New Delhi: The bailout of Yes Bank is "a depositor one - not an equity one", and the bailout will come at a large cut for equity holders, according to leading brokerage JP Morgan.
In a report on Yes Bank, it said the quasi-sovereign bailout (by SBI/LIC) "is a bond holder/depositor bailout and not an equity one, and hence today's rally in the stock, where Yes Bank rose by 26 per cent compared to a flat Nifty is unjustified".
"The new capital will likely come in at a steep discount to current share price, as forced 'bailout' investors will likely want a large cut for equity holders and it remains to be seen if AT1 at the bank will be called for dilution, as such a move could have implications for future similar issuances by private banks," it said.
JP Morgan has cut the target price to Re 1.
"We believe forced bailout investors will likely want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits (3Q financials have still not been disclosed)," it said.
On the implications for the SBI being called for "national service", JP Morgan said these are incrementally negative for its valuations as it sets a precedent for nationalisation of any future private losses.
"Part of this is already captured in the sharp discount at which the stock trades versus private peers and we believe a crystallisation of such an event effectively makes the discount sticky for a long time. It remains to be seen if SBI/LIC will put up the recap money required," JP Morgan said in the note.