Banks - rasing capital - more stock issuance?

[Mike vB]

Let's say if Bank X, who's needing to raise $30B does so by issuance of more stock (at least that's what I thought I heard them talk about on the news last night) what does that do for the current stock value?

 

[ChemEng]

Issuing stocks usually does not change the value of the company. So if the company is worth $1B with 100 stocks outstanding, then each stock is worth $1B/100=$10M. Now if they sell an additional 100 stocks, there are now 200 shares outstanding. The value per share becomes $1B/200=$50M.

(This is part of the reason companies like to use bonds to raise funds.)

 

[Frixxxx]

Issuing stocks usually does not change the value of the company. So if the company is worth $1B with 100 stocks outstanding, then each stock is worth $1B/100=$10M. Now if they sell an additional 100 stocks, there are now 200 shares outstanding. The value per share becomes $1B/200=$50M.

(This is part of the reason companies like to use bonds to raise funds.)

Bonds aren't working in this economy, I think they are doing it to liquify control the government has by being stock holders. Sell more stock to reduce their say in the operations of day to day and their pay.:suspicious:

 

[ChemEng]

Bonds aren't working in this economy, I think they are doing it to liquify control the government has by being stock holders. Sell more stock to reduce their say in the operations of day to day and their pay.:suspicious:

Absolutely agree. I was only talking the general textbook example. There certainly are more implications to issuing stock than just the stock price like you note...

 

[Guest2]

Issuing stocks usually does not change the value of the company. So if the company is worth $1B with 100 stocks outstanding, then each stock is worth $1B/100=$10M. Now if they sell an additional 100 stocks, there are now 200 shares outstanding. The value per share becomes $1B/200=$50M.

(This is part of the reason companies like to use bonds to raise funds.)

Earnings per share ratio ? :blink:

 

[Frixxxx]

Absolutely agree. I was only talking the general textbook example. There certainly are more implications to issuing stock than just the stock price like you note...

You and me are on the same page brother!

Stop it SB:laugh: CAn't stop laughing!!!!!!!

 

[hessian]

Anyone believe like I do, that the Banks have been behind "nudging" up buying interest, trying [successfully] to move this rally higher?
Two months ago I recall reading that there was apparently large "Program Buys" of puts, bought for May Expiration. Next week being Opex, anyone feel a "shakedown" is coming?
Re: Banks - raising capital -!!
Wondering if anyone recalls the same, has insights, or similar instincts on this?

 

[alevin]

More than just banks. And some very interesting implications from stat analysis of prior similar conditions.

http://finance.yahoo.com/retirement...-and-demand?sec=topStories&pos=8&asset=&ccode=

firms have recently issued far more shares of their stock (either through initial public offerings or secondary offerings) than they did even in the go-go years of the late 1990s and at the top of the Internet bubble in early 2000.

That's not good news, from a contrarian point of view: The stock market historically has tended to perform poorly following periods in which firms have flooded the market with more shares.

...TrimTabs next focused on those months in which not only did total corporate issuance exceed $30 billion, but also those in which total corporate share purchases were less. The S&P 500's average 90-day return following those months was a loss of 7%.
This more-narrowly-defined subset applies to today, unfortunately. According to TrimTabs, corporate new offerings since the beginning of May have been nearly five times greater than corporate purchases.

Ned Davis, the head of Ned Davis Research has found through his research that it is optimal not to focus on monthly totals but instead on a rolling 13-week window. On this basis, according to Davis, recent corporate issuance has been exceeded historically only by two other occasions -- early 2000 and early 2008.
Those were "not great times to buy stocks," Davis notes dryly.

Unless you're Birchtree, of course.