In the light of today's speculations/reports (here) that the final Tranche 2 haircut on Anglo loans will be 61.93% I am now more confident in my original lower- and mid-range estimates, though adjusting my upper margin loss estimate down a notch.
To repeat my projections are:
- Worst case scenario for Anglo requires €38.6bn (down from €38.9bn)
- The mid-range is €33bn in total hit (same as earlier)
- The best case scenario is €30bn (same as earlier)
As telling as the haircuts are the assumed LTEVs - in Tranche 1 the implied LTEV was 11 percent. In Tranche 2 this is down to 9 percent. Since Nama marks to November 2009, this change can be explained either by lower quality of loans being taken on board (bad news for Nama, better news for banks) or by Nama aggressive drive into raising cash flow (good news for Nama, bad news for the banks).
Now, to my valuations. Table below summarizes:
Notice, I allow for interest margins of 1.5% pa in my mid-range assumptions. This is rather unlikely. To end of 2009, interest margin on Anglo loans (performing) was roughly 1% and this did not reflect Nama costs. In addition, my mid-range scenario assumes Nama recovering 100% of the principal amount of the loans - something that I believe to be equally unlikely. Either way, mid-range estimate implies that Messr Aynsley and Dukes will be coming in with new demands for cash soon - to the tune of €8.5bn more based on my mid-range scenario.