How does converting to common raise capital ?

Discussion in 'Stocks' started by Kicking, Apr 21, 2009.

  1. How exactly does converting govt preferred to common raise capital for the banks? I understand Preferred shares are senior to stock, pay a bigger dividend and have no voting rights , but is it part of shareholder equity and how does converting to common raise the capital base and improve the balance sheet ?
  2. ElCubano


    smoke and mirrors...
  3. By not having to pay the dividends associated with the preferred shares, the Banks will recapitalize faster (through retained cash flows/earnings ) and thus be restored to health.

    Many of the preferreds carry a 8-9% coupon.
  4. Daal


    Preferred needs to be paid back(with interest!) therefore it has little effect in the long-run probability a bank will go under. Common equity lasts forever
  5. Persdawg


    it must have something to do with their Tier 1 capital. I think you can only use 25% of your preferred shares toward reserve requirements. This will put more "equity" which is limitless onto the balance sheet.