1) The conversion of preferred shares to common is a smart move on the part of management. They simply convert a huge amount of debt into common equity, something the FDIC looks at when figuring the bank's exposure to loan losses. The conversion makes CBC look much better while exposing the Preferred holders to total loss rather than possible loss.
2) By converting the Trust Preferred stockholders into common stock, the company is extinguishing $170 in Debt. That essentially is like someone just invested $170M in the company. .
3) My calculations indicate that after the debt to stocks exchange process is finished , based on 0.50/share, the stock is trading at 32% of book value. That leaves some nice upside potential for shareholders in the next months
4) In 2010, Capitol issued 95K shares to institutions. The issuance price was $100 per share, for an issuance price of $9,5M. This shows that smart money believes CBC will recover soon. Smart institutional would not invest $9.5M without KNOWING that CBC will be able to increase its capital well above capitalized levels.
5) In the Q4 report , CBC will demonstrate improving operating performance to convince the shareholders to buy the $25M rights .
6) In 2010 CBC sold 11 banks reducing the assets by $1.5B. After selling these 11 banks, CBC has still 34 banks and huge potential to grow when the housing market recovers.
7) The investment banker that hired for the CBC recapitalization is a shrewd investment bank that most likely promised CBC to raise the required capital for the company. In order to process the CBC recapitalization , the investment banker will soon push the CBC stocks up and produce a condition for momentum investors to buy the new shares. The same story is happening now with IBCP. See my 10 reasons post to buy IBCP in 12/2010 on IBCP board. IBCP went up from $1 to 4.5 and still rising.
8) CBC investors are missing a slew of signs all of which suggest CBC is not nearly as bad as the price action in last year. When you go beneath the surface of last PR of CBC , you see the management is doing all the right things to raise capital and save the bank .
9) The float is tiny 18M shares. This makes it very easy for institutions to run it up several hundreds percents before pricing the new shares.
10) Insiders hold 12% of all shares and continue to hold CBC shares . Most large insider shareholders are not selling even at these depressed levels of 0.5