The rush to raise fast cash is transforming the investor base at a number of banking companies, potentially influencing operations from branches to the boardroom.

As more banks sell large blocks of common stock to institutional investors, individual shareholders' slice of the pie will drop, sometimes dramatically. Though the move lets banks build capital quickly and efficiently, expect significant changes in the way certain banks are run, observers say.

Are these banks, many of which are already dealing with more intrusive Treasury Department and regulatory oversight, prepared for the changes?

D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte, said many banks will be in for a shock. "You're not flying a Cessna anymore" when adding large investors, he said. "Now you are flying an F-16, and you must have the horsepower on management and the board to handle it."

As Plath put it: "Institutional investors are a lot more sensitive … , and you have to be ready for them if you hit a snag."

Though most big banking companies have already moved toward a largely institutional shareholder base, there have been some holdouts. Many of these could soon make the transition, spurred by recent government intervention.

BB&T Corp., for example, could see its retail base shrink from 59% to near-even with institutional investors after the $143.4 billion-asset Winston-Salem, N.C., company sells $1.5 billion in stock as part of its plan to exit the Troubled Asset Relief Program. Regions Financial Corp. in Birmingham, Ala., where 57% of investors are individuals, could see a similar shift should it sell common stock to satisfy capital requirements tied to the Treasury Department's stress tests.

Smaller banks could also see such shifts; SCBT Financial Corp., a $2.8 billion-asset Columbia, S.C., firm, could see its retail base fall to 57%, from 64%, after it sells 1.3 million shares of common stock.

Robert R. Hill Jr., SCBT's president and CEO, said the days of raising capital largely through retail investors are no more. "To raise any significant amount of money in the retail market would be extremely time-consuming and difficult," he said.

Retail investors are traditionally risk-averse and less apt to pour money into banks even if solicited, observers said. Many are incensed that stock valuations have plummeted and dividends have been cut to nominal levels.

The tradeoff for gaining institutional shareholders should be more accountability and oversight, observers said. Many pointed to Bank of America Corp., where, at the $2.3 trillion-asset Charlotte company's annual meeting last month, retail investors were most vocal but the big shareholders' proxies ousted CEO Kenneth D. Lewis as chairman.

"Institutional investors are much more inclined to be in touch with management and seeking information," said Donald Mullineaux, a finance professor at the University of Kentucky. "They do that all the time. There is evidence that higher institutional ownership leads to higher corporate governance over the long haul."

Plath said B of A is learning that lesson the hard way, rebuilding its board to add directors with major financial experience, a lesson for other banks. "Fund managers don't make distinctions based on a company's size," he said. "Even small banks can get compared to B of A when it comes to overall performance in a portfolio."

Pressure to perform usually heightens when the institutional base grows, observers said, because investors such as private-equity firms and hedge funds often look for bargain stocks that can produce quick returns. "You tend to get more empathy from individual investors," Plath said. "Not so with the big guys, who tend to be a more unforgiving shareholder base."

Hill said SCBT has been careful in determining who it tries to sell stock to, stressing the importance of knowing a potential shareholder's investment strategy. "They are sophisticated investors," he said. "Through the years you get to know the investment community, and you know their objectives and their invest-and-hold strategies."

Banks with big retail bases typically have less-volatile stocks, observers said. In the last two years, call activity for retail havens such as BB&T and Regions has been much more stable than that of many of the nation's other big banking companies, according to research from FIG Partners LLC.

Several things explain this. A stock is likely to suffer a bigger shock should a fund opt to dump it, compared to a similar act by disgruntled mom-and-pop investors. Companies with large institutional ownership are also more susceptible to short-selling, observers said, because their shares are easier to obtain.

Christopher Marinac, a FIG Partners analyst, said "growing pains" await some banks that gravitate toward bigger investors. "The stock can whipsaw if someone big really wants to get out," he said. "It's definitely relevant."

A number of business strategies, including capital management, could also morph as the shareholder base changes. BB&T, for one, waited until last week to slice its quarterly cash dividend, believing its large retail base relied heavily on the regular payouts.

Hill said SCBT's institutional investors were supportive of its efforts to raise new capital, and would have liked the company to sell more to supply shareholder demand and to stockpile acquisition cash. "The message we got from them is that there will be clear winners and losers," he said, "and they want to back the winners."

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