May 11 (Bloomberg) -- Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay government bailout funds after stress tests showed the companies can weather a worsening recession without additional aid.
Capital One, the credit-card lender based in McLean, Virginia, said today it would sell 56 million shares of common stock to raise as much as $1.55 billion, and U.S. Bancorp said its sale would total about $2.5 billion. Winston-Salem, North Carolina-based BB&T reduced its dividend and began a public offering of $1.5 billion of stock.
Regulators examining the 19 largest U.S. lenders last week said the three companies wouldn’t need additional capital to survive a deeper, more prolonged recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in Troubled Asset Relief Program funds as quickly as possible.
“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, an analyst with Sandler O’Neill & Partners LP. “It’s very opportunistic for the banks to be looking to raise given how high the stock prices have gone.”
Capital One, which received $3.56 billion from TARP, said in a separate statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $3.51, or 11 percent, to $27.83 at 12:55 p.m. in New York Stock Exchange composite trading.
Shareholder Interest
“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”
KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The Cleveland- based bank said it expects to raise about $739.4 million from the offering after expenses and commissions.
KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”
TARP Restrictions
Banks that accepted bailout money from the TARP are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to pay back the TARP money must get approval from the government and show they can sell debt in the public market without federal backing.
The government’s stress test found that 10 lenders needed to raise a total of $74.6 billion in capital and that a deeper recession could lead to potential losses of $599.2 billion in 2009 and 2010 for the 19 lenders examined.
BB&T dropped $1.48, or 5.6 percent, to $24.83 at 12:55 p.m. in New York Stock Exchange composite trading and Minneapolis- based U.S. Bancorp slid 6.3 percent to $19.24. KeyCorp fell 42 cents, or 6 percent, to $6.56.
U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.
Bank Index Rallies
The 24-company KBW Bank Index rallied 36 percent last week and the KBW Regional Bank Index advanced 18 percent, both outpacing the 5.9 percent jump of the Standard & Poor’s 500 Index during the same period.
Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”
Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.
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