I flagged this last night but, going by the discussion we’re having at the previous thread, I think it’s worth saying a bit louder. The only thing that matters for assessing the potential cost to the taxpayer of NAMA overpayment is the average haircut on non-Anglo loans. Anglo is a nationalised bank and this transaction is one arm of the state paying another arm of the state.
So we simply do not know right now the extent to which the taxpayer may be exposed. Nor should stock markets really know how to react to this information when valuing AIB and BOI, unless they have been supplied with information that we don’t have. However, the “cowboy factor” makes it likely that the discounts applied to Anglo (and perhaps EBS and INBS) will be greater than those for AIB and BOI. So I’d be pretty confident that the haircuts for these banks will be less than the 30% average.
We know that the markets were expecting something like “the stockbroker scenario” involving a discount of about one-quarter (the stockbrokers gradually increased their estimated haircut over the past few months as irresponsible, mischievous, destabilising and opinionated economists lead a public fuss about the price to be paid for the assets).
Can we be sure that the average haircut of 30% announced today implies a larger haircut for the two main banks than was anticipated? Well we know that AIB and BOI are transferring €40 billion in book value loans to NAMA. A discount of a quarter would imply payment of €30 billion. Since we are paying €54 billion for the loans, this would imply paying €24 billion for the remaining €37 billion in loans which would be an average haircut of 35%. That seems perfectly plausible to me.
So, as regards the future of our two main banks, I don’t think we know any more than we did this morning. And yes fellow NAMA anoraks, the failure to announce any details about the two types of bonds is incredibly annoying and, frankly, hard to justify on any grounds that I can think of.
Update: AIB telling media that the discount on their €24 billion of assets (€17 billion in land and development) will be less than the average discount of 30% and that they will only need to raise €2 billion. AIB shares up 26% in after-hours trading in New York. BOI up 16%.