AIB executives are preparing this weekend for the bank to come under heavy government control once Brian Lenihan makes his Wednesday announcement. The scale of the bank's development land exposures (€17bn) means that even a modest haircut could leave the government holding a stake of 70% in AIB.

Added to the €17bn are the €8bn of investment property loans clogging up the bank's balance sheet. Last week AIB was even having a problem approving and appointing a chief executive, which is not a surprise considering the successful candidate could end up running effectively a state-owned bank, a la RBS in the UK.

Researchers at the University of Limerick estimated a few months ago that a discount exceeding 35% on AIB's loans would wipe out the bank's equity, including the state's existing preference share investment. That is the nightmare scenario for senior executives at the bank.

Last week government sources were speculating that a 70% stake in AIB was likely in the absence of any private capital coming forward or of the bank refusing to sell its M&T stake or its Polish businesses.

The problem for AIB is that its equity base is already weakened and it starts the process of building up capital from a poor position. To get to a core tier 1 target of 5%, which is low by the standards of its European peers, the bank would need to raise €1.7bn, Bloxham estimates.

To give some idea how low 5% would be, Royal Bank of Scotland's most recent accounts show it had a 6.4% ratio, Barclays had 8.8%, HSBC had 8.8% and Lloyds Banking Group had 6.3%.

Core tier 1 is a key measure of a bank's balance sheet strength. It measures the bank's equity capital and disclosed reserves as a percentage of its assets. The higher the ratio the more capital it is holding to protect against losses.

The government will be removing the main cause of losses – property loans – as part of Nama, so it may be content to allow capital levels to skate just above the minimum. If so, it may not see the point of AIB trying to raise private capital at this juncture.

While the recent recovery in the bank's share price means the government stake may not be as large as it would have been in early March, AIB is facing a serious risk of government majority control, which would seriously dilute the holdings of existing shareholders.

Nama: what it will mean for each bank

* Allied Irish Bank

AIB looks set to become a Royal Bank of Scotland (RBS), Irish-style. The British government now has a 73% stake in RBS and Wednesday's announcement could reveal – in a worse-case scenario – that a similar government stake will need to be taken in AIB. The bank has property exposures of about €48.3bn, over €10bn more than Bank of Ireland. AIB will move about €17bn of development land loans and €8bn of investment property loans into Nama. These are likely to be discounted at least by 25%. Depending on subsequent events, the government could end up with a stake of 77%. Sales of M&T or the bank's Polish operations could help, but that would hurt future profits.

* Bank of Ireland

Bank of Ireland is likely to shift €18bn of property-related loans into Nama. It has far smaller Irish land bank exposures than AIB, but it's likely to have a very large capital deficiency once a discount is applied to the €18bn. For example, a discount of 17%, considered very much on the low side, would leave a hole of €2bn in the bank's capital. Unlike AIB, Bank of Ireland has no large-scale assets to cushion it against the capital hit. However, in its favour, the government is unlikely to want two majority-state-owned Irish lenders.

* Anglo Irish Bank

This nationalised bank has staggering amounts of property-related assets and could move as much as €33.4bn in loans into Nama. It has even more loans secured by development land than AIB, and will be rendered utterly insolvent by any reasonable discount on its loan book. Hence the government faces a serious dilemma. Though Anglo is not trying to expand, certain capital requirements still have to be met by order of the Financial Regulator.

* EBS

The building society probably has the least to fear from Wednesday's announcement. It is likely to be moving only €800m of investment property loans and €400m of development loans into Nama and will be taking only modest haircuts on these compared to AIB or Anglo. This is mainly due to chief executive Fergus Murphy's aggressive write-down policy. It's possible that the finance minister will want EBS to become part of a new third force in banking.

* Irish Nationwide

The former building society built up an exposure worth €8.1bn to property and development loan assets under the leadership of Michael Fingleton. Not all of this will be moving to Nama, but most will, leaving Irish Nationwide with a significant capital requirement, even after these loans are exchanged for government bonds. Unlike AIB or Bank of Ireland, the only possible provider of post-Nama capital will be the government. The society's future looks very uncertain.

* Irish Life & Permanent

IL&P will not be moving any in­vest­ment or development land loans into Nama. However, the government is talking privately about making it the anchor of a new third banking force. It has a very high loan-to-deposit ratio that must come down, and ironically, having some of its loans stripped out and moved off to Nama would have helped in those efforts.