BB&T, Capital One, U.S. Bancorp and KeyCorp Planning Stock Sales to Raise Capital, Repay TARP

By Mike Caggeso
Associate Editor
Money Morning

One business day removed from the government's bank stress tests, four of the largest U.S. banks - BB&T Corp. (NYSE: BBT), Capital One Financial Corp. (NYSE: COF), U.S. Bancorp (NYSE: USB) and KeyCorp (NYSE: KEY) - announced plans to raise capital through stock offerings.

BB&T said it plans to raise $1.5 billion by selling common stock, combine it with "other funds," and repay all the capital from the U.S. Department of the Treasury's Troubled Asset Relief Program (TARP).

The Winston-Salem, N.C. bank also said it will cut its divided 68% to 15 cents a share, an action that will save $725 million in capital a year. Chief Executive Officer Kelly King said the dividend reduction is temporary, and making the decision was marked "the worst day in my 37 year career."

"However, we firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant... When market conditions improve and our earnings provide for an increase in the dividend, we are committed to increasing it accordingly," King said in a statement.

Capital One said it plans to raise about $1.75 billion by selling 56 common stock shares at $27.75 a piece. The bank expects net proceeds "to be used for general corporate purposes" and repaying the Treasury.

U.S. Bancorp plans to raise $2.5 billion by selling common stock to the public with the intention of repaying the Treasury with the proceeds. The Minneapolis-based bank also said it may offer medium-term notes in a benchmark amount in a public offering.

KeyCorp filed with regulators a plan to offer up to $750 million in common shares to raise capital.

Disdain for Government's Eye

On Friday, the government's stress test revealed that these banks are four of 10 that need to raise more capital if they were to survive a prolonged deterioration of the U.S. economy.

U.S. Bancorp borrowed $6.6 billion from TARP, Capital One took $3.55 and BB&T received $3.1 billion. In taking the billions in emergency loans, the banks also agreed to have tighter government control of their operations - including clamping down on executive pay.

The capital-raising plans - combined with the previously announced plans by Citigroup Inc. (NYSE: C), Morgan Stanley (NYSE: MS) Wells Fargo & Co. (NYSE: WFC) to pay back TARP money - show just how much these banks disdain working on the government's dime and under the government's eye. And it shows that they're willing to further suppress their stock value and possibly upset their shareholders to break the government's chains.

"Rational, objective lending is one of the most important purposes of the banking system, and when you inject Congress and the administration into it, it effectively politicizes the process, which is not healthy," BB&T's King told Reuters.

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