The federal government's Capital Purchase Program could be a boon for the shares of participating banking companies — and the opposite may be true for those that do not qualify by the program's closing date of Nov. 14.
"As we get closer to that date, I think we'll see some speculation as to who the likely recipients will be, and I think those stocks will start to firm up from the levels we see today," said Frank Barkocy, the director of research at Mendon Capital Advisors Corp. The fact that others "are not likely to receive those monies might suggest we'll see additional pricing pressure on these stocks."
On Friday the Treasury Department reportedly was reconsidering its decision to make public the names of banking companies receiving government capital exactly because it feared those not on the list would be viewed by investors and depositors as too weak to qualify. (See
Since the program was announced Oct. 20, it has increasingly been interpreted an effort to encourage strong companies to acquire weak ones.
PNC Financial Services Group Inc. became the first company to use the Capital Purchase Program to fund a deal. The Pittsburgh company said Friday that it would acquire National City Corp. of Cleveland, a company hobbled by bad mortgages, for roughly $5 billion, using $7.7 billion of preferred stock and related warrants under the program to fund the deal. (See
On a day when concerns about a global recession depressed bank stocks and the broader market for much of the session, PNC's shares rose 3.5%.
Matthew Shields, a trader at FIG Partners LLC in Atlanta, estimated that 75% of all banking companies would be able to take advantage of the capital program, and he said most of those stocks would trade higher as a result.
Some banking companies that sell stakes to the government would still trade lower, because of weak fundamentals, or because they have very illiquid stock, he said.
Jacqueline Reeves at Bell Rock Capital LLC in Paoli, Pa., said that some banking companies would opt out of government program because they are already very well capitalized, and that investors may not necessarily punish their stocks.
Institutions that fit this bill, include those that have recently converted to mutual holding companies, such as Beneficial Mutual Bancorp Inc. in Philadelphia, "are flush with cash," Ms. Reeves said.
Shares of several of the major banking companies that received the first $125 billion of capital declined Friday.
Those companies included JPMorgan Chase & Co., which fell 6.4%, and Citigroup Inc., which fell 7.4%. (Both are components of the Dow Jones industrial average.) Bank of America Corp., another recipient of the initial capital, fell 8.4%.
Some companies that have said they may participate in the program posted gains Friday. U.S. Bancorp rose 2.7%, and KeyCorp gained 0.5%.
Richard K. Davis, U.S. Bancorp's chairman and chief executive officer, said last week that the Minneapolis company may be more open to an acquisition now that the Treasury Department has unveiled plans to invest in the nation's largest banks.
Henry L. Meyer 3rd, the chairman and CEO of KeyCorp, said the Cleveland company would qualify for $1.1 billion to $3.3 billion of capital and may apply for the program.
Still, Gerard Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said bank stocks overall will likely remain depressed for some time as a result of the economy.
"We are going to see rising credit costs at least until the end of this year or the beginning of next year," Mr. Cassidy said.
On Friday, after two weeks of mixed earnings reports, the KBW Bank Index fell 3.82% Friday. For the week, the index shed 10.2%. Traders said that for most of the session bank stocks followed the broader market, which sank as fears of a global recession reverberated through the world's markets. Japan's Nikkei stock average fell 9.6%. The Dow average fell 3.59%, while the Standard & Poor's 500 fell 3.45%.
Joseph C. Morrissey, managing director of bank and thrift stocks at Boenning & Scattergood Inc. of West Conshohocken, Pa., said reports that the Treasury was poised to name regional banking companies that have accepted cash from the capital program helped stem earlier losses.
