Rights issues: Demand your rights

The rush by strapped US financial institutions like Citigroup, Freddie Mac and E*Trade to raise capital highlights a weakness in American capitalism. New investors often get their stakes at bargain prices. Existing shareholders, meanwhile, can get severely diluted. The UK system of allowing existing shareholders first dibs, through a rights issue, is preferable. Here’s how it typically works. A company that wants to raise capital offers its shareholders the right to buy a pro-rated amount of sh...