Fleet Financial Group Inc. plans to issue $250 million of trust- preferred securities, sources said.
A spokesman for Boston-based Fleet did not return phone calls to comment. However, market experts said the move would not be unusual for Fleet right now.
Fleet has unveiled a string of nonbank deals this year, including a recent agreement to buy Sanwa Bank Ltd.'s finance unit for $700 million.
Proceeds from an issuance of trust-preferred securities would bolster Fleet's capital ratios, which may come under pressure from the transactions.
Fleet's capital ratios are well above regulatory minimums, however. A company 10K report filed with the Securities and Exchange Commission several weeks ago said that Fleet's Tier 1 capital ratio rose to 6.88% at Sept. 30, from 6.80% at June 30. Fleet's Tier 1 capital was 7.19% in the third quarter last year.
However, its Tier 1 capital, total capital, and leverage capital ratios trail those of its peers.
Fleet's total capital was 11.21% and its leverage ratio 7.16% at Sept. 30. By comparison, a similar size banking company, First Union Corp., had Tier 1 capital of 7.47%, total capital of 11.75%, and a leverage capital ratio of 6.07% at Sept. 30.
Bank regulators have set a minimum requirement for a bank's total capital of 8% and for Tier 1 capital, 4%. According to rating agencies, a well-capitalized bank has a total capital ratio of 10%, Tier 1 at 6%, and leverage capital at 5%.
In conference call with analysts last Monday morning, Fleet's chief financial officer, Eugene M. McQuade, said the company would continue its stock repurchase efforts to build capital ratios.
Later in the day, Standard & Poor's affirmed Fleet's credit ratings.
Bond analyst John Otis of Bear, Stearns & Co. cautioned that Fleet's deals without equity funding could bring a warning from a rating agency.
Nevertheless, "Fleet is producing record earnings, and they should earn back the capital dilution through strong internal capital generation," the analyst said.
The agency most likely to issue a warning would be Moody's Investors Service, which does not count the proceeds of trust-preferred securities as Tier 1 capital.
"We ignore trust-preferred securities" when considering a company's capital levels," said Moody's rating analyst Ryan O'Connell. "The real shock absorber is tangible common equity, which gives banks a lot of flexibility when things get tough."
