NEW YORK — KeyCorp, which is among 10 major banks ordered by the government to raise more capital as a buffer against future losses, joined several other banks Monday in announcing public stock offerings.
The offerings put pressure on financial shares, but underscore the improving conditions in the capital markets and the increasing demand for bank stocks, which have skyrocketed in the wake of the market's massive two-month rally.
Four banks that have received a clean bill of health from the government _ Bank of New York Mellon Corp., U.S. Bancorp, Capital One Financial Corp. and BB&T Corp. _ said proceeds from their common stock offerings would go toward repayment of federal bailout funds received last fall, pending government approval.
Banks that received money under the U.S. Treasury's financial rescue effort, called the Troubled Asset Relief Program, have become subject to increased government scrutiny as well as limitations on executive pay. A number of banks, including JPMorgan Chase & Co. and American Express Co., have expressed their desire to return the funds as soon as possible.
"We believe that the TARP investment, philosophically, is not good for our company from a long-term point of view, because of the entanglements of how we run the business, including how we compensate our people," said BB&T President and Chief Executive Kelly King in an interview with The Associated Press. "We believe long term that the political involvement in the lending process is not good."
The original intent of the rescue program was to boost lending and stimulate the economy after the collapse of investment firm Lehman Brothers Holdings Inc. and the subsequent freezing up of the credit markets.
But King and others insist that lending is taking place and will continue to do so even once the funds are returned.
"We have people in the street looking to give loans," he said. "This notion that people can not get loans is a myth. Banks are making all the good loans they can find."
Analysts are encouraged by banks' ability to go to the public to raise funds.
"As capital markets are now open and banks are raising common equity, our concerns are partially mitigated," wrote Friedman, Billings, Ramsey & Co. analyst Paul Miller in a note to clients Monday. As such, he and a team of FBR analysts raised their price targets on 17 banks "to reflect less dilution risk, stronger capital levels and easier access to capital."
KeyCorp shares fell 69 cents, or 9.9 percent, to $6.28 Monday, after the Cleveland-based bank said it will sell up to $750 million of its common shares. The bank must increase its capital levels by $1.8 billion to satisfy the findings of the government's "stress tests," the results of which were announced late last week.
The tests were designed to determine which of the nation's 19 largest banks might need more capital to cover rising loan losses if the economy worsened.
Ten 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. Bank of New York Mellon, U.S. Bancorp, Capital One and BB&T were among the nine banks deemed to have sufficient capital to withstand a deeper recession.
New York-based Bank of New York Mellon said late Monday it will offer $1 billion in common shares in a secondary offering. The news comes as the company sold $1.5 billion in notes with the intention of using proceeds to repay the $3 billion in TARP funding it received. Its shares closed down $2.60, or 8.1 percent, at $29.55.
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. The bank may also offer medium-term notes. Its shares fell $2.04, or 9.9 percent, to $18.50 in trading Monday.
Virginia-based Capital One, which received $3.55 billion from the government, announced plans to sell up to 64.4 million shares at $27.75 a share for gross proceeds of $1.79 billion. The offering price is an 11.5 percent discount to the stock's Friday closing price of $31.34. Shares dropped $4.24, or 13.5 percent, to $27.10.
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 $1.99, or 7.6 percent, to $24.34.
JPMorgan Chase, Goldman Sachs Group Inc., MetLife Inc., American Express, and trust bank State Street Corp. were among the other banks the government did not ask to raise more capital.
Among those banks that do need to raise funds, Bank of America needs $33.9 billion, Wells Fargo & Co. $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., Fifth Third Bancorp, and PNC Financial Services Group Inc. also need to raise funds.
The banks will have one month to devise a capital-raising plan and six months to implement it.
Charlotte, N.C.-based Bank of America has said it will raise capital through asset sales, earnings in the upcoming quarters and from private investors. Morgan Stanley on Friday raised $4 billion in a common stock offering. The company also priced an offering of $4 billion in bonds. Wells Fargo, meanwhile, raised $8.6 billion in a common stock offering _ more than it originally set out to raise.
Together, the 19 firms that took the test hold two-thirds of the assets and half the loans in the U.S. banking system.
AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.