A host of financial companies announced Monday that they will sell nearly $25 billion of preferred stock and warrants to the federal government as they raise capital amid the deepening global crisis, potentially to pick off weakened rivals.
The biggest morning disclosure was Capital One Financial Corp.'s $3.55 billion sale of preferred stock and warrants to the Treasury Department, followed by SunTrust Banks Inc. at $3.5 billion. The Southeastern bank also announced it will cut its dividend 30%.
Capital One spokeswoman Tatiana Stead said the investment "puts us in a stronger position to take advantage of opportunities that may emerge from the current banking environment."
Other banks gave similar sentiments, with SunTrust Chairman and Chief Executive James M. Wells III saying the extra money will allow his company to expand, though the current climate calls for elevated capital levels even if expansion wasn't being considered.
In unveiling the program last month, the Treasury Department required nine of the nation's largest financial-services companies to sell $125 billion in preferred stock to the government and said the same amount could be bought from other companies on a voluntary basis. Companies have until 5 p.m. EST Nov. 14 to say they want to join the program.
It has been speculated that $250 billion, originally intended to foster lending, would be used by recipient banks to buy weaker rivals.
Other firms announcing their participation included Fifth Third Bancorp at $3.4 billion, North Carolina-based regional bank BB&T Corp.s $3.1 billion, Ohio-based regional bank KeyCorp at $2.5 billion and Dallas-based Comerica Inc. at $2.25 billion.
As part of its planned $5.58 billion purchase of National City Corp., PNC Financial Services Group Inc. said Friday that it planned to sell $7.7 billion, making it one of the first banks to elect to participate in the government's effort to inject capital into banks through preferred-share investments.
As for its dividend cut, SunTrust's Wells said, "Even though SunTrust has been managing successfully through this difficult period," lowering the payment "is the responsible thing to do given recent deterioration in the economy, the prospect of continued weakness in 2009 and the implications of this on the near-term outlook for SunTrust and our industry."
Some of the banks detailed how the additional capital would help them, with most of them saying it would boost their Tier 1 levels by three percentage points. KeyCorp said its increase would have been smaller, noting if the $2.5 billion would have been in hand as of Sept. 30, KeyCorp said its Tier 1 ratio level would have been about 10.8%, not the 8.5% recorded.
Ohio-based Huntington Bancshares Inc. plans to use its $1.4 billion "to expand our lending efforts to both existing and new customers throughout our Midwest footprint," said Chairman and Chief Executive Thomas E. Hoaglin.
Firms announcing their participation in the investment program saw significantly outsized gains compared with other financial stocks, with Fifth Third and Huntingdon each up 15%.