Colonial BancGroup Inc.'s mandate to raise $300 million to qualify for government funding may have been undermined by investor sentiment this week, analysts said.
A day after the Montgomery, Ala., company reported its third straight quarterly loss, its shares plunged 46% Wednesday, to 85 cents.
On Thursday the stock rose 7%, to 91 cents, but analysts said they remained concerned about the company's ability to get the price back to a range of $1 to $1.50. That's the price range a group led by Dallas private-equity firm SunTx Capital Partners LP agreed to pay in a "nonbinding letter of intent" to buy a 24.9% stake in Colonial.
"The company is actively pursuing a variety of capital raising alternatives to increase equity by $300 million, which would satisfy this condition of the TARP preliminary approval," Robert E. Lowder, Colonial's chairman, CEO and president, said in it earnings press release Tuesday.
The capital raising activities are expected to be completed this quarter, the company said.
Even if the transaction with SunTx Capital went through at $1 a share, Colonial would still have to raise about $175 million from other investors to reach the necessary $300 million, Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said Thursday.
With about 200 million shares outstanding, Colonial would likely raise about $125 million by selling a 24.9% stake at $1 a share, he said. (On Tuesday, Colonial said it must raise capital on its own to receive $550 million from the Treasury Department's Capital Purchase Program.)
"They are in a tough, tough position. It's going to be a very formidable challenge for them in this market to raise money," Mr. Fitzsimmons said.
He would not speculate on the company's outlook should the federal funding fall through, except to note that it would have a lower tangible common equity ratio — 4.24% — than many of its rivals.
Ken Ritz, an analyst at Fitch Inc., said Colonial would likely face another ratings downgrade, which would make it more difficult to raise money.
Fitch and Moody's Investors Service Inc. both issued downgrades for Colonial on Thursday. Fitch lowered its long-term issuer rating one notch, to BBB. Moody's lowered its issuer rating six grades, to B2.
Adam Barkstrom, an analyst with Sterne, Agee & Leach Inc., wrote in a report issued Thursday that the falling share price complicates Colonial's efforts to raise capital in other ways.
"With the stock now trading below $1 per share, we expect any capital raise to be massively dilutive," Mr. Barkstrom wrote.
Colonial, reeling from its exposure to Florida's ailing real estate market, announced early last month that it had received preliminary approval to sell $550 million of preferred stock to the Treasury. Since then the company has not received final approval for the capital injection, sparking Wall Street speculation about its ability to remain independent.
Colonial addressed that issue in its fourth-quarter report, in which it announced a net loss of $825 million, or $4.11 a share, compared with a profit of $8.9 million, or 6 cents a share, a year earlier. Analyst estimates had forecast a loss of 33 cents a share, according to Thomson Reuters.
The company blamed the loss on mounting credit costs and a noncash charge of $575 million to cover goodwill impairment. Fourth-quarter loan-loss provisions rose 185% from the third quarter and 388% from a year earlier, to $455 million. Nonperforming assets rose 38% from a year earlier, to $661 million.Colonial and SunTx did not return calls for comment.