Sovereign Bancorp shares fell 3.57% on Wednesday, a day after it said it would offer 20 million new shares to raise cash.

The Philadelphia company said it would sell additional shares through Salomon Smith Barney to strengthen its capital base. Its thin capital ratios, along with a highly leveraged balance sheet, have been among investors’ biggest concerns over the past year. The culprit is debt assumed to help fund Sovereign’s expansion into New England. Late last year the company sold some of its loan portfolio and cut 500 jobs to lower expenses, but that could not pay off all the debt Sovereign took out when it bought 300 branches from FleetBoston Financial Corp. early last year.

To make things worse, Sovereign reported a net fourth-quarter loss of $3.3 million, or 25 cents a share, 4 cents short of the analyst consensus.

Shares traded as low as $8.25 on Wednesday and closed at $8.4375, down 31.25 cents.

Michael T. O’Brien, president of the asset management unit at Keefe, Bruyette & Woods Inc., said Sovereign’s risk profile has improved only marginally — not enough to persuade him to add the stock to his portfolio. He sold all of the firm’s 6,900 shares last summer.

Analysts at Keefe Bruyette were equally skeptical. “We welcome the additional capital,” David H. Winton wrote in a research note. But he added that he “will be more favorably disposed to this name once we believe the asset quality situation has stabilized.” He reiterated his lukewarm “market perform” rating.

Lawrence W. Cohn of Ryan, Beck & Co. lowered his rating to “buy” from “strong buy.” Keith Horowitz, an analyst at Salomon Smith Barney, which is managing the secondary offering, initiated coverage of Sovereign with a “buy” rating and a $12 target price.

Scott Edgar, director of research at Sife Trust Fund in Walnut Creek, Calif., which owns 500,000 shares of Sovereign, decided not to buy more in the secondary offering because of investment risk.

Still, Frank Barkocy, director of research at Keefe Managers Inc., said that the new stock issue looked attractive at the $7.75 offering price and that Sovereign is more appealing with the Fleet additions. But he warned that the company is still short of adequate funding.

Mr. Horowitz said the stock’s valuation does not take into account the improvements management has made.

“This is one of the best values among regional banks and thrifts,” he said. In his research note he said he thinks Sovereign’s valuation will get better as investors take a closer look.

Meanwhile, shares of Morgan Stanley Dean Witter & Co. fell $4.75, or 5.59%, to $80.20, on Wednesday, when The Wall Street Journal published an op-ed piece summing up the investment bank’s recent failures, including defections of key personnel and a $100,000 fee for Bill Clinton to speak at its annual bond conference.

Analysts, however, saw little news in the story and attributed the stock’s decline to negative momentum. “They need a PR firm,” said Diane Yates of A.G. Edwards & Sons in St. Louis.

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