Nationalization and Shares

[theprizelamb]

Hi All

In a most the articles about nationalization its said that if it does go ahead that shareholders are wiped out, and given the risk sharehodlers take that this is just tough!

Thats fair enough, but how exactly are they "wiped out"?

In the process of nationalization, to buy gain control of the bank does the government need to buy out all the sharehodlers or can they simply
commandeer the shares without compensation?

If the government needs to buy the shares to control the bank then the shareholders that are being wiped out are those who had shares this time last year at around €20 per share (AIB) who will face a massive loss, and so any speculative buyer of AIB shares faces much less of a loss if nationalised because the goverement must buy the shares at a price much closer to those which the speculator bought them at. (?)

Thus if anyone is thinking of buying shares in AIB or BoI is essentially taking a bet on the government holding its nerve and pushing through NAMA (with the help of the greens) and thus its really any purchase of shares is a bet on the political rather than financial/economic state of the country.

 

[huskerdu]

As a sweeping generalization, if a bank needs to be nationalized, its shares are worth little or nothing because it is insolvent.

I believe that Anglo share holders will be paid, when the government work out how much the shares are worth. Given the state of its books, it is unlikely that the shares are worth anything.

Also, your last point is true, anyone buying bank shares in Ireland since the crisis started in betting on the banking system in Ireland surviving with state help.

 

[steviel]

Shares are cancelled when a bank is nationalised (which is different to the government taking a majority stake, like RBS in the UK, where new share capital is injected which dilutes the current shareholders). In a full nationalisation the government doesnt effectively buy the shares for zero - they are just cancelled and no longer exist, and one share is issued to the government.

In terms of former Anglo shareholders getting paid anything, it would just be a gesture of goodwill - there is no obligation to pay anything if the bank becomes profitable and has a positive net worth in the future. There is now only 1 share, owned by the goverment. To the extent that the government wants to dish out some value to former shareholders based pro-rata on their former shareholding, that is up to them. But in any case, as huskerdu says, the bad loans would have wiped out any positive valuation anyway.

Buying the shares is a punt on the banks being able to function once they are cleaned up. If you have cash you can afford to lose, the upside is pretty big.

 

[Kluivert]

Hi

I am a long time reader of these forums, am fraid I do not contribute enough though.

I have a question.

My own personal opinion with NAMA is that the government will go ahead with this type of re-captialisation but after 6 - 10 months the government will need to step in and Part Nationalise some banks.

Am I right when I say part nationalisation meaning an inject of captial by the government into the bank - will lead to a dilution of shares just like RBS.

What I want to try and work out is, if I buy a bank share for 2e per share and the government (after NAMA) put in more capital in exchange for preferential shares, will the knock on of this reduce the value of my share, or just mean that the government gets paid a dividend before my ordinary shares.

Many thanks.

 

[Protocol]

Hi


What I want to try and work out is, if I buy a bank share for 2e per share and the government (after NAMA) put in more capital in exchange for preferential shares, will the knock on of this reduce the value of my share, or just mean that the government gets paid a dividend before my ordinary shares.

Many thanks.

The latter - yes, they get paid a pref div before the ordinary shareholders.

But also, as future ord divs will be depressed by NAMA, and by having to pay pref divs, then there may be no ord divs for years, thus holding back the share price.