Valuation of Shares in Nationalised Banks

Take the scenario of Anglo. Shareholders have to be compensated fairly. So does this mean they get:

  1. The price of the shares at the time of nationalisation?
  2. Nothing because the bank was insolvent?
  3. Something in between because the bank had liquidity problems not solvency problems? (I don’t believe this but Northern Rock shareholders are making that argument.)
  4. Something because the reason they lost their shirts is because the Finanacial Regulator and Central Bank failed to do their job properly and issue warnings about banking practices at Anglo?
  5. Nothing because if they were deceived by the bank they have a legal right to sue directors for breach of fiduciary duty?
  6. A share of whatever Anglo is sold for in the future?

It looks like the UK Govt will go for 2 or 6 above but this is subject to legal challenge. In Ireland, we also enjoy property rights whereby the state must compensate us fairly for assets seized in the public interest.

Now, if you are in favour of 6, then think what happens if we fully Nationalise AIB and BoI? The shareholders get the money recovered from the future sale of shares rather than the State. An important argument against 100% nationlisation?

The bank was bust. The shareholders in the UK are on a hiding to nothing. The cost to the state of winding down the banks will dwarf any share equity.

2

2 appeals to me because Anglo nearly collapsed a la Lehmans.
In any event, Anglo had a very low market value so the exposure is limited.

However, in the case of BoI and AIB, if the Govt Nationalises when there is no imminent collapse the scene changes greatly. If it is done in the national interest, rather then the banks bringing in the vlture capitalists, then the shareholders must be compensated fairly.

[Is this right for the Anglogate forum when my focus is more on AIB and BoI?]

If they are nationalised then there is a requirement to do so - AIB and BOI could not fund themselves without state help. In this case, the taxpayers, not the shareholders, ought to receive compensation. Bear in mind how much money has already been given to the banks (many multiples of their market capitalisations); and this is before NAMA hands them far too much cash for assets that are worth a lot less than the haircut implies.

Shareholders ought to have looked a little more closely at their investments, it is not just the regulator’s job to do this. Despite the numerous (and valid) hardluck stories about life savings lost, these banks cannot survive without state help, consequently their shares are worth nothing.

2 for me.

Shareholders are residual claimants. Anglo, we are told by all, is bust. So they should be gettign zero.

sue the directors

  1. Send them the bill for it.

Im in favour of the government giving it back to the shareholders … just the way they found it !

:laughing:

There was a case a few years ago where the farmers wanted more money from the government for CPO for roads. The judgement was that they were entitled to the market value of the land which was designated agricultural. As it happens a lower price than was being offered by the NRA.

My uncle owns land that was recently CPO’d by the NRA. They not only clearly overpaid but must be genuinely worried about paying up because they’ve offered him 11% interest per year if he holds off on collecting the two or three million odd he’s due.

All for land for a motorway which may now never be built. Crazy thing is if they offered him the land back he’d probably take it.