Read on TwitterA couple of people I know were approached by their banks with "offers" to use part of their deposits to buy convertible bonds with higher coupons than what their deposits would otherwise give them in fake interest rates. Do not fall for this trick
1. Banks are insolvent. If they& #39;re "struggling" to give you back your deposits now, they will struggle to pay you the higher coupons.
2. In the case that I am referring to, the bond gets converted to shares if the bank defaults on the coupons owed to you. Reminder, banks are insolvent.
3. The really crooked part is that it gets converted to *NON-VOTING* shares. So not only do you now have a worthless share in an insolvent bank that defaulted on your bond, but you also have no say in the bank that you hold shares in.
4. It places you lower in the priority list. If a bank goes bankrupt and liquidates, the proceeds from the sell-off are distributed in a certain order of priority: 1st to depositors, then to bondholders, and finally to shareholders. Guess what category you would be by that time?
5. It bails-out shareholders at *YOUR* expense. They should be chipping in from their own pockets to save their banks. Here they& #39;re making you do the work for them by reducing their liabilities side (ie: deposits). This reduces their required $ contribution to recap their bank.
6. Banks have been using these tricks for quite a while, so this is not news. The scary part however is that they initially started off with the bigger depositors and now they are starting to trickle down to *smaller* depositors. The case I& #39;m referring it is not a big depositor.
7. This is a despicable trick. Not only are they using depositors to bail themselves out, but they& #39;re also exploiting the fact that most depositors are not likely to have the financial know-how to make a well-informed decision.
Please do not fall for these scumbags.
Please do not fall for these scumbags.
Again, if they ask you to use their deposit to buy convertible bonds, perpetual bonds, preferred shares, or whatever they try to call it, tell them to fuck off. This is likely to be worse than any kind of haircut they may impose on deposits later.
