…and actually in the example i made, any negative equity situation would actually now be better from the banks’ perspective than in a ’strong Sterling’ situation (ie the outstanding liability is now less when rebased into EUR).

Obviously if they have Sterling assets held against Sterling loans and being funded by Sterling income (rent), then this is not an issue. It’s obviously not the situation in all cases, but it would be in the majority of them.

And the impact of Sterling competitive devaluation on the secured assets? Not positive…..

Spot on! All spin. PR employment must be up. Oh I forgot, these are all economists…..

After the big guys leave the markets they sell to all the chumps. I saw that somewhere. Oh well, it is just other people’s money.

1. Page 8: “If we were to apply the calculated mark to market haircuts of 20-25% (as opposed to our assumed ‘economic’ ones of 15-20%), it would have implications for the level of dilution, potentially raising government ownership to a level inconsistent with all the government rhetoric that nationalisation is a last resort. Therefore our presumption is that under that scenario the government’s additional equity would be provided at above the market price (as was the case with RBS) to minimise further dilution.”

2. They assume a level of re-cap that will leave the banks with a 6% core tier 1 ratio. I’m pretty sure that this is too low, in the sense that wholesale markets will no longer lend to companies with such a low core Tier 1 capital ratio — HSBC for instance have a ratio of 8.5%. But any more state capital takes the banks up to almost full state ownership. So this scenario would likely see the guarantee stay in place and the banks still looking to shrink risk-weighted assets (i.e. continuing not making loans) to get the capital ratio up to levels where they don’t need government support.

Some sample numbers on haircuts:

Irish land banks: 44%
UK land banks: 24%
Irish residential development: 25%
UK residential development: 20%
Irish commercial development: 21%
UK commercial development: 19%
Irish residential investment: 8%
UK residential investment: 5%
Irish commercial investment: 9%
UK commercial investment: 5%

These obviously incorporate LTV, averages across the banks for each sector are 50%, 70%, 65%, 65%, 65%. A lot of which would seem be much lower than you would suspect in many cases.

If average write-downs increase by 5% for AIB and BoI, my (back of the envelope) calculations make the govt shareholding around 90% and 82% respectively.

Simply - I wouldn’t want to be long either of them!

Bankrupt institutions should be liquidated.