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davepamn

M$1.00 Funded By Mahalo ? | May 05, 2009 02:24 PM

How will Banks raise more capital?

BoA and Citigroup will need too raise more capital.

Will raising more money dillute shareholder stock price? Or will the stronger asset balance increase stock price?

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philipy

May 08, 2009 11:45 PM

Banks have a variety of ways of raising capital, and probably they'll use a mixture of them

- Issuing new shares

- Selling assets they own

- Converting debt into equity

Other things being equal issuing new shares would be expected to dlilute the existing shareholders and reduce the share price. But the overall effect of increased confidence that the bank is in better shape than feared might more than compensate for that.

http://www.nytimes.com/2009/05/02/business/02stress.html

http://news.bbc.co.uk/1/hi/business/8033986.stm

http://www.forbes.com/feeds/reuters/2009/05/08/2009-05-08T221722Z_01_L81019092_RTRIDST_0_BANKS-WRAPUP-7.html?partner=moreover

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• How does a bank convert debt into equity?

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philipy

May 09, 2009 02:54 PM

An org can convert debt into equity by doing a deal with debt holders. In essence "I owe you $X on such and such terms, I offer you Y shares to cancel the debt". That could be done with debts to the government or private sector. It doesn't necessarily dilute existing shareholders as the balance sheet of the business ideally remains much the same.

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