This is the exact reason pay and bonus caps are a terrible idea. I realize American tax payers are pissed that bailed out banks used their money for employee compensation, but caps are not the way to go. It's not a fluke that BOA can't find a CEO. It's not a fluke that they're doing everything they can to pay back TARP. In order to attract top talent you have to pay top dollar. Why in the world would a well qualified CEO go work for BOA when they could receive much more money at a number of other organizations that would be happy to have him? Shareholder's who argued for government mandated compensation caps are getting exactly what they deserve.
I think you're thinking too short term. Long term for BOA, it's good to have the government out of your hair. Good to be able to pay your employees whatever you want, maybe even find a CEO to run your company. Dilution sucks balls for shareholders in the short term but long term this is good for BOA.
I get that, but as an investor, wouldn't you just go - that's it, I'm out of this one. There are far too many other candidates for me to put my money in. bizzaro world.
Efficient market doesn't care about short run. It looks at future expected earnings. If this news is considered positive for future expected earnings (which I believe it is), price will go up. Think of it this way, the loss from dilution is more than offset by higher expected future earnings due to government non-involvement, therefore price goes up.
Perhaps. And I'm sure some investors will do that. But all else being equal, transaction costs may deter some investors from reallocating their capital elsewhere.
Wasn't really a call, just didn't make any sense to me. That much new share dilution and up 5%? I thought I was drunk.