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If The Part-nationalised Banks Cannot Pay Dividends Who Will Buy Their Shares?

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I can't see why institutional investors such as pension funds (or even private investors for that matter) would bother to acquire new bank shares or keep the ones they have. The government has more or less rendered them completely worthless for the foreseeable future.

Or am I completely missing something and there's a good reason to buy them.

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I said to my wife on Friday that if the Govt were prepared to put ALL of its bailout money into the banks alongside and on exacty equal terms with private investors and institutions I would be prepared to go in as well. Unfortunately, the Govt has not gone in on equal terms - it is buying preferred shares and inviting the public and institutions to buy ordinary shares which will not pay a dividend until the preferred shares ar paid back. Only if the public do not buy the ordinary shares will the Govt do so.

In my view, the Govt is going to get a guaranteed dividend and its money back on the preference before ordinary shareholders. That is not a deal I am interested in. Worse still the management are to be getitng their bonus pay outs - albeit in stock options.

This is not a fantastic deal for ordinary shareholder investors.

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I said to my wife on Friday that if the Govt were prepared to put ALL of its bailout money into the banks alongside and on exacty equal terms with private investors and institutions I would be prepared to go in as well. Unfortunately, the Govt has not gone in on equal terms - it is buying preferred shares and inviting the public and institutions to buy ordinary shares which will not pay a dividend until the preferred shares ar paid back. Only if the public do not buy the ordinary shares will the Govt do so.

In my view, the Govt is going to get a guaranteed dividend and its money back on the preference before ordinary shareholders. That is not a deal I am interested in. Worse still the management are to be getitng their bonus pay outs - albeit in stock options.

This is not a fantastic deal for ordinary shareholder investors.

Bearing in mind that none of these banks were insolvent, I wonder what the legality is of someone demanding that they should be first in the queue and long standing shareholders should not be paid.

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I said to my wife on Friday that if the Govt were prepared to put ALL of its bailout money into the banks alongside and on exacty equal terms with private investors and institutions I would be prepared to go in as well. Unfortunately, the Govt has not gone in on equal terms - it is buying preferred shares and inviting the public and institutions to buy ordinary shares which will not pay a dividend until the preferred shares ar paid back. Only if the public do not buy the ordinary shares will the Govt do so.

In my view, the Govt is going to get a guaranteed dividend and its money back on the preference before ordinary shareholders. That is not a deal I am interested in. Worse still the management are to be getitng their bonus pay outs - albeit in stock options.

This is not a fantastic deal for ordinary shareholder investors.

Basically the shareholders are now more leveraged (although at punitive rates). If the banks make more than enough to pay back the government then they get higher payouts than otherwise. If there's no money in the kitty they get nought. That's the magic of leverage.

The real question is the rate. The current rate looks too high to encourage investors and could wipe them out.

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Bearing in mind that none of these banks were insolvent, I wonder what the legality is of someone demanding that they should be first in the queue and long standing shareholders should not be paid.

I think it is prudent for them to be rescued *BEFORE* they become insolvent... shareholders made the mistake of investing in badly managed banks, now they pay the price unfortunately.

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I can't see why institutional investors such as pension funds (or even private investors for that matter) would bother to acquire new bank shares or keep the ones they have. The government has more or less rendered them completely worthless for the foreseeable future.

Or am I completely missing something and there's a good reason to buy them.

buy to letters will buy them. They care not for such things as yield or funding costs, just capital appreciation....

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I think it is prudent for them to be rescued *BEFORE* they become insolvent... shareholders made the mistake of investing in badly managed banks, now they pay the price unfortunately.

It would have been 'prudent' to have regulated them rather than turning a blind eye. It isn't the governments job to manage the banking system, it is however their job to regulate it and in this they have proved utterly incompetent.

It should have been a pre-condition that before any tax payers money was put into the banking system, Gordon Brown would be removed from office and exiled in disgrace.

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I think it is prudent for them to be rescued *BEFORE* they become insolvent... shareholders made the mistake of investing in badly managed banks, now they pay the price unfortunately.

Prudent for the system, perhaps, but if a shareholder is going to get wiped out as part of a nationalisation, surely he'd prefer to wait to see if he was really wiped out?

The point is that there are wider interests at stake here; delaying a rescue until a bank is actually bust would be bad for confidence, hence the government steps in early. It's understandable that shareholders might feel disgruntled (and consider legal options) in this circumstance, since their property rights have to some extent been sacrificed euthanised :P on the altar of the public interest.

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Bearing in mind that none of these banks were insolvent, I wonder what the legality is of someone demanding that they should be first in the queue and long standing shareholders should not be paid.

technically, they were ALL insolvent pretty much, that's why there were all of the government bail outs and loans previous to the nationalisation.

that is specifically why the gov isn't concerned necessarily with the shareholders getting a bad deal, because really, they should have lost everything a long time ago at the credit crunch.

if the shareholders get ANYTHING, they can consider themselves lucky at the taxpayers expense.

Edited by Mr Nice

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technically, they were ALL insolvent pretty much, that's why there were all of the government bail ous and loans previous to the nationalisation.

that is specifically why the gov isn't concerned necessarily with the shareholders getting a bad deal, because really, they should have lost everything a long time ago at the credit crunch.

if the shareholders get ANYTHING, they can consider themselves luky at the taxpayers expense.

Well I find it odd that only a couple of weeks ago the Government believed that Lloyds TSB was strong enough not only to weather the storm, but to buy out other banks and yet this morning it apparently insolvent.

Something stinks!

..........but unfortunately we live in a country where everyone believes what they are told.

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I can't see why institutional investors such as pension funds (or even private investors for that matter) would bother to acquire new bank shares or keep the ones they have. The government has more or less rendered them completely worthless for the foreseeable future.

Or am I completely missing something and there's a good reason to buy them.

You buy now because they're cheap, and you expect them to recover in future.

Some shares pay no dividends at all. Some businesses - commonly new or fast-growing ones - expect to make a loss: they're investing in future profitability. That's why they need investors in the first place. Some of the biggest and most profitable companies (like Microsoft) never pay a dividend: people buy the shares in the expectation that the price will rise.

I sold my LloydsTSB in September at 321.5p. They're now at 162p. I've been telling people I'll consider buying back in at half the price I sold, and it looks like I may have to make the decision whether to go ahead with that real soon now. But assuming they recover in due course, they'll be back up to 321 - and much higher - in a few years.

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I can't see why institutional investors such as pension funds (or even private investors for that matter) would bother to acquire new bank shares or keep the ones they have. The government has more or less rendered them completely worthless for the foreseeable future.

Or am I completely missing something and there's a good reason to buy them.

No, totally agree. HBOS will disappear anyway if Lloyds goes through, and the discount to the Lloyds offer price narrowed a lot today so maybe the market is more certain of that deal now. In the short term I think RBS share price will settle very low, I guess realistically the hope for the taxpayer has to be that in 10-15 years the govt can start thinking about selling out again. Don't know much about this Hester but apparently he did a lot to detoxify the Abbey, he's certainly going to have his work cut out doing similar in this environment, and balancing it with having the taxpayer as his number 1 shareholder.

The papers, broadsheets but Daily Mail in particular I think will be ALL OVER RBS. So much political capital to be made from many potential angles. It will be a nightmare to run and will inevitably end up having a jumbled business model. Coupled with a ban on dividends, I'm not sure why the shares would be attractive to anyone for 5 years plus. Wouldn't be surprised to see them get down to 20p ish, although the market always has the capacity to surprise as the Northern Rock share price last year showed...

EDIT: spelling.

Edited by FallingKnife

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  • 314 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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