Whithering Rights

Yves Smith at Naked Capitalism ruminates upon FT reports of another al-Waleed rescue of Citicorp in this post. Perhaps this is, as it should be, since pegged GCC currencies and petrodollar surpluses are primary enablers (not to discount Asian mercantilist, nor US FRB and fiscal policy's role) of encouraging the so-called savings glut of capital uphill to the US to finance yet another round of drinks for the pickled and overextended revelers.

But something else struck me as curious: the disappearance of the most humble and ordinary "rights issue"?? Has economic concentration made it simply a waste of time to canvass ordinary existing shareholders, when a single call to Temasek, ADIA or CIC does the same thing? Does the lack of rights of first refusal upon existing shareholder dilution mean that - like the American political system - finance and markets is becoming less democratic? So while American activists are harassing Japanese management about "shareholder rights", a large disabuse might be unfolding in their backyard. On the other hand, maybe, like the financing of America's CAD, there are no private buyers (of sufficient size) to recapitalize the myriad of financial institutions requiring top-ups. A look at the share price performance of the US financial sector suggests that this may have some merit. Perhaps the avoidance of market-based capital raising has do to with with structural considerations of markets as any issuer of equity, or convertible-linked equity has found. For even a whiff-of-rumour of further issuance brings with it a veritable avalanche of secondary market stock from hedge funds hitting bids and decimating values with newly initiated short positions setting up and arbitrage to buy at the secondary, or cover via rights bought in. This admittedly serves no one's interests (except the underwriter and the arbs) , but raises important questions about investor-type concentration, faux-"arbitrage" strategy pari-passu risk, and a market structure that both allows and encourages it.

I don't have any answers, but diminishing democracy reflected in rights of, and to, shareholders along with increasing power ond concentration of surplus holders - whether mercantile or resource-based seems to reflect a sign of the times. The case of financials may be special, for much rests upon their shoulders, but I'd be interested to hear whether other observers find this curious, and if so whether they view it as benign or something more nefarious.