I cannot believe the stupidity of the banks participation. The bank has sufficient capital what it does not have is earnings because of a failure to control expenses. The stock is now saddled with an after tax 5 percent dividend. It is exceedingly unlikely (read impossible) that they can cover the preferred dividend with pretax interest in a down rate environment without growing the balance sheet by leveraging the preffered stock capital.


If they go the leverage route will the borrow more short from the Federal Home Loan Bank because core deposits doen't seem to be flying in. Even if they were to leverage and borrow they would need interest rate spread improvement to make it work. Merrill et al have cried woe over the spread for some time. What then is the rational for this idiotic idea?


Could the loan portfolio be in for a big provision that will erode the current capital position? If that is the case, and forgetting it flies in the face of previous statments that remain published, a more intelligent approach to an assumed capital shortfall would be to sell additional common stock from the authorized and unissued shares. The shares at current market (which is less than book value) only carries a 3.3 percent dividend which makes the common sale less expensive than the preffered. Additionally a common sale avoids the 10 year warrants at the $23.32 strike price.


I wonder if CFO Simmons ran a Black–Scholes analysis on the value of the warrants. The value has to be a real drag under any set of assumptions other than a dooms day depression assumption.I)f you do a quick and dirty and assume the current price level is a near bottom then a seven percent annual growth yields a market price doubling in ten years under the thumb out the window rule of 72s. My analysis tells me that management can't manage or control expenses, and now they have given away the store to the government in exchange for a benefit they cannot use.


The clock cannot be unwound to make this stupid transactioon go away. I can only hope that these fools and the board that supports them gets put out to pasture.