Case Study Of Preferred Stock Financing Of Bank Of Nanjing

Preferred shares,as an important financing tool,not only help banks raise funds and replenish capital,but also meet the investment preferences of different consumers with diversified terms and conditions.For investors,preferred stock has the advantage of being safer than common stock and yielding higher returns than bonds.For issuers,preferred shares can maintain corporate control,optimize corporate capital structure and attract investors with lower risk preference.After the 2008 financial crisis,in order to enhance commercial banks’ ability to confront financial risks,Basel III and other relevant supervision departments require commercial banks to maintain high capital reserves,reduce the bank’s lending capital,and record the permanent noncumulative preferred shares as tier one capital.Therefore,issuing preferred shares has a particularly sense for the banking industry to improve the capital adequacy ratio and lower their risks.In 2013,The State Council issued the Guiding Opinions on the Pilot Development of Preferred Stock,marking the formal implementation of preferred stock in China.At present,the preferred stock is still in the pilot stage in China,with36 enterprises issuing a total of 56 preferred shares.In 2015,China’s economic growth fell more than expected,and various economic indicators hit the lowest level in nearly 20 years.In response to the severe downward pressure on the economy,the People’s Bank of China lowered the reserve requirement ratio and interest rates five times in a year.In this context,Bank of Nanjing prepared to issue " Preferred stock one of Nanjing Bank " to enhance capital and deal with financial risks.Taking Nanjing’s issuance of preferred stock as object of study,combined with the macro background of the serious economic downturn and the continuous reduction of bank interest margin,this paper uses literature analysis,comparative analysis and quantitative analysis to analyze the motivation,issuance effect and issuance risk of Bank of Nanjing’s issuance of preferred stock.This paper analyzes the motivation of bank of Nanjing to issue preferred shares from internal demand and external supervision.This paper analyzes the effect of the issuance of preferred stock of Bank of Nanjing from capital structure,equity structure,profitability,regulatory indicators and common stock price,and judges the effect of the issuance of preferred stock by comparing the changes of each indicator before and after the issuance of preferred stock.In terms of issuing risks,this paper introduces the risks faced by preferred stock issuers and investors in the process of trading,combining with macro policies,issuing terms and other information.This paper mainly draws the following conclusions: First,commercial banks can supplement banks’ capital by issuing preferred shares,and the capital structure can be optimized and up to the requirements of capital supervision.Second,in the macro environment of low market interest rate and slow economic growth,commercial banks can issue preferred shares to obtain long-term capital support,reduce financial leverage and improve profitability.Third,the announcement effect of preferred stock has certain uncertainty,which may not bring stock price rise in the secondary market.Fourth,preferred stock investors are at a lower disadvantage position in the transaction,which is mainly embodied in the potential dividend loss caused by noncumulative preferred stock and the manipulation of the price of the forced conversion.