Re:Banks Paid $32.6B in Bonuses Amid U.S. Bailout (2009)
by vidarh on Monday February 09, 2015 @09:14AM
(#9021191)
The point is that in the situations where nationalisation - or near nationalisation - to prevent bankruptcy is worthwhile, the effective price is going to be low, however you structure it.
For starters, the government can go to the banks shareholders and tell their shares are going to be worth $X or they won't put money in and the business will go bankrupt.
If the shareholders manage to find another investor, then great.
In the UK, this happened with e.g. Royal Bank of Scotland, where the government gradually acquired a larger proportion of the bank as it provided capital until it owned the vast majority (in 2012 it owned about 82% - I don't know what it stands at now). While nationalisation of RBS was certainly not cheap in terms of pounds, it was firesale prices in terms of the size and turnover of the business, because the government took on massive risk as well.
But the key part is that by providing the cash infusion in return for shares, the government is also participating in the upside if they manage to turn the bank around, and shareholders took a substantial hit in the form of massive dilution (though they are set to recover quite a bit as the bank recovers).
For starters, the government can go to the banks shareholders and tell their shares are going to be worth $X or they won't put money in and the business will go bankrupt.
If the shareholders manage to find another investor, then great.
In the UK, this happened with e.g. Royal Bank of Scotland, where the government gradually acquired a larger proportion of the bank as it provided capital until it owned the vast majority (in 2012 it owned about 82% - I don't know what it stands at now). While nationalisation of RBS was certainly not cheap in terms of pounds, it was firesale prices in terms of the size and turnover of the business, because the government took on massive risk as well.
But the key part is that by providing the cash infusion in return for shares, the government is also participating in the upside if they manage to turn the bank around, and shareholders took a substantial hit in the form of massive dilution (though they are set to recover quite a bit as the bank recovers).