IMF wants nationalisation of banks but there is an effective alternative

[Dreaded_Estate]

If we designed a version of NAMA carefully we could have all the advantages of nationalisation plus all the advantages of retaining a privately held equity stake.

The first stage would be the asset pricing process.
To start with I think we need to accept that is will be impossible to calculate anything other than a finger in the air estimate of the value of the assets.
Rather than pretend they can do otherwise we need to work around the issue.

The way I see it working is, NAMA and the banks produce a best estimate of the value of every loan. Say that turns out to be a 25% discount to book value. Rather than pay the 75% of book value to the bank NAMA would only pay 50% or less.

These discounts would completely wipe out all existing shareholders and the banks would have to be nationalised. To compensate existing shareholders they could be given a share in the NAMA upside as the assets were purchased at below estimated value.

After that I think we need to negotiate aggressively with all bondholder, guaranteed and nonguaranteed. They need to be told that they ain't going to get all their money back but in exchange for writing off some of their debt they would get an equity stake in the banks which would remain listed on the stock exchange.

We get to have the upside of nationalisation without many of the negatives.

[patslatt]

If we designed a version of NAMA carefully we could have all the advantages of nationalisation plus all the advantages of retaining a privately held equity stake.

The first stage would be the asset pricing process.
To start with I think we need to accept that is will be impossible to calculate anything other than a finger in the air estimate of the value of the assets.
Rather than pretend they can do otherwise we need to work around the issue.

The way I see it working is, NAMA and the banks produce a best estimate of the value of every loan. Say that turns out to be a 25% discount to book value. Rather than pay the 75% of book value to the bank NAMA would only pay 50% or less.

These discounts would completely wipe out all existing shareholders and the banks would have to be nationalised. To compensate existing shareholders they could be given a share in the NAMA upside as the assets were purchased at below estimated value.

After that I think we need to negotiate aggressively with all bondholder, guaranteed and nonguaranteed. They need to be told that they ain't going to get all their money back but in exchange for writing off some of their debt they would get an equity stake in the banks which would remain listed on the stock exchange.

We get to have the upside of nationalisation without many of the negatives.

Most bondholders are covered by the guarantee to October 2010 and if it isn't renewed soon,the banks won't be able to replace the existing bond debt by issuing new debt. The bond maturing beyond 2010 probably trade at a discount to face value.