Banks are preparing to stockpile ammunition for the next acquisition wave.
Huntington Bancshares, KeyCorp, Mellon Bank Corp., and SunTrust Banks Inc. are among those taking steps to issue more common stock, which could be used to make purchases or ward off takeovers.
Their proposals are contained in proxies for upcoming annual shareholder meetings, and some seek authority for more-than-routine increases.
"They want to be ready for continued consolidation," said David H. Ellison, who manages two financial institution funds at Friedman, Billings, Ramsey & Co.
By arranging the authorizations now, banks will be able to act as opportunities arise.
"Strategic considerations are on the mind of every bank chief executive today," said Michael Mayo, banking analyst at Credit Suisse First Boston. "It's not surprising to see banks looking to get into fighting condition."
To be sure, none of the banks say they have a specific purchase in mind, and the proxies point out that the shares could facilitate option awards, dividends, or stock splits. Indeed, Mellon asked for and received a share increase last year and later announced a 2-for-1 stock split.
But none of the institutions soft-pedals its desire to build or protect its businesses.
Mellon wants to raise its common share ceiling to 800 million from 400 million, of which 287.4 million have already been issued. In its proxy, the Pittsburgh banking company notes "the acquisition of other businesses" as a prospect.
KeyCorp hopes to boost its total common share authorization to 1.4 billion from 900 million, of which 438 million will be outstanding early next month. The Cleveland banking company cited a search for "attractive business opportunities and to facilitate future financings" among its motivations.
Huntington Bancshares hopes to jump to 500 million common shares from 300 million, of which shareholders now own about 192 million. The Columbus, Ohio, banking company "continues to explore opportunities to acquire banks and nonbank companies," its proxy filing stated.
Huntington recently agreed to buy from NationsBank Corp. 60 Florida branches acquired in the latter's purchase of Barnett Banks Inc. The share increase would give Huntington "greater flexibility in responding quickly to other advantageous business opportunities," the filing stated.
The companies also pointed out that, though they have not received such overtures, the authorizations could help discourage a hostile takeover bid by creating the threat to place, through a private transaction, a lot of stock with a friendly investor.
The shares "could be used to discourage a tender offer or prevent a change in control of the corporation," stated Huntington's filing with the Securities and Exchange Commission. "Such shares could be placed with purchasers who are known to favor the election of current directors."
Market watchers say a preemptive move makes sense, given the aggressiveness with which some banks are pursuing acquisitions.
Mellon, for instance, is among the vulnerable, said Lawrence W. Cohn, research director at Ryan, Beck & Co. The bank "has a very attractive franchise and has been talked about for some time as a takeover target."
"I would not be surprised if management feels themselves under the gun," Mr. Cohn said.
But he would also welcome a stock split, which would put share prices within reach of more retail investors. The current bull market "has choked off a potential distribution channel" for bank shares, Mr. Cohn said.
Shareholders through a majority vote routinely approve requests to issue more shares, institutional investors said.
The moves "indicate that management is clearly interested in the company's future," said Mr. Ellison, the fund manager at Friedman, Billings, Ramsey.
Still, the company must be careful not to overreach, he said.
SunTrust amended its request, to 500 million shares from one billion, after institutional shareholders balked at too much potential dilution.