[Pen-l] Query:Bond holders and failed banks and funds

[Sabri Oncu <sabri.oncu@xxxxxxxxx>]

Jim:

> I'm not sure, but I think what happens when a bank is nationalized or
> put into receivership (or whatever the euphemism is -- how about "put
> in the penalty box"?) it's the stockholders that lose. Those who hold
> the banks' bonds would be at the front of the line to be compensated,
> since it's a contractual obligation to pay them. However, they may
> make less than they had planned on, taking a haircut.[*]


As far as I know, at the time a bank is nationalized, the equity
holders had gotten wiped out already. After nationalization, the bond
holders may get wiped out also, depending on what the government does.
For example, take a look at here:

http://www.fool.com/investing/dividends-income/2009/02/19/nationalizing-the-banks-is-a-horrendous-idea.aspx

Sabri
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