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.
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.
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.