I purchased a thousand dollars in CBC 2 years ago when it was $3 a share. It's pointless to sell them now and I am just wondering what are my chances of seeing this stock go back up a little so it's not a complete loss.
The problem with the CBCR stock is that even assuming the company will survive (as I beleive it will) there are so many unknowable variables that effect dilution. How fast will the economy recover? A faster recovery might cause loan reserves to be reversed limiting the need to raise capital and potential dilution. Will assets be sold? Selling branches on favorable terms limits the need to raise capital and gives the bank flexibility as to price and timing of capital raises. More regulatory pressure causes capital to be raised faster on less favorable terms with more dilution. Some regualtory breathing room limits shareholder dilution. Same thing for the timing and price of more debt / equity exchanges.
The above questions are difficult and probably unknowable. However there is actually a very simple solution. Sell your CBCR and take the $2,900 tax loss now. Buy 500 shares of CBCRO which is par $10 trust pref debt at 1.30 for $650 which brings your total investment in CBCR and CBCRO up to about $3,600. If the company survives you will eventually (deferral period can not be extended past 5 years and 2 years have been used) be repaid at par plus back interest at 8.5%. 500 shares of CBCRO represents $5,000 par value of debt. 5 years interest on $5,000 at 8.5% is $2,125. Thus in 3 years if the bank recovers you will receive over 2k in interest and own 5k of debt that should be trading close to par since it is paying 8.5% annual interest from a recovered bank. In this scenario you will have doubled your total investment in CBCR + CBCRO in 3 years.
Slight correction. I based the prior calc on owning 1,000 shares of CBCR at $3. Poster actually owns $1,000 worth at 3. Less than 200 shares of CBCRO would be needed to recover an investment of only $1,000 in CBCR stock.
Of course any recovery is conditional upon the question as to whether the bank survives and recovers. A difficult question, but much simpler than trying to figure out how much capital will be raised and on what terms in order for the bank to survive.
If you hold the shares in a taxable account, I would buy the same number of shares you currently hold, then wait 31 days and sell the original shares. The sales of the original shares will generate a tax loss which will lower your income taxes or increase your refund that you would get in 2012. You can then hold the newly purchased shares and hope for a recovery, but you would at least get a tax benefit within the next year.
Best case scenerio is that you will recover $1.50 to $2 a share. Worse case, you will lose the rest. I bought in with a 1 year time frame in Jan. By Jan of 2012 either we are trading north of $1.50 or bust. Everything depends on the credit quality of their loans, the Real Estate market and the economy as a whole. I have been moving major amounts of $$$ into BAC in the last few weeks and betting on a sharp move in the economy and banking sector. So good luck and hope you recover your investment. Your chances of recovery are decent.