RiskTrade

Thoughts on the Worthless Equity Value of Some Banks

As I understand it your view is that the currently depressed bank sub-debt prices imply that sub debt holders are likely to suffer either coupon deferral/ or out right capital loss and therefore anything in the banks capital structure below sub debt gets wiped out. I agree this is very possible but it is based on one critical premise -i.e. that current prices of sub debt are correct. Clearly, no one knows if the current prices are correct and so what if sub-debt prices have fallen too far and and are actually cheap ? Would that not imply a better survival probabilies for the equities ?. Point is trying to extract long term equity survival probability from sub debt market prices is pointless.