Word: convertibles
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...preparing to release $25 billion in loans appropriated last autumn to speed up the transition to more fuel efficient vehicles. The cash is supposed to be used for specific projects that increase fuel economy. Ford, for example, has applied to use some of the federal cash to convert an assembly plant in suburban Detroit from building trucks to building small cars and electric vehicles. The project costs $550 million and Ford hopes to use some of the DOE cash. GM, Chrysler, Nissan and Tesla, the California manufacturer of an exotic electric sports car, are also applying for some...
...threatened to do late last year. The results from the bank "stress tests" showed that the capital needs of America's banks are modest, about $74 billion, compared to more pessimistic figures provided by the IMF and bank experts. Banks may have the option of asking the government to convert preferred shares owned by the taxpayer due to original TARP investments into common shares, or they can raise private capital. That could completely negate the need for any more direct investment by the government. The action would be bad for bank shareholders who would be diluted but good for taxpayers...
...administration began testing the banks, knowing that, based on the criteria they had set, many of the firms would fail. The credit markets are harsh. The troubled banks would find it nearly impossible to raise capital from private equity sources. They would turn to the government. The government would convert its preferred shares to common shares to buttress the bank balance sheets. Suddenly, the taxpayers would own controlling interests in many of the largest financial firms in the world...
...That raises a question for investors. If the government buys the bank's common stock outright, investors know how much their own stake is diluted. But since some of the preferreds may convert and others won't, investors are left with a less clear picture of a bank stock's worth...
...bank could also negotiate with the federal government to get it to convert its preferred shares to common. That would cause uncommon dilution which would almost certainly drag down the price of the bank's stock. (See pictures of the global financial crisis...