Sovereign Bancorp has disclosed that it needs to raise $500 million in capital to back its planned purchase of 278 New England branches from Fleet Financial Group and BankBoston Corp.

If Sovereign cannot raise the funds by Dec. 15, the deal could be scrapped and it would owe a $50 million breakup fee to the sellers, the $25 billion-asset thrift company said in a Sept. 23 filing with the Securities and Exchange Commission.

The capital funding would be on top of the $1.4 billion that Sovereign previously said it would pay for the branches, raising the cost of the transaction to $1.9 billion. In a presentation to analysts when the deal was announced on Sept. 7, the company estimated it would pay for the transaction with $700 million of equity and $700 million of debt, but an analyst said the need for additional capital was not mentioned.

If the additional $500 million were financed through debt, Sovereign may face even more downward pressure on its capital ratios. If the thrift uses equity to finance the additional amount, it faces further dilution of its shares.

Sovereign executives declined Monday to outline the company's plans for raising the extra capital. However, Jacquelyn Blue, treasurer of Sovereign Bank, the Wyomissing, Pa., company's lead thrift subsidiary, said, "We are definitely doing everything we can to create a structure that will not be dilutive to shareholders."

Sovereign's stock price has tumbled 50% since April, and concerns about the company's ability to shoulder the costs of a New England expansion have driven down shares further since the deal was unveiled. On Monday, its shares closed at $9.40625, down 15.625 cents. When it struck the deal, Sovereign assumed its shares would be worth $10 a share at closing.

Banks and thrifts often finance acquisitions by raising debt or equity. But in recent years, most buyers have been so abundantly capitalized that they did not need to add to their coffers to show the market that they have the long-term stability to carry off an acquisition.

"It's a bit unusual,'' said John Otis, a bank analyst at Bear, Stearns & Co. "You're looking at a company that had to take some action to try to improve its valuation in the market and it didn't have a lot of strategic flexibility."

Observers said banks and thrifts could increasingly need to add to their capital to back acquisitions once pooling of interests treatment expires in January 2001. That's because purchase accounting makes equity financing less desirable, forcing companies to turn to debt. And debt puts pressure on capital.

In the SEC filing, Sovereign said it would raise the $1.4 billion to pay for the branches by Jan. 31. The deal is expected to close April 28. The purchase of the Fleet and BankBoston branches would add $12 billion in deposits, $11.8 billion in assets, and 700,000 corporate and consumer accounts in Connecticut, Massachusetts, Rhode Island, and New Hampshire.

No one expects the deal for the branches to unravel; Salomon Smith Barney and Lehman Brothers have put together bridge financing to cover the purchase price. But the promise that Sovereign will raise capital should help the deal pass muster with thrift regulators, and that would be assuring to Fleet and BankBoston, observers said.

A transaction "is never done until it's done," said Lawrence Cohn, a bank analyst at Ryan, Beck & Co., Livingston, N.J. "When you are dealing with a buyer that is planning to finance with activities in the market, you can't be certain that it will get done, given the volatilities that exist in the market. Am I concerned? Not really. Will everybody feel better when it is wrapped up? Probably yes."

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