What will recapitalising do to share prices?

What is the impact if the Gov. acquire preference shares?

I don't want to discuss individual shares and if this post is in breach of guidelines pls remove.

To recapitalise a bank, the bank needs to receive new money by issuing new shares. This has the effect of diluting the existing shareholders and reducing the value of the existing shares as future profit now have to be shared out to more shareholders. The usual way to do this is to issue new ordinary shares but in the UK, the banks are issuing preferential shares which have a prior claim on the company to ordinary shareholders.

I think you can safely say that the market has already assumed that this is going to happen and have marked the shares down as low as they currently stand.

If new shares, and particularly preference shares, are issued in a great quantity then it could be argued that even at the current low prices the existing shares are overvalued.

A lot depends on the state of the banks loan books and the information in the public domain at the moment is not very complete nor open with particular regard to the loans to developers.

Without detailed and verified information, it is impossible for an investor to evaluate the share price. Hopefully, the on-going investigation will shed some light on this, or else we will have to wait for the 2008 results due next Spring.

Is it possible for bank shares to be wiped out completely? Is that what happened in Sweden? I have considerable bank shares intended for my pension and old age and am really panicing!

caoimhe1 said:

Is it possible for bank shares to be wiped out completely? Is that what happened in Sweden? I have considerable bank shares intended for my pension and old age and am really panicing!

Click to expand...

This is all speculation...

Well, unfortunately yes... If the extent of the bad loans significantly exceeds what the banks say it is, and if the banks creditors call in their loans to the bank (due to the bank defaulting on repayments), and if the bank does not have sufficient capital (deposits and loans (which are really going to be repaid)) to pay back it's loans then a bank could end up in a situation needing to liquidate itself to satisfy creditors. Then there would simply be no value left to return to shareholders.

However, while you are right to worry, there's not much point in you panicing. The government guarantee means that the banks cannot collapse. Any creditors will be paid from the taxpayer if necessary. Now, that does not guarantee the shareholders anything, but it does mean that the bank will be propped up, and while it's propped up there's a possibility that it would trade out of trouble, eventually paying back the government and hopefully regaining value for shareholders. That is likely what would happen for the larger banks, AIB/BOI, if they have problems. For the smaller banks they could be forced into a sale, which I'm afraid might very well result in a complete loss for shareholders.

I guess the proper advice would be for you to talk to a financial advisor.

Ix.

all the above predisposes the banks won't make a return on new capital which is unlike them based on the past ......if they return half decently this should help neutralise the dilution.
For what it is worth this is the bullish angle which could be bull***t.