6 per cent of their current account base in 1999. Barclays is joined by US banks such as Wells Fargo, which has developed Web strategies that boast an online customer base almost 15 times the size of Internet competitors such as Telebank.

The success of such initiatives emphasises how investors should not underestimate the importance of relationship banking and the power of franchise. Furthermore, investors should not lose sight of the fundamental drivers of bank profits - lending volumes, interest and non-interest margin growth, and credit quality.

For example, despite interest margin pressure in the Irish market, the two main banks have significantly increased profits in recent years. By growing their lending books substantially, diversifying into investment-orientated businesses such as fund management and corporate finance and keeping a very close eye on bad debts, both banks have managed to adapt and evolve their business models. With the above in mind, there is much in favour of bank stocks, especially those with the ability to participate in corporate activity, a capacity to develop aggressive as well as defensive strategies in the online space and a brand name with mobility. While the market is clearly focused on growth, current bank valuations mask the fact that many banks are capable of solid earnings growth. As such, Sharetrack investors should ponder the relative upside in banking on banks.

Trintech and Cisco Systems had a two-for-one stock split, effective March 21st and 23rd, 2000, respectively. All portfolios containing these stocks have been adjusted accordingly.

Please note that Goodbody acts as broker to AIB.

Laura De Voy works as a researcher in the private client department of Goodbody Stockbrokers.