Research On The Optimal Trigger Conditions For The Compulsory Conversion Of Preferred Stocks Of Commercial Banks Under The Principle Of Maximizing Equity Value

In response to the Basel III,the CBRC issued the Capital Management Measures for Commercial Banks(Trial)in June 2012,setting out the requirements for meeting the capital market's loss absorption capacity for capital instruments.And convertible preferred stocks,in the context of China's current financial market,is a good direction for exploring new capital instruments.In November 2013,the State Council issued the Guiding Opinions on Piloting Preferred Stocks.In March 2014,the China Securities Regulatory Commission issued the Preferential Shares Pilot Management Measures,which provided policy guarantees for the introduction of preferred shares in China.Against this background,the pace of development has slowed,and SPDB,whi ch has a strong need for capital replenishment,completed the issuance of two preferred shares in December 2014 and March 2015.This article will study the trigger conditions for the optimal forced conversion of the issue of preferred shares by SPD Bank in this case.There may be agency conflicts between SPD shareholders and preferred stock investors,because they all want to maximize the value of the shares they hold.From the perspective of the issuer's Pudong Development Bank,this article explores the impact of different trigger conditions for the forced conversion of preferred stocks based on the principle of maximizing the value of its shares.By establishing a model of the relationship between SPDB's capital structure,shareholder value and bank value against the trigger conditions for forced conversion of preferred stock,and substituting specific data of SPDB,the software Matlab was used for experimental simulation to find optimal solution for maximizing shareholder value.It has been found through experiments that only when the pre-tax profit as the selected indicator of the compulsory conversion trigger condition is between indirect bankruptcy costs and direct bankruptcy costs,there is an optimal solution for the shareholders' value maximization of SPDB.The trigger point is to raise the value of common stock shareholders and the value of preferred stocks simultaneously.The interests of the two are the same,which means there is no agency conflict.The experimentally calculated optimal preferred s hare issuance scale is much higher than the actual issue size,and the optimal investment risk level is also higher than the actual level,which indicates that the preferred stock is still in the tentative stage in China.The improvement plan based on the experimental results is to rationally set the terms of preference shares conversion,expand the issue scale,and increase the investment risk of commercial banks,which is nonetheless contradictory with the fact that most China's commercial banks nowadays are tired with coping with the increasing NPL ratio.Therefore,in view of this situation,it is recommended that commercial banks choose opportunities when issuing preferred shares,set terms flexibly,improve their ability to deal with risks during normal operations,and finally pay attention to continuous assessment and correction.