Preferred stock, misleading naming?

In an attempt to “put make-up” on them and make them appear financially positive, names of financial products may generate an unfair confusion on possible investors (not experts) surrounded by financiers with no qualms. We refer to stock called “preferred”: preferred dividends may be paid (and they go first) when things go well (that is, when there are profits). But with such an attractive and considerate name, somebody forgot to explain why they are paid more, and also, that they imply more risks and have more limitations: the dividend is not guaranteed and can only be paid if there are profits, they are perpetual bonds (the investment is not always recovered), they are not always liquid assets, they are the last creditors to be paid when there is liquidation (after normal creditors), etc. No more no less. That is, in case of crisis (something nobody ever wants to see coming), preferred stock is the first product to suffer. In spite of such an attractive name, they imply a high risk. And this is not fair or honest for small savers when that is all they have got after many years of work. The name “preferred” happens to be then a “financial euphemism” when faced to reality and the actual economic risk involved in the product. This name is also a reputational risk with a boomerang effect for institutions.

Under the attractive name of “preferred”, small stockholders may have been dazzled. In our view, they should definitely have used a more clear, honest and real name, not so misleading. There are some very preferred small stockholders who, “trapped” in preference, are the last in everything: they cannot get hold of their money. The trust they put on investment “professionals”, together with an imprecise and dazzling name in a moment of expansion, has taken a toll of thousand of millions of Euros today.

The affected: almost 1 million affected people and almost 20,000 million Euros captured between 2009 and 2010 (when it was known that banks were entering a crisis and that they were highly risky products, according to warnings of the CNMV itself …). A real national fiasco. Now we are partly experiencing the consequences of how expensive a bad Naming (or euphemisms) can be. An expensive episode, but if the name had been well chosen to begin with, it would have saved thousands of small stockholders much of the fear they experience today.

European Community brands OAMI (Alicante)
The number of requests of registration at the OAMI keeps increasing a +7% in 2011, but comes to a standstill until May 2012.

The OAMI, office of European Community brands in Alicante, with approximately 830,000 registered trademarks from its beginnings, brought its cumulative growth of applications and registrations to a halt in May 2012, which reflects the weakness of the economic circle we are going through. As an average, 86% of the requested registrations were granted, which reflects its good running. By countries, most registrations were requested in Germany (25%), England (15%), Spain (11%), Italy (11%) and France (10%), which reflects the size of the target market and the interest in them. From the beginning of the OAMI, out of the absolute total, the USA is the country with the highest number of requests of European brands, a 18%, followed by Germany. Behind them we find again the UK, Italy, Spain and France, the Community’s big players.

Also from the beginning of the OAMI, the register types 9, 35, 42, 41, 16 and 25 received the highest number of requests, which reflects the saturation for these products.

Equipo Europa

Views All Time
Views All Time
Views Today
Views Today

Leave a Reply