Citi bank has about $2 Trillion in assets.  Suppose Wells has $1.9 Trillion in liabilities, and they all mature next year when the assets will be worth either $1.8 Trillion or $2.2 Trillion, each with a probability ½, so there's a ½ chance that Wells is insolvent by $0.1 Trillion.  Is it in the interest of Wells' shareholders to recapitalize enough to avoid bankruptcy by selling new shares worth $0.1 Trillion?  Explain.

Answer rating: 100% (QA)

Yes it is in the interest of Wells shareholders to recapitalize by selling new shares worth 01 trill... View the full answer