Big U.S. banks selling stock to repay government

NEW YORK (Reuters) - Three big U.S. banks on Monday said they would sell $5.55 billion of common stock and repay funds from the government's bank bailout program, after federal stress tests showed they can weather a deep recession without new capital.

U.S. 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 said it will sell $1.5 billion.

BB&T also cut its quarterly dividend 68 percent to 15 cents per share to save $725 million a year, after 37 straight years of higher payouts. Chief Executive Kelly King in an interview said the decision marks "the worst day in my 37-year career."

Separately, KeyCorp said it would sell $750 million of stock to help plug what regulators called a $1.8 billion capital shortfall. KeyCorp said it may take other actions, including converting other securities to common stock.

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.

These banks were among 19 lenders to undergo government tests of their ability to weather a deep economic downturn. Regulators last week ordered 10 lenders, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.

Banks are raising 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.

"They're trying to get while the getting is good," said Walter Todd, who helps invest $650 million at Greenwood Capital Associates LLC in Greenwood, South Carolina. "Fundamentals of banks appear not as bad they were, but they are still not good given the underlying conditions in the economy."

U.S. Bancorp is based in Minneapolis; Capital One in McLean, Virginia; BB&T in Winston-Salem, North Carolina, and KeyCorp in Cleveland.

In morning trading, U.S. Bancorp shares fell 5 percent to $19.52; Capital One fell 9.9 percent to $28.24; BB&T fell 3.9 percent to $25.31, and KeyCorp fell 5 percent to $6.62.

BB&T CEO CRITICIZES TARP

U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, 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," BB&T's King said.

King also said the stress tests unnecessarily created "huge levels of anxiety and concern" among investors. "Regulators have always had the ability to assess the capital of institutions, and require more if they chose," he said.

At least one dozen lenders have repaid or gotten permission to repay TARP, and Goldman Sachs Group Inc and JPMorgan Chase & Co have said they want to do so as well.

Goldman Sachs & Co and Morgan Stanley are arranging U.S. Bancorp's offerings. Barclays Capital arranged the Capital One offering. Goldman Sachs, JPMorgan and Morgan Stanley are arranging the BB&T offering. Morgan Stanley is arranging the KeyCorp offering.

(Reporting by Jonathan Stempel; editing by John Wallace and Brian Moss)

WhatsAppFacebookTwitterLinkedinBeloudBluesky