Business

Tuesday May 12, 2009

Four big US banks to sell stock, eye repaying TARP


NEW YORK: Four big US banks yesterday announced large common stock offerings and said they would use proceeds to repay funds received under the government’s bank bailout programme.

US Bancorp plans to sell US$2.5bil of stock, and is also selling US$1bil of debt. Capital One Financial Corp is selling roughly US$1.75bil of stock, BB&T Corp US$1.5bil and KeyCorp US$750mil.

BB&T also reduced its quarterly dividend 68% to 15 US cents per share from 47 US cents, saving US$725mil a year, following 37 straight years of dividend increases.

The roughly US$6.5bil of stock offerings were announced three days after Wells Fargo & Co and Morgan Stanley sold a combined US$12.6bil of stock. Morgan Stanley also sold US$4bil of debt.

The banks were among the 19 lenders to undergo government “stress tests” of their ability to weather a deep economic downturn.

US Bancorp, Capital One and BB&T were among the nine found not to need more capital, while KeyCorp was ordered to raise US$1.8bil. KeyCorp said it may conduct other transactions that result in more common stock issuance. Wells Fargo and Morgan Stanley were also told to find new capital.

In pre-market trading, shares of US Bancorp fell 5%, Capital One 8.1%, BB&T 3.2% and KeyCorp 0.9%.

US Bancorp took US$6.6bil from the government’s Troubled Asset Relief Programme (TARP), while Capital One took US$3.55bil, BB&T US$3.1bil and KeyCorp US$2.5bil.

Hundreds of lenders took money from TARP, which was designed to spur lending and improve the economy.

Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital.

”Rational, objective lending is one of the most important purposes of the banking system, and when you inject Congress and the administration into it, it effectively politicises the process, which is not healthy,” BB&T chief executive Kelly King said in an interview yesterday.

King also said the stress tests unnecessarily created “huge levels of anxiety and concern” among investors. “Regulators have always had the ability to assess the capital of institutions, and require more if they chose,” he said. – Reuters


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