BANKS WITH exposure of hundreds of millions of euro to International Securities Trading Corporation (ISTC) will receive roughly 12 cent in the euro if a firesale of the bankrupt specialist lender to London firm Collins Stewart is approved, it emerged last night.

The banks in question include ABN-Amro, Bank of America, Merrill Lynch, Morgan Stanley and Royal Bank of Scotland. They are considered likely to vote in favour of the Collins Stewart deal at a creditors' meeting next Tuesday.

The deal proposed by ISTC examiner John McStay is structured as a scheme of arrangement and must also be approved by the High Court. While the Revenue is likely to receive 100 cent in the euro if the rescue goes ahead, shareholders and holders of unsubordinated debt in ISTC will not receive any payment.

Unsubordinated creditors include Friends First, which said last night that holders of two of its unit-linked investment products will receive no return. Its Creative Bond and Creative Step-Up Bonds were invested solely in subordinated loan notes issued by ISTC.

Some 37 investors put €15m in the Creative Bond product in December 2006 and another 88 investors put €28m in the Creative Step-Up product in June last year.

"The loss created by the ISTC bonds is a major blow to the policyholders, and a grave disappointment to Friends First, who produced the bonds in a transparent and professional manner," Friends First said.

"The nature of the product was fully defined and the potential risk to income and capital clearly explained in writing in the accompanying literature and acknowledged by each investor."

ISTC is the largest local casualty of the global credit crunch. The firm's debts were estimated at €871 million when it sought High Court protection last November after scrapping a €150 million fundraising and writing down investments by at least €70 million.

If the deal is approved, Collins Stewart will invest €5 million in ISTC for 100 per cent ownership.

ISTC was set up in 2005 by former Anglo Irish Bank director Tiarnan O'Mahoney. Business figures including Seán Quinn and Denis O'Brien invested €160m.