For those with the financial stability to use the capital markets, the environment for selling common stock is better than it has been in months, with one big catch: The cost is higher than it was when bankers turned to the markets this past spring.
And even for the strongest, the discounts right now can be quite steep.
A number of financial services companies came out with common stock offerings last week, most notably JPMorgan Chase & Co.'s $10 billion issuance associated with the Washington Mutual Inc. takeover.
Capital One Financial Corp., Goldman Sachs Group Inc., and First Niagara Financial Group Inc. also said they would issue and sell common stock.
JPMorgan Chase priced its offering at a 6.8% discount to the closing price the day before it was announced. Capital One's discount was 8.9%, and First Niagara's was 14%. Goldman's offering was only 1.6% below its previous close, but it gave Warren Buffett's Berkshire Hathaway Inc. an 8.7% discount on the strike price of warrants.
Observers said the overall level of discounting for common stock is higher than it was for the last big wave of public offerings in April, when concerns were rising about worsening credit and the need for big writeoffs. At that time few public offerings had discounts above 8%.
Terry Maltese, the president of Sandler O'Neill Asset Management LLC, said in an interview last week that volatility will make it increasingly difficult to determine a "fair" discount.
"If you don't need capital, then you shouldn't be out raising it," he said.
Mr. Maltese would not discuss specific companies, but he predicted a "bumpy" environment for those in the market. "There are several deals pending right now, and some of them won't get done, especially if a bank or two comes out with warnings."
Observers said banking companies are raising money now to take advantage of the boost their stocks received recently as a result of the Securities and Exchange Commission's short-selling ban and initial shareholder reaction to governmental efforts to address the financial crisis.
The window for selling common stock could be largely dependent on the SEC's decision on whether to extend the short-selling ban (set to expire Thursday) and legislative efforts to bail out the financial industry, observers say.
The recent discounting occurred despite attempts by most proposed sellers to promote their offerings as opportunistic moves, contrasting their issuances with made in the spring to shore up thinning capital levels.
James Dimon, the chairman and chief executive of JPMorgan Chase, made that case during a Thursday evening conference call to discuss the $1.8 trillion-asset New York company's takeover of Wamu.
"We're not raising capital to fill a hole," he said in response to a question. "We're raising capital to go on the offensive, and so we feel pretty good about that, and we're willing to do it."
The $151 billion-asset Capital One and the $9.1 billion-asset First Niagara issued press releases to emphasize that they would use proceeds for growth initiatives. Capital One even went an extra step, issuing a separate release to affirm its full-year revenue guidance.
Donald Mullineaux, a banking professor at the University of Kentucky, said in a interview last week that discounts are common for "seasoned" offerings, or those where a publicly traded company is issuing more stock, but the average is typically 2% to 3%.
"Anything bigger would be abnormal and large," Prof. Mullineaux said. "The level of discount tends to increase in periods of uncertainty, which we're obviously in now."
Observers said the pricing of last week's proposed sales were dragged down by the poor showings of previous offerings.
Wachovia Corp.'s shares closed Friday down 58% from its April offering's $24 price.
Ditto Citigroup Inc. It shares are off 20% since its offering closed April 30.
A pair of notable private placements are also giving investors pause.
TPG Inc. sunk $7 billion into Wamu in April at a price of $8.75 a share, only to see its investment virtually wiped out by the Seattle thrift company's failure. Corsair Capital LLC's April investment in the $154 billion-asset National City Corp. in Cleveland has lost 26%.
Barry Taff, the head of mergers and acquisitions at Silver, Freedman & Taff LLP, said that the "erosion of value" since the April stock sales has to make other would-be investors skittish.
"These people want to be in the money," Mr. Taff said. "They aren't going to pay close to trading price if they think the stock would reprice [downward], or if the company could have future hits. There is an extreme sensitivity to maintaining value, because people have been burned in the past."
Another problem is simply demand.
"The pool of potential investors is getting thin," Frank Barkocy, the director of research at Mendon Capital Advisors LLC, said Friday. "In order to entice any consideration you have to provide some level of discount to the potential buyers."
The prognosis for future public offerings also remains unclear, Mr. Barkocy said, because of the uncertainty surrounding the government bailout under debate in Washington. It is also unclear whether business fundamentals have stabilized this quarter.
Sandler's Mr. Maltese said he doubts the market for common stock will grind to a halt as it did in July and August, though bankers will continue to face difficulties finding the "right time" to hold offerings.
"It will ebb and flow and be dependent on what is going on in the moment," he said.