The FT writes "according to data from Dealogic, commercial and investment banks raised equity worth $83bn in the final six months of 2007 – an increase of more than 20 per cent on the same period last year." That does not include the money that they have raised from sovereign funds.

The reason behind the need for capital is clearly the disintegration in the market for sub-prime based financial instruments. But, where that ends is still not clear. That means big banks and investment firms will be in the market for extra money in 2008.

In terms of potential dilution to current shareholders it is worth breaking down what may happen. Bear Stearns (BSC) has a market cap of under $13 billion. If it has to raise $5 billion, current shareholders could see the stock price fall from $87 to under $60 based on dilution alone.

Over at Countrywide (CFC), the problem could be worse. The mortgage lender only has a market value of $5.25 billion. It would only have to raise $2 billion to take its shares from their current low of $8.75 to below $5. With a market cap of $12 billion, the same kind of math could apply to Washington Mutual (WM).

To put the matter plainly, if US financial institution raise another $50 billion during 2008, the dilution could knock down the value of holdings by current shareholders by at least that much.

Some financial institutions could cut the value of their current shares by as much as half.

Douglas A. McIntyre

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