And to think NAMA was meant to restore confidence in Ireland’s banking system. Not in the short term, perhaps.

Allied Irish Bank executives must have had a fun weekend, having apparently exhorted the government not to raise haircuts on the loans they want to send to its bad bank — enough to leave AIB requiring government recapitalisation.

The fun must have continued on Monday’s opening, when they were able to watch AIB shares promptly implode. See the chart below (click to enlarge):

Ouch. Pre-haircut nerves also damaged Bank of Ireland trading. The grisly numbers from Monday morning, courtesy of Bloomberg:

Dublin-based Allied Irish dropped 33 cents, or 19 percent, to 1.37 euros as of 7:34 a.m. local time. The shares earlier sank 22 percent, the biggest intraday fall since Oct. 28. Cross- town rival Bank of Ireland Plc fell 14 percent to 1.20 euros.

NAMA’s haircut of doom isn’t even released until Tuesday. As the Irish Independent reported on Monday, it will follow a speech by Brian Lenihan, the finance minister, in which he will more or less throw AIB against a brick wall:

The Government will tomorrow signal its intention to take a majority stake in AIB when details of the NAMA discounts or ‘haircuts’ are also released.

While building society Irish Nationwide will have the worst discount at 60pc, AIB is set to be hit with a discount of up to 40pc, making majority State control all but inevitable.

The NAMA discounts were scheduled to be released today, but last night they were delayed once again by 24 hours. They will now appear on the same day as the minister’s speech.

Double ouch. In the meantime, AIB has issued a statement confirming that it is in talks with financial regulators. Note that AIB could still look into asset sales to raise funds, and has been pursuing debt restructuring recently, according to the Irish Times.

Not that a zombified AIB would even be the worst of NAMA’s problems. As Cliff Taylor of the Sunday Business Post argues:

…the main market nervousness will surround the ever-rising cost of bailing out Anglo and Irish Nationwide. Money for Bank of Ireland and AIB can come from converting the existing preference shares and/or from the National Pension Reserve Fund. Cash for the other two – even though it may not have to come up front – will have to come directly from the exchequer. As the cost of bailing out the two rises, quite conceivably to a further €12 billion, in addition to the €4 billion already gone into Anglo, the scale of this appalling vista is finally becoming clear.

Er… triple ouch? Whither Irish sovereign risk now?

Update: Fitz has the details on those all-important haircuts in the Long Room.

Related links:
NAMA, SPVs and other Irish magic – FT Alphaville
Ireland’s e-NAMA-ous property gamble – FT Alphaville
Elephant in the room: NAMA’s yield problem hasn’t gone away – Ronan Lyons

This entry was posted by Joseph Cotterill on Monday, March 29th, 2010 at 12:50 and is filed under Capital markets. Tagged with aib, allied irish bank, bank of ireland, ireland, Nama. Edit this entry.