Several large US banks undertook big capital-raising efforts on Tuesday, hoping to satisfy regulators who want bigger cushions against a deep recession, or proof that they have enough of a buffer.
Bank of America, which regulators last week ordered to find $33,9-billion of capital, sold $7,3-billion of China Construction Bank shares to a group of investors, according to a person directly involved in the sale who was not authorised to discuss it. The bank declined to comment. CCB could not be reached.
Meanwhile on Tuesday, US Bancorp, BB&T and Bank of New York Mellon sold a respective $2,5-billion, $1,5-billion and $1,2-billion of common stock, as they look to repay taxpayer bailout funds.
Unlike Bank of America, the three other US banks were deemed in federal ”stress tests” to have sufficient capital buffers.
Dozens of lenders are hoping to convince regulators that they can withstand a steep economic downturn, or are healthy enough to repay money from the $700-billion Troubled Asset Relief Programme.
Tarp was designed to spur lending, but banks now consider it a burden because it imposes too many restrictions, including some on pay, and suggests that recipients are weak.
Bank of America took $45-billion from Tarp, US Bancorp $6,6-billion, BB&T $3,1-billion and Bank of New York Mellon $3-billion. Lenders say it is up to regulators to decide when money can be repaid. The government does not want banks to repay funds, only to find later that they need more.
”It is now a negative to have Tarp,” Bank of New York Mellon chief executive Robert Kelly said at a UBS financial services conference. ”When I was travelling in the Middle East, Asia and in Europe over the past couple of months … I got a pretty clear message [from clients] that it would differentiate us if we were able to get out.”
Ten of the 19 large banks that underwent stress tests were ordered last week to raise $74,6-billion of capital to ward off a potentially severe downturn. Many banks said they do not expect conditions to sour as much.
Federal Deposit Insurance Corporation chairperson Sheila Bair said on Tuesday the release of stress test results was a catalyst for capital raising by banks. She added that while the banking industry is gaining a better footing, ”there’s still some more pain to go.”
Shortfalls
Bank of America has said it plans to plug roughly half its $33,9-billion capital shortfall by issuing new common stock, and to make up the rest through asset sales and other means.
The bank sold just over one-third of its roughly 16,7% China Construction Bank stake to investors including Singapore’s state-run Temasek Holdings, China Life Insurance Co and China’s Hopu Investment Management, the person involved in the sale said.
Bank of America owns other shares in the Chinese bank that it cannot sell before August 29 2011.
Chief executive Kenneth Lewis said on Monday: ”We always want to have a very large ownership position.”
Separately, US Bancorp’s $2,5-billion stock sale comprised 139-million shares at $18 each. Bank of New York Mellon’s $1,2-billion stock sale, 20% larger than expected, comprised 42-million shares at $28,75 each.
The shares priced at 3% discounts to Monday closing prices, which is normal for offerings of additional shares.
Wells Fargo and Morgan Stanley, found under their stress tests to need more capital, sold a respective $8,6-billion and $4-billion of stock on Friday.
KeyCorp, told to raise $1,8-billion of capital, is selling $750-million of stock. Chief executive Henry Meyer at the UBS conference said the bank might also sell assets or change preferred shares into common stock to cover the shortfall. It took $2,5-billion from Tarp.
Capital One Financial Corp, found to have no shortfall, sold $1,55-billion of stock on Monday.
In Tuesday trading, Bank of America shares fell 5,3% to $12,26, US Bancorp fell 3,3% to $17,89, Bank of New York Mellon fell 3,8% to $28,43, BB&T fell 7,6% to $22,50, and KeyCorp fell 4,5% to $6. – Reuters