Why bank stocks can't stop raising capital

It's almost a Ponzi scheme... bank stocks can't actually afford their dividend payouts.

Summary: Banks are inherently capital intensive businesses that constantly need new equity to grow their lending books. Banks manage the issue by offering dividend reinvestment plans and large capital raisings, which have been sustained by high bank share prices. But if a bank is struggling, the share price will likely be low, resulting in increased dilution at the next capital raising.

Key take-out: A combination of subdued earnings growth, continued share dilution and lower bank share prices is likely to lead to lower dividend per share growth in the future and a reasonable possibility of reduced dividends.


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