Buyers' Market in Bank Stock Offerings

In a slow stretch for bank stock offerings, companies looking to raise capital for acquisitions generally are faring better than those issuing stock for other reasons.

For the acquirers, discounts to recent closing prices have been modest, and their stocks have outperformed peers after completion.

Echoing the growth theme, the past year's underwritten sales-meaning those brought to the market by brokerages that buy the securities first-also included two initial public offerings. Both outperformed Keefe, Bruyette & Woods' index of large capitalization banks by more than 20 percentage points in their first month of trading.

For the rest-banks saying they wanted the funds to grow, to bolster capital ratios, or to repay the government-results were mixed, with some firms suffering from severe dilution while others sold into upswings in their shares.

Overall, roughly $7 billion of bank equity was raised through offerings of common stock in the 11-month period from July 2011 through May, according to data from SNL Financial. That amount includes $4.6 billion in underwitten offerings, which are detailed in the table that can be accessed by clicking on the image on the upper left of this page. (Much of the recent activity has been made up of private placements by small issuers, which are not included in the table.)

The $7 billion was a far cry from the $110 billion sold in 2009, when the nation's megabanks moved to recapitalize themselves. It also was a deceleration from a spurt during the fourth quarter of 2010 and the first quarter of 2011, when a string of companies seeking to buy out preferred stock held by the Treasury Department led the way in the issuance of about $10 billion.

In one of the largest underwritten deals of the past year, Regions Financial sold about $900 million of stock in March as a part of its exit from the Troubled Asset Relief Program. Like the large regional banks that preceded it about a year before, Regions' departure from the program went smoothly. It estimated that the maneuver increased its tangible book value per share by about 1 percent, including the concurrent sale of investment banking unit Morgan Keegan. It issued the shares at a 1 percent premium to its average closing price over the prior month.

The largest deal was Capital One Financial's offering of $1.25 billion of stock, part of a transformative series of transactions that included the purchases ING Group's U.S. online banking business and a $30 billion HSBC credit card portfolio. The company estimated that the deals lifted its tangible book value per share by almost 9 percent, and it sold the stock at a 3 percent premium to its average closing price the month prior.

In all, issuers who floated shares in connection with executed acquisitions accounted for about 40 percent of the amount raised in offerings considered here, though growth capital appears to have been a tougher sell for some companies. Northeast Bancorp of Lewiston, Maine, absorbed dilution of about 33 percent to its tangible book value per share to roughly double its equity base, in part to advance an aggressive loan acquisition strategy it has pursued under a new management team.

Still, it was a sign that investors are willing to provide new capital to a wide array of banks, at the right price.