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Banking Crisis

Canadian Enthusiasm for NAMA? Mountie Move Rules Out Nationalisation?

On various lunchtime news reports today, I heard commentators discussing how today’s announcement of Canadian interest in acquiring a stake in AIB was a sign of international confidence in NAMA and helped to rule out nationalisation, and about how this is good news for current shareholders.

It has now been reported that the bank in question appears to be Royal Bank of Canada. This would be the very same Royal Bank of Canada whose Capital Markets Division yesterday released a report including the following statements:

Irish banks are in a vegetative state, in our view. Earnings power is in atrophy and free capital to unsecured debt holders is low to non-existent. Allied Irish (AIB), Anglo Irish (ANGIRI) and Bank of Ireland (BKIR) appear to be on ECB life-support. All non-guaranteed debt holders are effectively subordinated to the ECB. The NAMA proposal alone is insufficient to address the business model challenges facing the banks. As such, all non-guaranteed debt-holders are at substantial risk of uncertainty regarding the requirements of the NAMA proposal, distressed exchanges and potential nationalizations.

And this:

Irish banks are on ECB life-support and the ECB may decide their fate, in our view. The ECB appears to be acting as the lender of last resort for the Irish banks as their funding models have collapsed. This lending is well overcollateralized. Liquidity generated by NAMA may be used to repay ECB borrowings, limiting its benefit to the wider economy. Nationalization could keep the ECB in the game and allow more liquidity to remain in Ireland.

And this:

NAMA alone may not restart lending, other actions could be required. Distressed senior debt exchanges may assist in recapitalizing the banking system. Irish Nationwide’s offer to exchange senior debt at a discount to par for Irish government guaranteed debt adds a new twist to bank recapitalization.

Perhaps those reporters preparing to explain this story to the Irish public this weekend might rely on statements from the horse’s mouth rather than speculating about what RBC might be thinking about NAMA or the prospects of nationalisation. 

While RBC’s interest in purchasing a stake is being taken as a sign that AIB isn’t going to be nationalised, RBC’s own report into the Irish banks says they are likely to be nationalised and that bond-holders are also likely to take a hit. A fairer reading of this story would seem to be that RBC are only going to be interested in buying into AIB after it has been nationalised.

Note — Bloomberg story on RBC Capital Markets report is here. 

Update: Well this story just gets messier. Despite the Indo reporting RBC as the interested bank, I did phrase it as “appears to be” rather than “is” because you can never trust this kind of reporting. Indeed, RTE are now claiming the bank in question is Canadian Imperial Bank of Commerce. Of course, it is perfectly possible that CIBC have a completely different assessment of the Irish banking system than RBC but somehow I doubt it.

27 replies on “Canadian Enthusiasm for NAMA? Mountie Move Rules Out Nationalisation?”

RBC denying the story, via sources, now. Could be a technical/legal point (“not in talks with AIB for stake”), but certainly they’re backing off.

@Eoin,
Interesting. In talks with the government maybe, but not with AIB directly.

This to me smacks of a larger haircut than some shills, eh, sorry, commentators have envisaged. The result of this higher haircut would be that the banks would be effectively nationalised if the government alone recapitalised them. So the government needs recapitalisation partners.

You have to laugh at the rational stock markets…

@jl
Darth Vader to be the new CEO?

Should it be interpreted that RBC interest in AIB shows how good a deal it is for the bank shareholders and conversely, how bad NAMA is for the Irish taxpayer.

I actually had an interview for a job with CIBC about 8 or 9 years ago, for their London office, when i was in my fonal year in college. I didn’t get it. This obviously confirms what Yoganmahew is saying about their poor decision making, above…

I would have thought that a research piece published by an analyst is probably more akin to an opinion piece in a newspaper than it is an editorial.

It is not to say that the two views may differ, rather that it does not necessarily follow that they will or that the board of directors of the bank will even pay any heed to what one of its analysts thinks.

Lets face it – AIB was busy doing sale-and-leaseback transactions on its buildings when its analysts were telling the rest of us that there was nothing to be worried about!

@ Karl

Would this be considered good news for the tax payer. As if such banks are interested surely the government are giving more options regarding the haircut. Is there any data of the affect of a countries banks being owned and ran by the likes of CIBC or others? i.e Good or bad news for the economy and/or average consumer?

Maybe RBC report from two Capital Mkts analysts was realy an attempt by RBC to muddy the water for their competitor/rival, CIBC.

Surely this weakens the government’s case for not temporarily nationalizing the banks.
If they are willing private buyers waiting in the wings then we should be able to flog the banks on very quickly.

I would rather see leaks on which politicians/bureaucrats involved in NAMA decision-making are share/stake holders of Irish banks.
One can only wish…

@ Dreaded Estate

in fairness, the reports seem to suggest that CIBC are only looking for a stake in AIB rather than full ownership, andf they may not want to be minority shareholders in a majority-state-owned bank.

Thanks for the link yoganmahew.

Looks like CIBC have some toxic stuff of their own-
“Opinion was divided on Bay Street as to whether the bank will now have to seek further emergency capital. In January, CIBC raised $2.9 billion of new equity that diluted the interests of existing investors but shored up the bank’s flagging balance sheet. The capital infusion has helped lift CIBC to the best Tier 1 capital ratio among the 25 biggest banks in North America.

“The additional disclosure should lessen fears that an additional dilutive equity issuance will be required,” Malhotra said.

But Brad Smith, a Blackmont Capital analyst, said the bank may need more capital because the risk of additional losses is still high.

“CIBC’s risk profile continues to have above-average leverage to U.S .economic and credit developments, which will require close scrutiny over the medium term,” Smith said. “While it is still in our view not possible to establish a reliable estimate of ultimate mono-line hedge losses, we would not be surprised to see incremental pre-tax losses in the $2-billion to $7-billion range, depending on the extent of softening experienced in the U.S. economy.”

At the worst end of that range, the bank would have to raise more funds to support its domestic retail bank, Smith said”.

Another story from NY Times in Jan –
OTTAWA — The Canadian Imperial Bank of Commerce said on Monday that it would issue 2.75 billion Canadian dollars in stock at substantially discounted prices as part of an effort to ease investor anxiety about its subprime mortgage exposure.

“The bank, based in Toronto, has by far the biggest exposure of any Canadian bank to troubled American mortgage debt, about $9.8 billion. It also confirmed that it would take a $462 million write-down on the unhedged part of that debt as well as a $2 billion write-off for subprime exposure insured by the troubled underwriter ACA Financial Guaranty Corporation.”

@Eoin
If CIBC are interested in AIB they already now they are going to be dealing with a bank with significant state ownership.

I spoke with the Canadian Bank tonight they say “was there ever a better time to buy a bank”..”no point in renting its dead money”..Their borrowing the money from a bigger bigger Bank @ 100% LTV +stamp+legals plus interest roll-up for 15 years.Their planning to re-zone AIB into the entertainment industry / financial theme park complete with casino,spa’s golfcourse,retail Banking and so onn. I think it has wings, just need some valuations and run the sucker past the High Court Friday Night. I can see the Green Shoots already. Oh ye of little faith.

Frankly, I find much of today’s speculation a little depressing.

AIB now and AIB after NAMA are two completely different companies. Today AIB is a (probably) insolvent company that would not survive without the continued largesse of the ECB.

Post NAMA AIB will be a partly state owned bank that should have a sounder financial footing. Coming, of course, after massive shareholder dilution.

Anybody saying that they will take a stake in AIB post NAMA is not talking about taking a stake in today’s AIB. They are two different companies.

It is not unlike saying that I will buy a large share in that oil exploration company, but only after they find oil.

“Liam carroll zoe group gets late night repieve”
From the times

“State-owned Anglo Irish Bank also had no objection and would advance companies €8 million for the development at North Wall in Dublin, the court heard.”

Who in Anglo ok’ed that?

That is a bloody disgrace.

The spin doctors are out in force. Puff pieces on NAMA (as in the IT) are to be expected. Lord Mandelson would be proud. It smacks of desperation. The latest court moves also demonstrate that the banks are desperate to save Zoe -wonder why?

Irish Independent: “What matters now is that a major international bank seems to believe that NAMA has a chance of working and is prepared to back that belief with hard cash. At a time when NAMA seemed to be rapidly unravelling, news of the CIBC move buys the Government time.”

This is a ridiculous conclusion.

If AIB is rid of its toxic loans and there is no clawback on NAMA losses, of course it may be a potential for investment but that doesn’t mean NAMA is a good proposition as a bailout of developers.

@Michael Hennigan
Indeed, it is a crass illogical jump.

There is nothing to say that NAMA will be good for taxpayers. There is nothing to say that NAMA will be good for developers. There is even nothing to say that NAMA will be good for bank shareholders, beyond the bets of the market – it is more likely that CIBC are interested in being part of a recapitalisation of a cleaned up bank than in buying out existing shareholders. This will be dilutive.

If only we had some thin-sliced ham…

Spinning like a top, they are.

T-Shirt I spotted on a trip to California in June:

“Come Over to the Dark Side — We Have Cookies”

I was reminded of this great post when reading today’s comment by Suzanne Lynch in the Irish times-

http://www.irishtimes.com/newspaper/finance/2009/0825/1224253193741.html

It appears there is equally as much disagreement over the extent of our ‘economic woes’ in Canada as there is on this side of the Atlantic.

With two opinions there are so utterly opposing, the only certainty we can offer those working in global risk is the assurance that someone is wrong.

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