Everyone has heard of the government bailout of the U.S. banking system, but it looks like the investing public may provide round two of the bailout, as the number of banks raising capital in secondary offerings continues to grow. This capital will come in handy during the balance of the credit cycle.

IN PICTURES: 10 Biggest Losers In Finance

Late in 2008, the federal government created the Troubled Asset Relief Plan (TARP) to assist the U.S. banking system. One part of the TARP was the Capital Purchase Program (CPP), which consisted of preferred stock investments by the government into hundreds of banks. Some companies even reorganized to be eligible for these investments. Both Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) restructured to become bank holding companies.

Dealing with TARP
Almost one year later, some banks have redeemed the preferred stock held by the U.S. Treasury, while others still labor under the restrictions imposed in return for the investment. These include limitations on pay for top executives and dividend policy.

Many banks are raising additional capital to reinforce balance sheets through equity offerings to the public. The capital is needed due to credit losses that are still continuing despite the prospect of economic growth restarting in 2010.

Raising Capital
Huntington Bancshares (Nasdaq:HBAN) recently announced a $350 million offering of stock. The bank actually raised $400 million in the offering after pricing the deal. The capital raise had the desired impact, and after accounting for this deal and a previous one, the bank now has a pro forma tangible common equity to tangible asset ratio of 6.57%, up from 5.69% at the end of the second quarter of 2009.

Synovus Financial Corp. (NYSE:SNV) raised $600 million in equity, up from the original amount of $350 million. The market didn't like it, however, as the offering will boost the share count by more than 50%, diluting the current stockholders.

Zions Bancorp (Nasdaq:ZION) announced a double offering of $250 million in stock and $450 million of five-year notes at a 7.75% coupon. The size of the note offering was increased above the original amount.

Investor Interest
The common denominator of all these offerings is strong investor interest, as two of the deals increased in size. Zions Bancorp is not doing a traditional offering of stock at one time, but is commencing an equity distribution, where its has an open-end commitment to sell stock up to the $250 million level. It might be some time before the offering's success can be determined, but if the pattern holds, the bank will have abundant interest from investors.

The Bottom Line

The rash of bank equity offerings has stirred the interest of investors, and means another large capital injection into the U.S. banking system. This will be needed to absorb the continuing credit losses that are sure to come. (To learn more, see The Industry Handbook: The Banking Industry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Will J.C. Penney Come Back in 2016? (JCP)

    J.C. Penney is without a doubt turning itself around, but that doesn't guarantee the stock will respond immediately.
  2. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  3. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  4. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  9. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  10. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center