Regions Financial Corp. is selling stock, but who is buying, and what will they want in return for their investment?

Regions is the latest big banking company to unveil a stock offering, but analysts fear it may have more difficulty than others raising the $1.25 billion it seeks. Regardless, the issue will fall short of the $2.5 billion it is required to raise following the Treasury Department's stress tests.

Some analysts say the $142 billion-asset Birmingham, Ala., company may even consider selling a minority stake to a strategic partner to satisfy its capital needs. To do so, it may have to sell stock at a discount of up to 30% on its closing price of $5.24 a share Tuesday.

Such aggressive actions would only ratchet up pressure on C. Dowd Ritter, Regions' chairman and chief executive, and his management team as they guide the firm through the recession, observers said.

William Fitzpatrick, an analyst at Optique Capital Management Inc. in Racine, Wis., said the stock issue is likely to appeal to bargain hunters.

"You're looking to investors trying to make a quick buck or those that can stomach a decent amount of risk," he said. "That's not the most-desirable shareholder base because there's a chance those shareholders will turn over quickly if they don't see fast appreciation."

Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said the size of Regions' $1 billion common stock offering is telling, since it represents less than half the capital the company must raise.

"Maybe they wanted to limit dilution," he said. "Or there may be concerns about how much demand they can find. They were late to the window … and the identities of possible buyers are unclear."

Fitzsimmons was more optimistic about the type of investor that might take a chance. He said it could find buyers willing to take long-term positions. "But that type of investor is going to demand a pretty discounted price."

A Regions spokesman said the company is "confident" that it can raise the capital, declining to comment further.

Several analysts said Regions told them it had buyers lined up for the stock. The company also plans to sell $250 million of preferred stock and convert certain securities.

Analysts largely expect a discount of at least 10% and as much as 30% on Tuesday's closing price, raising concerns about dilution for existing investors.

Fitzpatrick said a 25% discount alone would create 34% dilution for current shareholders, though such concerns may entice some to buy into the offering. Albert Savastano, an analyst at Fox-Pitt Cochran Caronia Waller, wrote in a note that dilution could be as much as 68%, assuming Regions exercises a 15% overallotment and has full participation in a program swapping common stock for trust preferred shares. (The $1 billion common issue is equal to roughly 29% of Regions' market capitalization.)

A steep discount could price shares as low as $3.67; that would force Regions to sell 272.5 million shares to hit its goal. If the vast majority of the stock were issued to institutional investors, it could significantly alter the company's ownership, reducing its 59% retail base to less than 50%. Observers said that could usher in more investors who are willing to press for a management shake-up if results are slow to improve.

Regions addressed the composition of its management team in its supplemental materials, noting that half of its eight-member executive council "recently joined from other leading financial institutions."

Gary Townsend, the CEO of Hill-Townsend Capital LLC, said a smaller discount would also be viewed as a show of support for Ritter."If people buy into the stock … they are betting on him, and I think they will give him some time to fix things," he said.

Regions announced its capital program a day after Savastano told clients that the company might seek an acquirer if it faced difficulties raising capital.

He mentioned BB&T Corp. and JPMorgan Chase & Co. as potential suitors.

Regions has been fighting deteriorating credit quality in its residential development, home equity, and condo portfolios. Though it eked out a first-quarter profit, it did so with a greatly reduced loan-loss provision.

Nonperforming assets rose 35.5% from the fourth quarter, to $2.33 billion, but its provision fell to 1.13 times the amount of nonperforming loans, from 1.74.

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