Nationalisation of an Irish Bank (If) - what happens the shares ?

M

Munsterbhoy

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Investment risk novice question - sorry if this has been addressed already but cannot find a specific enough answer on any thread.

My question has to do with the government takeover of any bank and what happens the shares of that bank in such an event. Do they become worthless or does that depend on the circumstances ? I can understand how they become worthless in the event a bank becomes insolvent on account that their bad debts are greater than their total assets, but I imagine it (government takeover) could also happen to maintain liquidity i.e. there is a run on a bank but it still has a level of net worth - or is that no longer a reality because of the new government guarantee ?

Is there any compensation for investors provided for in such a situation ?
 
Would the effective nationalisation of Northern Rock in the UK be a template here? If so you can find plenty of info about it online. As far as I know shareholders basically lost their shareholdings.
 
I had a look at that Clubman and it does appear that the shareholders lost their investments but there was a compensation scheme set up by the UK treasury under which an independant valuer would "assess" any compensation payable to shareholders. What that transpired to be (if anything) I do not know as the correspondence was to be between the shareholder and the valuer. On Northern Rock though, I thought it was nationalised in order to stop the run on deposit withdrawl increasing it's loan to deposit ratio beyond allowed limits ? If so, presuming the bank was otherwise healthy, would it not still have a net worth ?
 
For Northern Rock (and now Bradford and Bingley) what they will do is pay off the debtors with the assets. If there is anything left over they will pay it to the shareholders. This could take years.

They could also wait until conditions improve and refloat or sell the companies and use the IPO proceeds to compensate shareholders, but again, any costs that the UK Treasury has incurred will be paid first.

Remember, the depositors are debtors.
 
A case of hard cheese might be more valuable alright. Especially parmiggiano or pecorino.
 
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