By Dow Jones
NEW YORK (Dow Jones) -- A handful of big U.S. banks on Monday
unveiled plans to sell common shares in the open market to raise
money they want to use to repay the federal government to free
themselves from restrictions on salaries and other items.
The news follows Thursday's results of government-mandated
stress tests on the nation's largest banks to determine how much
capital they would be required to raise. The results generally
showed that they would require less new capital than had been
expected.
Investors' relief over the stress tests fueled a "meltup" in the
banking sector on Friday, helping some of the nation's largest
lenders raise more than $12 billion in new equity capital.
While the banks that received Troubled Asset Relief Program
investments in the form of preferred shares could have converted
those into common stock to cover their capital requirements, most
would rather raise capital in the public markets as able, and pay
back the government quickly.
The banks are looking to get out from under the conditions of
the TARP investments, which include restriction on executive pay
and employee bonuses.
Capital One Financial (COF), U.S. Bancorp (USB), KeyCorp (KEY)
and BB&T Corp. (BBT) all announced plans to sell shares on
Monday. Wells Fargo (WFC) on Friday said it was selling additional
stock.
Winston-Salem, N.C.-based BB&T said it would reduce the size
of its dividend as part of a plan announced Monday to repay the
federal government's investment in the company under TARP.
BB&T also will issue $1.5 billion of common stock to be
paired with other funds to repay all preferred stock and warrants
held by the Treasury, Chief Executive Kelly King said.
With the move, BB&T said it would be one of the first U.S.
financial institutions to free itself from TARP. The company
reportedly took $3.1 billion in TARP funds.
BB&T's board of directors declared a 15-cent dividend to be
paid on common stock in the third quarter, a reduction of 68% from
its current quarterly payout of 47 cents a share.
The move to temporarily cut the dividend is intended to preserve
about $725 million in capital on an annualized basis, BB&T
said.
Current earnings "are not likely to justify our 47-cent dividend
in the near term," King said in a statement.
Added King: "Our board carefully weighed many factors in making
this decision. We have a long and proud history of paying dividends
and understand how important the dividend is to our shareholders,
so this decision to temporarily reduce the dividend was extremely
difficult."
The reduced dividend will be paid Aug. 3 to shareholders of
record as of July 10.
BB& T shares fell 5% to $24.98 in early trade.
Shares of Capital One fell 11% to $27.87, after the credit-card
company said it plans to sell 56 million common shares, a move that
would dilute existing stockholders.
Meanwhile, U.S. Bancorp said that it would offer around $2.5
billion in common stock for sale to the public. Subject to
consultation, the firm expects to notify the Treasury that it
intends to repurchase all Series E preferred stock and related
warrants issued to the U.S. Treasury.
If permitted to do so, the firm expects to fund a portion of any
such repurchase with the proceeds of this offering. U.S. Bancorp
may also, concurrently with this stock offering, offer medium-term
notes in a benchmark amount in a public offering.
U.S. Bancorp fell 6% to $19.25.
Rounding out Monday's stock sellers, KeyCorp on Monday filed
with regulators a plan to offer up to $750 million worth of common
shares. The Cleveland-based bank said the move is the first step to
increasing its common equity capital following the government's
stress test, which judged that KeyCorp needs $1.8 billion in
capital.
KeyCorp dropped 5% to $6.63.
Last week, Morgan Stanley (MS) said it raised roughly $4 billion
selling 167.9 million shares of new common stock for $24 each. The
investment bank also issued new debt without government guarantees,
bring total capital raised to $8 billion.
Also, Bank of America Corp. (BAC) said it plans to sell 1.25
billion shares through a so-called at-the-market transaction, which
enables the giant lender to issue new common stock from time to
time, when the market is most receptive.
And on Friday, Wells Fargo said it raised about $8.6 billion
through the offering of 392.15 million shares after underwriters
fully exercised their option to purchase an additional 51.15
million shares.