Craig Brown

Can Banks Spell 'Nationalization?'

The problem with answering questions on how different stakeholders or shareholders get treated in a nationalization is that nothing is set in stone here. In a bankruptcy you have a a very thick bankruptcy code you can refer to for all the rules on how things are done, not to mention a whole body of case law for precendent providing further guidance. In a nationalization, it is really up to the entity doing it, be it a legislative body, central bank, Treasury or some other body and they generally have fairly broad discretion in designing how it works. They have the money so they set the rules. I would not bank on any shareholders, walking away with anything more than pennies on the dollar. From the government's perspective, shareholders invested in a company and took the chance on that company failing, so they are not likely to have shareholders at the top of their list. Taxpayers usually are, and should be, more important in terms of who they are trying to protect. Sorry I cannot be more specific here, but we are all just flying by the seat of our pants on this one.

Can Banks Spell 'Nationalization?'

I suppose any nationalization could be structured to give current shareholders something if they later de-nationalize, but I would not hold my breath. I suspect the government would be more interested in trying to protect bondholders, simply because there are knock on effects in the CDS market if there are bond defaults. In any event, I believe I read after my post last night that the UK now has 70% of RBS, so it is pretty much already nationalized.