There seems to be an interesting misconception floating around that bailout => equity holders don't lose their investments. In the GFC, there were companies that got bailed out (GM, Chrysler) and after that failed, the Gov't (US and CA) wound up owning them. Equity went to 0.
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Yeah, I meant Citi and all the other banks got cash in exchange for debt and equity warrants, and the equity holders didn’t get zeroed out. I made a 50-100% return buying C and BAC in the crisis, but I was betting they’d go to zero or be worth double where they were trading
When you say debt (1) and equity (2) warrants would those be: 1. Right to purchase equity at a certain price combined with debt financing? 2. Right to purchase equity at a certain price? Had Citi gone bankrupt, do you know what would've happened to 1 and 2?
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If they’d gone bankrupt, the government would have had high level rights given the debt, but I think the government equity would have also gone to zero
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Does that all make sense? In both cases government got debt and equity. With car companies, they went bankrupt, common equity holders got wiped out, government lost money. With banks, they didn’t go bankrupt, common equity dropped in value but not 0, and government made money
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I think I actually conflated the bailout and Uncle Warren’s terms with Bank of America. Government just got debt and equity. Warren got equity with special dividends and warrants to purchase more at current price. https://www.google.com/amp/s/fortune.com/2013/09/10/government-banks-15-billion-on-citigroup-bailout/amp/ … https://www.google.com/amp/s/www.fool.com/amp/investing/2018/09/23/10-years-later-warren-buffett-and-the-financial-cr.aspx …
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