JOIN USFour US banks will sell stocks to repay relief
Four big US banks on Monday announced plans to sell more than $6 billion of common stock, in an effort to raise capital and repay funds received under the government’s bank bailout program.
US Bancorp plans to sell $2.5 billion of stock, and is also selling $1 billion of debt. Capital One Financial Corp sold $1.55 billion of stock, while BB&T Corp is selling $1.5 billion and KeyCorp $750 million. BB&T also reduced its quarterly dividend 68 per cent to 15 cents per share from 47 cents, saving $725 million a year, following 37 straight years of dividend increases. The offerings were announced three days after Wells Fargo & Co and Morgan Stanley sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.
The banks were among 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 $1.8 billion. Regulators last week ordered 10 lenders overall, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.
Banks are scurrying to raise capital after improved investor sentiment caused shares in the sector to more than double from their lows in early March, despite worsening credit conditions in housing, commercial loans and credit cards.
Fundamentals of banks
“They’re trying to get while the getting is good. Fundamentals of banks appear not as bad they were, but they are still not good given the underlying conditions in the economy,” ,” said Walter Todd, who helps invest $650 million at Greenwood Capital Associates LLC in South Carolina. US Bancorp took $6.6 billion from the government’s Troubled Asset Relief Programme, while Capital One took $3.55 billion, BB&T $3.1 billion and KeyCorp $2.5 billion. 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 politicizes the process, which is not healthy,” said BB&T Chief Executive Kelly King. King also said the stress tests unnecessarily created “huge levels of anxiety and concern” among investors.
GMAC to get $7.5 billion stimulus package
Washington, Reuters: GMAC, the troubled automobile lender, may receive a $7.5 billion infusion from the US government as early as next week, the Washington Post reported in its Saturday edition, citing unnamed sources.
The funds for GMAC would come as part of an Obama administration package that aims to revive the nation’s financial system even after it found that major banks need less financial aid than expected, the Post said.
US Treasury Secretary Timothy Geithner told Reuters Television on Friday that the administration will provide substantial support to GMAC, a vital provider of financing for buyers of US-made cars. “It’s likely, again, that GMAC will need to take additional capital from the government and we’ll be prepared to provide that,” Geithner said in the interview.
The Treasury and US banking regulators say GMAC needs to raise $11.5 billion to fill a capital hole it could face if the economy were to deteriorate further. GMAC, the former financing arm of General Motors Corp, has taken $5 billion from the government already. In addition, the Treasury has lent GM $884 million to support GMAC’s lending activities.
Under the restructuring of Chrysler Corp, GMAC is assuming the business of Chrysler Financial. When the Obama administration announced Chrysler’s bankruptcy filing on April 30, it said it would offer support to GMAC, including necessary capital, to allow it to finance Chrysler’s sales.