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Bank equity: Beggars can’t be choosers

Investors are in no position to worry about niceties in bank capital raising.

Raising equity has rarely been so difficult for banks. Every institution seeking to raise capital from the markets today is being forced to take extreme measures of one form or another.

For Barclays and Santander, which needed to pocket cash as fast as possible, extreme measures have taken the form of riding roughshod over the rights of existing investors. For Standard Chartered it has meant a pre-Christmas sale offering as much as 49% off the price of existing shares. For others, such as Citi, RBS and Lloyds TSB, it means turning to taxpayers.

The affront is a double insult to investors whose stakes in these institutions have suffered massive devaluation. But the reality of the market is such that issuers are having to compete so savagely for cash that they cannot afford to worry about niceties. Nor can shareholders, and they know it. Hence, even Barclays managed to secure more than the 75% approval it needed from existing shareholders to go ahead with a deal that treated them as second-class citizens. Beggars can’t be choosers.

ECM bankers’ task of finding investors willing to pour in more good money after bad looks extremely tough but at least they are getting paid for it.