How does converting to common raise capital ?

[Kicking]

How exactly does converting govt preferred to common raise capital for the banks? I understand Preferred shares are senior to stock, pay a bigger dividend and have no voting rights , but is it part of shareholder equity and how does converting to common raise the capital base and improve the balance sheet ?

 

[ElCubano]

smoke and mirrors...

 

[Landis82]

Quote from Kicking:

How exactly does converting govt preferred to common raise capital for the banks? I understand Preferred shares are senior to stock, pay a bigger dividend and have no voting rights , but is it part of shareholder equity and how does converting to common raise the capital base and improve the balance sheet ?

By not having to pay the dividends associated with the preferred shares, the Banks will recapitalize faster (through retained cash flows/earnings ) and thus be restored to health.

Many of the preferreds carry a 8-9% coupon.

 

[Daal]

Preferred needs to be paid back(with interest!) therefore it has little effect in the long-run probability a bank will go under. Common equity lasts forever

 

[Persdawg]

it must have something to do with their Tier 1 capital. I think you can only use 25% of your preferred shares toward reserve requirements. This will put more "equity" which is limitless onto the balance sheet.