U.S. banks are going to sell common shares

The results of government-mandated stress tests on the nation's largest banks have determined how much capital they are required to raise. The results generally showed that they would require less new capital than had been expected. Investors' relief over the stress tests fueled a "meltup" in the banking sector on Friday, helping some of the nation's largest lenders raise more than $12 billion in new equity capital. Those banks, which received Troubled Asset Relief Program investments in the form of preferred shares, could have converted those into common stock to cover their capital requirements; most would rather raise capital in the public markets as able, and pay back the government quickly. The banks are looking to get out from under the conditions of the TARP investments, which include restriction on executive pay and employee bonuses. Capital One, US Bancorp, KeyCorp, BB&T Corp all announced plans to sell shares on Monday. Wells Fargo on Friday said it was selling additional stock.BB&T is going to reduce the size of its dividend as to repay the federal government's investment in the company under TARP. BB&T also will issue $1.5 billion of common stock to be paired with other funds to repay all preferred stock and warrants held by the Treasury. BB&T's board of directors declared a 15-cent dividend to be paid on common stock in the third quarter, a reduction of 68% from its current quarterly payout of 47 cents a share. The move to temporarily cut the dividend is intended to preserve about $725 million in capital on an annualized basis. BB& T shares fell 5% to $24.98 in early trade. So did the shares of U.S. Bancorp (6% to $19.25), and KeyCorp (5% to $6.63). Bank of America Corp. plans to sell 1.25 billion shares through a so-called at-the-market transaction, which enables the giant lender to issue new common stock from time to time, when the market is most receptive.