The national economy has gotten so bad, driven by high commodities prices and a credit crisis which cannot seem to find a bottom, that some of America’s most well-known companies will have to raise capital, diluting current shareholders, sometime by as much as 75%.

The low share prices of these firm’s makes matters significantly worse as they turn to the markets for cash.

While the forecasts of dilution may be priced into some company shares, many deals will have to be done below market to attract skeptical investors. Large corporations which might have taken on debt to solve cash balance issues are already too leveraged to head back to market with bond offerings.

Some of the company’s which are particularly at risk for diluting current shareholders:

GM (GM) says that it needs $15 billion to get through the current difficulty in the North American car market. It believes that half of that will come from cost and dividend cuts. That leaves at least $7 billion. With a market cap of $6.7 billion, shareholders in GM face a dilution of just over 50%. The company’s current share price is $12. New money coming in as a convertible preferred or purchase of common stock could move GM shares to $6.

Freddie Mac (FRE) and Fannie Mae (FNM) may need to bring in as much as $25 billion in new capital, at least according to federal government experts. Freddie Mac’s market cap is only $5.4 billion. If $10 billion of the new capital goes to the mortgage giant, current shareholder could face dilutions of nearly 75%. With its shares at $8.27 , the stock could easily drop to $3.

Citigroup (C) may not be out of the woods. If Bill Gross at Pimco is right, banks have not taken even half of the $1 trillion of the mortgage-related write-downs he predicts will result from the housing crisis. If Citi has to being in another $10 billion against its market cap of $100 billion, the stock could drop from $19 to close to its 52-week low of $14.

AMD (AMD) earnings are not getting any better. The company just replaced its CEO. Due to negative operating results and $5 billion in long-term debt, AMD may well have to raise another $1 billion to $2 billion to cover future losses and R&D expense. With its stock at a 52-week low and a market cap of only $2.7 billion, the price of its shares could be chopped from $4.26 to $2.

AMR (AMR), the parent of American Airlines says it has enough capital for the near-term future, even in the event oil prices stay high. If crude rises or does not fall from the $125 level and AMR traffic is hurt by a recession, it may not be able to get by with its current cash balance or other available credit. Its market cap is only $2.1 billion. Bringing in another $2 billion could take its share from $8.53 back their one-year low of $4.

Charter Communications (CHTR) is one of the country’s largest cable operators. It operates at about break-even, but has over $19 billion in debt. It will almost certainly have to raise money to simply cover its interest payments. With a market cap of only $465 million, Charter’s common stock could go to zero.

Sirius (SIRI) and XM (XMSR) have about $2.5 billion between them. Off-set operatng losses and move through an intergration results frome their merger will almost certainly take more capital. Their man source of subcribers, new cars sales, is also falling off. Raising $1 billion though new stock sales could push SIRI shares back below $1.60.

At this point, most of the weak companies in the financial, airline, and automotive industries will probably have to raise capital. In the perverse calculus of Wall St, it is the loyal, long-term investors who will get gored.

Douglas A. McIntyre

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