For anyone who does not know, tomorrow there is a United Bank and Trust shareholder meeting. The details are as follows:
If you are able to attend, I encourage you to attend.
Summary of the issue: The main topic will be the solicitation of approval to increase the number of shares from 10M to 30M. The bank will then sell as many of these new shares as possible to bolster its capital position. If the bank's management does not get the approval to increase the number of shares, it will adjourn the meeting until it can get the approval.
First a Few Questions: I have a few questions I think should be asked:
- How much capital does the bank need? How much money does it want to obtain? (Obviously more is better, but the answer to this question has a direct impact on the dilution effect of existing shareholders.)
- The Memorandum of Understanding required that the bank's key capital ratios be met within 6 months of the date of the letter (Letter date was January 15, 2010, The required date was July 15, 2010). Since it is now almost October, what negative repercussions, if any, will the bank now face for not meeting that deadline?
- Hindsight's always 20/20, but I'd still like to know how the bank got to this point, why was it not able to see the economic downturn coming (especially in housing and especially in Michigan) and if it's learned how to not make risky land development loans.
Effect on Your Shares: If the bank obtains approval to issue more shares, and if you are unable to purchase new shares, your ownership position in the bank will be diluted. You will in effect have the same position, but the pie will be larger, so you will have a smaller overall position. If you are able to purchase additional new shares, and if you believe the bank will prosper sometime soon, you may want to purchase new shares.
Should you vote to approve the additional shares? My opinion is that if shareholders do not vote to authorize additional shares, the bank will not be able to raise additional capital, and the FDIC will move to merge UBT with a stronger bank. I believe that without the additional capital, UBT will cease to be an independent Bank, and will soon become part of a larger bank, maybe an Ann Arbor Bank. I believe that is the unspoken trump card that management can ultimately play if it wants.
I think you should vote to authorize more shares despite the destruction it will have on your current position. If the shares are authorized and sold, the worst destruction has already happened to your shares, and eventually, you shares may be worth something. If shareholders do not authorize more shares for sale, I think the value of the current shares will be close to $0 in less than a year.
I think at this point, it really doesn't do any good to sell your shares either. The Market price is right around $4, if you try to sell it, you might get $3 per share for it. But trying to sell at the same time as the bank is also trying to sell more shares (shares for which there will probably be little demand), is going to swamp the value of your shares. Maybe it's better to hold on to it and pass it along to the next generation.
These are the things you might think about before you attend the UBT Shareholder Meeting tomorrow.