In the short term, many shareholders will be diluted as banks convert preferred shares into common equity to raise capital as required by US government stress tests, says Lex. But at the end of this process, many will be convinced the banks have been restored to health. Longer term, however, the $3,000bn-odd aggregate hole in US financial sector balance sheets is beyond the private sector’s ability to fill. Mirroring Japan more than a decade ago, Thursday “may well mark less a revival of the sector than the beginning of zombie banking in America”.

This entry was posted by Gwen Robinson on Thursday, May 7th, 2009 at 5:16 and is filed under Capital markets. Edit this entry.