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Bank Stock Sales Add Billions in New Capital

By Binyamin Appelbaum
Washington Post Staff Writer
Tuesday, May 12, 2009

The nation's largest banks are taking advantage of the recent stock market rally to raise billions of dollars in new capital, allowing the firms to improve their financial health much more quickly and cheaply than government officials had expected.

Capital One of McLean joined four other large banks yesterday in announcing new sales of common stock that together exceed $7 billion. Large banks have announced more than $19 billion in share sales since the government's release of stress test results last week.

The success of the sales is relieving the government from months of duty as nearly the sole source of funding for the troubled industry. It also has reduced speculation that the government could be forced to provide so much money to some banks that it would end up with a large ownership stake, effectively nationalizing them. Citigroup still plans to give the government a significant ownership stake, and it remains possible that other banks could be forced to follow if they cannot raise enough money from private sources.

"Markets appear comfortable with the survivability of at least the largest 19 banks," Paul Miller, a banking analyst with FBR Capital Markets, wrote in a note to clients yesterday. "The threat of nationalization, at least for some, appears to be off the table."

Capital One and three of the other banks, BB&T of North Carolina, U.S. Bancorp of Minnesota and Bank of New York Mellon, said they would use the money to help repay cash infusions by the Treasury Department. Regulators said last week that all four companies have enough money in their capital reserves to weather a long and deep recession, allowing the banks to seek permission from regulators to repay the government's existing investments.

The companies hope to escape a variety of federal restrictions on aid recipients, including limits on executive compensation.

A fourth bank, KeyCorp of Ohio, is raising money to help meet the government's demand that it build a stronger capital reserve against unexpected losses.

Capital One, which operates branches in the Washington area as Chevy Chase Bank, said it would raise about $1.55 billion by issuing 56 million shares of common stock. The company owes Treasury about $3.6 billion. Capital One still must show that it can issue debt without the benefit of a government guarantee before it is eligible to repay Treasury. The company also will need to show regulators that repayment would not further crimp its lending.

BB&T, which has a large presence in the Washington area, said it would raise $1.5 billion to help repay the government's investment of $3.1 billion from the Troubled Assets Relief Program.

The company also cut its dividend to 15 cents per share from 47 cents to conserve capital. The bank had kept its dividend amid cuts by most of its rivals, rendering the move to cut it now a striking expression of BB&T's determination to repay the government as soon as possible.

"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," chief executive Kelly King said explaining the cut.

U.S. Bancorp said it would raise $2.5 billion toward repaying the government's investment of $6.6 billion. The company, which already has issued non-guaranteed debt, said it would formally apply for permission to repay Treasury.

Bank of New York Mellon said it would raise $1 billion and seek U.S. approval to repay a $3 billion government investment.

KeyCorp's situation is the most complicated. The company was ordered by the government to increase by $1.8 billion its holdings of common equity, a buffer that protects common shareholders from unexpected losses that might otherwise cause a company to fail. KeyCorp said it would issue $750 million in stock as the first step toward increasing that buffer.

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