Finance and Economic

Financial services companies have pulled in desperately needed capital through a string of discounted stock sales to outside investors, but many existing shareholders have found the deals a bitter pill to swallow.

Shareholders, already suffering as the banks and lenders posted big losses as a result of the U.S. housing crisis, are now seeing their stakes diluted through some of these equity infusions.

But while they may be unhappy about being shut out of the discounted shares, which instead were offered to outside investors such as private equity firms or sovereign wealth funds, big mutual funds and large pension plans have not expressed much anger publicly.

The silence shows how the push for greater shareholder democracy has made only small steps, leaving many smaller investors with a sense of impotence. Legal action may offer little recourse since the courts often side with boards in challenges over stock sales.

“Shareholders are kind of stuck at this point,” said Janna Sampson, co-chief investment officer at OakBrook Investments, a suburban Chicago asset manager that oversees $1.3 billion.

“If banks don’t raise enough capital, you might not have any equity value,” she said freecreditreport. “I think what’s most disappointing is the failure of the risk management teams to have controlled this better.”

Shareholders have seen the value of their holdings reduced by deals in which U.S. lenders such as National City Corp (NCC.N: Quote, Profile, Research) and Washington Mutual Inc (WM.N: Quote, Profile, Research) have sold newly issued stock to private equity firms and large investors at discounted prices.

The sales come as companies rush to raise money amid regulatory pressure to increase their capital cushions. 

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