Preferred Equity In Bank Valuation
For U.S. banks, unlike common equity that derives its returns primarily through appreciation; preferred equity gives an investor a return largely in the form of a fixed dividend. Thus, when it comes to valuing a bank with preferred debt, the question comes up do you treat the capital as common or more like a debt instrument? Because the dividend is largely like a coupon on a holding company loan or other debt instrument, it seems natural to value preferred equity as debt.