Commerzbank this week announced its efforts and methods to raise huge amounts of finance. As evidently expressed by Neil Hume in his article "Commerzbank's mind-numbing cash call", the organisation is taking very complicated actions towards this cash call. It carries on to express how the whole capital structure of the organisation will change as a result of this particular cash call. The cash call is a mixture of debt and equity, debt being "silent participations" from the German government and equity from a number of sources such as conditional equity, rights issues e.t.c.
This kind of cash call and capital structure re-arrangement could move Commerzbank closer to an" optimal capital structure" seen as this is the most favourable point for any business regardless of Mondiglian & Millar's concept of the in-existence of an optimal capital structure. It only makes sense for an optimal capital structure as it is impossible for the increase of debt no to record any favourable improvements in a firms activities. It is widely believed that, increases in debt will only be favourable until a creating point when it starts affecting share prices and dividend payment. In this scenario with Commerzbank, the business seem to have raised finance mainly from investors. This is good in that, it's opened to less risk from interest payments, however, earning will have to split between a lot more investors thereby reducing earnings per share, which will diminish shareholder value.
The struggle to attain optimal capital structure can be difficult however, achieving it is great as means a firms is fully exhausting its capital options to its maximum abilities with operations still at its best.
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