The quickest answer is that any Nationalization, either in part of in full means a dilution of equity for stockholders. To fully understand you need to take a step back and look at the total picture, and then how a nationalization would play into it.

There are 2 ways that companies can raise money, either via debt, or equity. The biggest example of a company using debt to raise money would be an issuance of bonds. The company would sell X bonds and X dollars. They then have to make repayment of those bonds in a certain period of time, paying a certain rate of interest. Think of it as people loaning money to the company, by investing in their bonds.

The second way would be via equity, or by issuing stock. There is no guarantee on typical stock as far as an interest rate required to be paid, or a return of your funds. This is because, while with debt (bonds) you are loaning a company money, with equity (stocks) you are actually purchasing a fraction of that company. As a stockholder, you own a tiny percentage of that company.

Now think about how nationlization would impact you if you were a stockholder. When the government is putting TARP funds into banks, they are being given warrants for stock, or preferred stock. This, in a simple sense, means that the government now owns a portion of that company. As preferred stockholders, they also are entitled to their portion of the company before common stockholders. In this way, if the company were to go bankrupt, bond holders are paid first, then preferred stockholders, then common stockholders.

You can see that if the government now owns part of that bank, via TARP capital infusion, then the share of the company that each common stockholder owns would have gone down. Think of it this way, if Joe owns a pizza shop, and he divides the worth of his company into 1000 shares, then sells you 100 shares, you own 10% of the pizza shop right? You own 100 of the 1000 total shares. What happens later if Joe issues another 1000 shares to someone else? Now you only own 5% of the pizza shop (100 of the 2000 total shares issued). When the government obtains warrants or preferred stock for the TARP money, the percentage of ownership of all other stockholders is diluted just like the pizza shop example.

As for how much of an effect it will have on any given stock, that will depend on the overall financial position of the company, how much the capital injection was versus the full size of the company, and the company future financial performance. It certainly doesn't look like the government is trying to 'purchase' banks, they are simply trying to give banks a liquid option that allows them to weather the storm, however, if the money keeps flowing into the banks, at some point nationalization must become a concern.

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