Three banks that have received a clean bill of health from the government have announced plans to raise capital to help repay government funds received last fall.
U.S. Bancorp, Capital One Financial Corp. and BB&T Corp. have all announced common stock offerings, proceeds of which will be used, subject to approval, to help repay preferred stock investments the government made as part of the U.S. Treasury’s TARP Capital Purchase Plan.
Banks that received funds under this program have become subject to increased government scrutiny, as well as limitations on executive pay.
US Bank, Capital One and BB&T were among the 9 banks deemed by the government to have enough capital to withstand a deeper recession. On Thursday, the government announced the results of its “stress tests” of the 19 largest U.S. banks. Ten of those banks, including Bank of America Corp. and Citigroup Inc., must raise a total of $75 billion in new capital as a backstop against possible future losses.
Minneapolis-based U.S. Bancorp, which received a $6.6 billion investment from the government, said it will sell $2.5 billion of its common stock. Its shares jumped 3.8 percent in pre-market trading, adding 75 cents to $20.54.
Virginia-based Capital One, which received $3.55 billion from the government, is planning to sell 56 million new common shares — worth about $1.76 billion at Friday’s close. Shares dropped $2.69, or 8.6 percent, to $28.65 ahead of the market’s open.
Southeast regional bank BB&T said it will sell $1.5 billion in common stock, and will also cut its dividend by 68 percent to 15 cents to save $725 million annually. The North Carolina-based bank received a $3.1 billion investment from the government last fall. BB&T shares fell $1.38, or 5.2 percent, to $24.95.
The government’s stress tests — a centerpiece of the Obama administration’s plan to prop up the financial system — were designed to determine which banks might need more capital to cover rising loan losses if the economy worsened. As home prices fell and foreclosures increased, banks took huge hits on mortgages and mortgage-related assets they were holding. And with the unemployment rate rising — it jumped to 8.9 percent in April — losses on credit cards and other types of consumer loans are expected to increase throughout the year.
The government hoped the stress tests would restore investors’ confidence in the financial system, providing evidence that not all banks are weak. Regulators have repeatedly said none of the country’s biggest banks will be allowed to fail.
Among the 10 banks that need to raise more capital, Bank of America needs $33.9 billion. Wells Fargo & Co. needs $13.7 billion, GMAC LLC $11.5 billion, Citigroup $5.5 billion and Morgan Stanley $1.8 billion.
Regional banks Regions Financial Corp., SunTrust Banks Inc., KeyCorp, Fifth Third Bancorp, and PNC Financial Services Group Inc. also need to raise funds.
Among the other banks that the government did not ask to raise more capital were JPMorgan Chase & Co., investment bank Goldman Sachs Group Inc., insurer MetLife Inc. and credit card lender American Express Co.
Together, the 19 firms that took the test hold two-thirds of the assets and half the loans in the U.S. banking system.