Govt investment/possible merger in banks

[andrea]

Hi, Can someone explain to me what can happen to shares in the banks if the govt give them money to recapitalise them or tell them merge.

On the investment Ive been told the shares will be diluted, what does this mean?

Same with any potential merger, if for example, govt say BOI now have to merge with anglo Irish, what happens peoples shares in those respective companies?

Hope this doesnt contravene any posting guidelines on discussion of specific shares but Im really in the dark as to what that dilution/merger actually means. thanks.

 

[Gulliver]

If you own a bank share, you own a percentage of that bank and of the profits of that bank. If additional shareholders are brought in for any reason, in such a manner that they share the profits and/or the ownership, then your percentage of the profit is smaller. It is diluted.

In a situation where business is growing, and the bringing in of extra capital boosts profits, then you will not notice the dilution, but if extra capital has to be brought in to support a company where profits are falling, then the effect is very noticable. Your dividends will likely be below expectation.

Govt cannot decide that any two banks must merge. Only the shareholders can do that.... But individual shareholders actually have little influence, because even all of their combined shareholdings are miniscule compared with the shareholdings of the institutional shareholders. They will make the decisions - possibly within the framework of discussions with government.

 

[Glacier5602]

This may be a stupid question, but 4 Banks go as they are saying, does that mean with less competition the 2 surviving Banks in a position to be stronger in a few years time than they were prior to this crises?

 

[Guest124]

This may be a stupid question, but 4 Banks go as they are saying, does that mean with less competition the 2 surviving Banks in a position to be stronger in a few years time than they were prior to this crises?

- Not a stupid question at all - imagine if we are left with AIB and BOI and the end of FREE Banking and less savings products on the market,less interest on savings. If we have another boom -say in 10 or twenty years time and we only had the two they could be making huge profits once again. let's hope we finally get a regulator that regulates but I have my doubts.

 

[Glacier5602]

-say in 10 or twenty years time and we only had the two they could be making huge profits once again. let's hope we finally get a regulator that regulates but I have my doubts.[/quote]

10 or 20 years? I was thinking more 5?

 

[Brendan Burgess]

covered extensively in other threads.