The bill for nationalisation/NAMA – 1st draft
On the basis of the IMF forecast that the net fiscal cost for Ireland of the banking crisis will be €24 billion, and that the Irish-owned guaranteed banks had €23 billion of shareholders equity prior to State involvement, I assume that the IMF estimates that the total losses in the Irish banking system will be €47 billion (i.e., once the losses have been absorbed, new equity, which will be provided either by the Irish state or private investors, will be worth its nominal value).
On this basis, a first draft of the bill that the Irish taxpayer will have to face under the different solutions being proposed for the crisis could be as follows (I assume that €47 billion is the base case before we make matters worse by our actions !):
| | € billion | |
| Sunk losses | | |
| Investment in preference shares | 7 | This investment is lost under all but the most optimistic scenarios |
| Estimated net asset deficiency of Anglo that the state will have to cover as a result of nationalisation | 6 | Possibly optimistic. Assumes total losses in Anglo of only €10 billion, i.e., that 22% of the total €47 billion of losses are an Anglo which held 17% of Irish banks loan books/banking assets per the recent accounts. |
| Minimum losses for Irish taxpayer | 13 | Before choosing solution to crisis |
| Losses avoided by subordinated debt holders (no senior debt losses if total losses only €47 billion) | 11 | Total subordinated debt is 18.4 (€13.5 million if one excludes Anglo). If nationalisation occurs these bondholders are made whole instead of bearing losses (23+7+6+11=47) |
| Positive outcomes for existing shareholders under both nationalisation and Nama | 5 | Represents the indemnification that will need to be paid following nationalisation or the “free ride” that the existing shareholders will get by government providing all recapitalisation funding while leaving 25 to 40% with shareholders of the banks (under NAMA €1 of nominal equity after losses does not get us €1 of value). May be understated for nationalisation. |
| Arbitrary estimate of increase in losses as a result of political interference / demotivated bankers following nationalisation | 5 | One example is Karl Whelan's point concerning the Greens wanting to turn development land into fields. Cronyism. Conflict of interests between government departments making banks easiest place to raid. Job security demotivating bankers. |
| Estimated losses for Irish state under nationalisation | 34 | Exceeds IMF estimate by the amount of shareholder indemnification and political interference |
| Estimated running costs and legal costs of NAMA | 4 | The CDR, the French asset management company which dealt with Credit |
| Conflicts of interest between bankers and the taxpayers causing losses to increase. | 6 | Arguably a conservative estimate. The great majority of the loans will be managed by bank staff. These banks would continue to have customer relationships with the individuals who owe the taxpayer money. Only the bankers and their clients will have genuine knowledge. This could be levered to the taxpayer's extreme disadvantage |
| Estimated losses for Irish state under NAMA | 44 | |
All of these figures may be individually wrong but I believe the trend is probably right. There may be additional sources of losses which I haven't considered. In particular the assumption that €47 billion of total losses will be adequate in the light of a banking system with €540 billion of assets (once deposits with and from banks are eliminated) may be optimistic (or possibly pessimistic, but €7 billion was announced last week on half of the system for this year only!).
The overall contention is that nationalisation will cost the Irish taxpayer €20 billion more than the status quo and that Nama will cost an extra €10 billion again.
I believe that figures of this size make the idea of exploring alternative solutions as Fine Gael has done in its strategy, a worthwhile endeavour
