Shares of Midwest Banc Holdings Inc. hit another all-time low the day after the western Illinois bank said it would sell $110 million in preferred stock, suspend its quarterly dividend and expects to sharply increase loan-loss reserves this quarter.
The company said the moves are intended to strengthen its balance sheet in response to unfavorable market events and conditions. Mounting credit problems have spurred doubts about the viability of regional banks as many have announced dividend cuts and large capital raisings following similar efforts by many of the nation's biggest banks earlier this year.
Midwest Banc's shares fell 29% to $3.11 in recent trading amid steep declines in the financial sector and overall market. The company went public in 1995.
The company will also write down its $67 million position in government-sponsored mortgage giants Fannie Mae and Freddie Mac and book an impairment charge of $80 million in the third quarter. Last week after its stock tumbled to its then-low, Midwest Banc said its banking unit remained well-capitalized under all regulatory guidelines following the government's takeover of those firms. It repeated that assertion Wednesday.
Shares of other regional banks have also suffered sharp losses on the government's decision to eliminate the dividend on Fannie's and Freddie's preferred shares.
Under the stock offering, Midwest will offer 4.4 million depositary shares, which if successful, would put its total risk-based capital ratio at about 11.5%. The preferred shares will convert to common stock after the company receives shareholder approval to increase its number of shares outstanding.
The bank expects to increase its allowance for loan losses to about 1.6% at Sept. 30 from 0.9% at the end of the second quarter.
In addition, Midwest said it will consider reinstating its dividend based on its earnings levels, financial condition, the economic environment and other factors.