Wells Fargo, Morgan Stanley Take In $16.6 Billion
By Josh Fineman
May 8 (Bloomberg) -- Wells Fargo & Co. and Morgan Stanley, ordered to increase capital after the U.S. stress tests, raised $16.6 billion in stock and bond sales today, the first banks to respond to the government’s mandate.
Wells Fargo sold $8.6 billion of common stock, 43 percent more than it planned. Morgan Stanley raised $8 billion by selling shares and debt, up from $5 billion announced yesterday. Citigroup Inc. is exchanging an additional $5.5 billion of preferred securities into common stock. Bank of America Corp. plans to sell as many as 1.25 billion shares of common stock in a shelf registration and an undetermined amount of debt that wouldn’t be guaranteed by the Federal Deposit Insurance Corp.
“Things aren’t as bad as people thought they were going to be and the government is being very kind to the banks,” said Jon Fisher, a fund manager at Fifth Third Asset Management, whose parent company was ordered to raise $1.1 billion. “It’s not that onerous. Every single one of them is going to be able to raise capital.”
Results of the stress tests were released yesterday. The Federal Reserve determined that 10 banks must raise a combined $74.6 billion, concluding its unprecedented probe of the health of the nation’s 19 largest lenders. The banks have six months to fill their capital shortfalls, and might be forced to accept expanded U.S. ownership that may lead to changes in management.
Dimon’s Plan
Companies that don’t need additional capital, such as American Express Co., are already planning to repay funds received through the Troubled Asset Relief Program. The biggest U.S. credit-card company said yesterday it filed a request with the Fed to repay $3.4 billion in federal aid.
At JPMorgan Chase & Co., which doesn’t need more capital, Chief Executive Officer Jamie Dimon said he wants to repay the funds quickly. Kelly King, CEO of Winston-Salem, North Carolina- based BB&T Corp., echoed the sentiment, saying in a statement yesterday that he may repay government funds “as soon as possible.”
Wells Fargo raised $8.6 billion at $22 a share, selling 392 million shares. Morgan Stanley sold 168 million shares at $24 each to raise $4 billion, and also raised $4 billion by selling senior notes, according to a statement.
Morgan Stanley’s sale was split between five-year, 6 percent notes that priced to yield 3.9 percentage points more than similar-maturity Treasuries, and 10-year, 7.3 percent bonds that pay 4 percentage points more than benchmarks, according to data compiled by Bloomberg.
‘Meet Requirements’
“Most of them are going to be able to do what they have to do,” said Dean Gulis, part of a group that manages about $2.5 billion for Loomis Sayles & Co. in Bloomfield Hills, Michigan. “You will see some asset sales. Most are going to meet their requirements.”
Wells Fargo, the biggest U.S. mortgage originator, must raise $13.7 billion, the government said. The San Francisco- based lender may face losses for 2009 and 2010 of $86.1 billion, or 8.8 percent of total loans. Its shares have declined 16 percent this year amid mounting home-loan losses and an 85 percent dividend cut.
Some analysts said they are skeptical about whether companies’ fundraising will succeed.
“The problem with selling in the public market is that the prices of these institutions are depressed, particularly over the purchase prices of many shareholders,” said BillMutterperl, an attorney at law firm Reed Smith and a former vice chairman at PNC Financial Services Group Inc., which has to raise $600 million. “That’s going to have a dilutive effect.”
Shares Climb
JPMorgan rose $3.70, or 11 percent, to $38.94 at 4:01 p.m. in New York Stock Exchange composite trading. Wells Fargo increased $3.42, or 14 percent, to $28.18. Bank of America gained 66 cents to $14.17 and Citigroup advanced 21 cents to $4.02. Morgan Stanley rose $1.06 to $28.20.
Bank of America, the largest U.S. bank, needs $33.9 billion, according to the government. It could have losses this year and next of $136.6 billion, or 10 percent of total loans. The bank’s shares have dropped 74 percent in the past two years, and have surged 26 percent since early March.
Bank of America is selling its shares in a shelf registration, which gives it the ability to sell when it deems necessary at market price.
The Charlotte, North Carolina-based bank plans to sell common stock and convert preferred shares into common equity. It may sell the Columbia Management mutual-fund group and First Republic private bank in California, along with part of a stake in China Construction Bank, Chief Executive Officer Kenneth Lewis said.
Lewis ‘Comfortable’
“We are comfortable with our current capital position in the present economic environment,” Lewis told reporters yesterday on a conference call. “The stress test asks what if the economy does much worse than most experts project.”
Citigroup, after its shares plunged 93 percent in the past two years, will exchange $33 billion of preferred securities and trust preferred securities into common stock. That’s an expansion of a plan announced Feb. 27.
In keeping with the original plan, the U.S. may exchange as much as $25 billion of its preferred stock in Citigroup into common, the bank said. The government would have a 34 percent voting stake following the conversion, and existing shareholders would see their ownership percentage slashed by 76 percent.
Citigroup’s losses may total $104.7 billion through 2010 in an “adverse” economic environment, the Fed said.
No ‘Day at the Beach’
Edward “Ned” Kelly, Citigroup’s chief financial officer, said regulators underestimated the bank’s earnings power. The U.S. assumed the bank can earn $6 billion a quarter excluding loan-loss provisions and other expenses, while management expects about $10 billion, Kelly said.
Regions Financial Corp. said it’s studying options to raise $2.5 billion. KeyCorp, Fifth Third Bancorp, PNC and GMAC LLC, all told by the government to raise capital, said they would consider selling stock or converting preferred shares.
“It won’t be a day at the beach,” said Tony Cherin, a finance professor at San Diego State University. “The price they are going to get for each share of stock isn’t going to be as much as they would like to get.”
This is the largest week for U.S. equity sales since the week ended Sept. 26 when $19.4 billion was raised, according to Bloomberg data. That week included the $11.5 billion offering by JPMorgan and the $5.75 billion sale by Goldman Sachs. This week equity issues pulled in $16.4 billion. |
