On page 66 of the book I discuss the role of non-voting preference shares in the context of the MyTravel case study. At the time they looked to be a form of capital that was firmly going out of fashion. The reason for this was that they were seen to be very inferior to ordinary shares which give the holders a full equity stake in the issuing company. At least they get to vote on important issues like possible mergers, executive pay and dividends. For preference shareholders there are no votes at all. However, like many other things in finance that is all changing. As part of the rescue package for the UK banking sector the Government is set to end up with £5bn preference shares from RBS, £3bn from HBOS and £1bn from Lloyds TSB. What is more they will carry a mouth-watering dividend of 12% being payable back to the taxpayer. In addition the banks in question are currently not being allowed to pay any ordinary dividends until these preference shares have been redeemed. Not surprisingly the banks involved are not happy. So watch the news in the next day or so as they attempt to re-negotiate the terms of the deal in favour of themselves.
Oct 16, 2008
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I guess in a way this is in an advantage to the banks as if the government was to own ordinary shares many investors would not be happy to as the government would then have the power to vote and bring forward many decisions. So this issue could wear out the fact that ordinary shares must not be paid until theres preference shares are covered.
Ornela Cenmurati
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