Converted

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Reuters is reporting that that whole preferred shares idea with respect to bank bailouts might not really be so preferred. We've argued for some time now that if the government really wanted to influence policy and have some control over the day-to-day operations of the targets of its largess, it should do so like everyone else, with common stock. Someone obviously thinks this plain.
We aren't sure that we buy those early and oft repeated arguments for preferred stock, that using that particular vehicle would get the taxpayers funds back quicker and with more certainty. To us the selection of preferred stock looked like a weak emulation of Warren Buffett's investment in Goldman Sachs, and a not-so-subtle message to the banks that the government would still be as "hands-off" as a non-voting shareholder during a proxy fight.
Perhaps now the gloves are coming off?

U.S. officials are examining ways to convert government stakes in banks into ordinary shares as banks accumulate losses, the Financial Times said, citing people close to the discussions.
Policymakers are considering an idea that the government change its existing holdings in the banks, which have taken the form of preferred shares -- non-voting stock that carries a fixed dividend -- into convertible preferred shares that could be converted into common stock, the paper said.
Under this proposal, the shares would automatically convert into common equity if there was a decline in the bank's health, as measured by its tangible equity ratio, for example, the paper reported.
The government may also make future capital injections in the form of such convertible preferred shares, the paper said.

It bears mentioning that this passage sounds a bit ominous: "Policymakers are considering an idea that the government change its existing holdings in the banks."
One wonders if this will be with or without the consent of the banks in question.
U.S. explores converting stakes in banks: reports [Reuters]

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