You jump first on bank shares - owners tell state

You jump first on bank shares - owners tell state - Jon Ihle -> tribune.ie/business/news/art … ell-state/

That direction would be down then; or at least for the bank shares it probably will.

These are the same institutional holders who have remained mute throughout this crisis. FFS - it is nothing to do with the direction of the market and everything to do with the billions of additional capital needed to let these banks function again.

Direction to the market - of future government ownership stake. I should have been clearer.

Ah, so it is no longer believed that the state won’t have a majority, but the question is how much of a majority will it have?

Oddly the weekend press story that the NAMA discount might be larger than 30% has not had any impact on the share prices of the banks today. I would have thought that it would have prompted another sell-off as it brings AIB and BOI one step closer to full nationalisation. Only one of the 3 morning notes that I got this morning from Dublin brokers mentioned it at all, even though Bloomberg reported it.

Odd, baked-in or tinfoil weird?

What would you say the long-run value for the banks is? About half their peak values? So they are baking in about 85% dilution now?

Weird in that most brokers (and not just the Irish ones) think that there is some value in both at current levels (AIB has three sells out of 17 ratings and BOI has five sells out of 19). I suppose that given the stated reluctance to nationalise the two big ones there is theoretically some value there somewhere but both banks are going to have to announce rights issues that will be several multiples of their market capitalisations so I would not touch them with a bargepole. Moreover, we still do not know how bad their loan losses will be. In the UK during the 1990s, mortgage loan losses did not peak until several years after the property market started to recover and Ireland’s bubble was bigger in every respect.

As for estimating LT value. Assuming they are recapitalised enough to satisfy the stock market then you might look at what type of money AIB and BOI made before they really lost the run of themselves (say pre-2003). On the plus side they are facing an more benign competitive environment in their domestic marketplace. On the other hand, they will probably have no overseas operations and will have to squeeze profits out of an already indebted Irish populace. Added to this will be a large overhang of state owned shares that will probably ensure a permanent discount. Ultimately I do not have a clue what they may be worth in the future because traditional valuation techniques are not really that useful when decisions by the dept. of finance (and the EU) are of greater short-term importance.