Shareholders take brunt of banks' capital raising

NEW YORK (AP) -- America's banks and brokerages are scrambling to raise badly needed cash, but it may be at the expense of shareholders.

Since the subprime mortgage market imploded, financial companies caught in the fallout have been raising capital in two major ways -- cutting dividends and issuing more shares. Both methods erode shareholder value; analysts believe the industry is poised for more.

"The market is now seeing a substantial increase in financial companies issuing common and convertible instruments in an effort to shore up liquidity," said Standard & Poor's senior index analyst Howard Silverblatt. "The additional financing gives them immediate breathing room, with the payback being longer term dilution."

Put plainly, their gain is your pain.

Just this past week, Fifth Third Bancorp Chief Executive Kevin Kabat needed a cash infusion of $2 billion to bail out his struggling regional bank, while KeyCorp CEO Henry Meyer needed $1.5 billion. Both will issue stock to boost their balance sheets.

http://biz.yahoo.com/ap/080621/wall_main.html

If not the shareholders, who? These are people who profited from the leverage of undercapitalization, why are they now innocent victims of the true value of their holdings being realized? These stocks would never have been nearly as attractive had these institutions been required to be properly capitalized, or - god forbid - have been responsible enough to adequately capitalize themselves when the conditions were excellent for them to do so. Holding onto a stock where the corporation doesn't do the right thing until they are forced to do so, there shouldn't be any rewards for that.

all the shareholders understood the actual risk, but in many cases, the companies were opaque and the ratings were lies. Some of those shareholders are state governments, pension funds, mutual funds, your grandmother.
Personally, I have avoided stocks since I think the CEOs have too much motivation to lie, and they do. But bond holders are concerned too.

There are no guarantees as to the value of the stock - most of the value of any stock is perception. If you put your money in a stock that is opaque and can't produce numbers to back up its value... then you are taking a risk. If you're not willing to accept the downside to that risk you have no business investing in the first place, you put your money in treasury bonds or a savings account.