VOL. 124 | NO. 96 | Monday, May 18, 2009
SunTrust to Sell $1.25B in Stock, Cut its Dividend
SARA LEPRO | AP Business Writer
NEW YORK (AP) - SunTrust Banks Inc. said Friday it will sell $1.25 billion of common stock and slash its dividend by 90 percent as it works to raise money in light of the government's increased capital requirements.
The Atlanta-based regional bank is one of the 10 major financial institutions recently ordered by the government to raise more capital as a buffer against future losses.
The bank said it plans to increase its common equity by a total of $2.2 billion through a series of actions that include the common stock offering, the sale of selected securities and other assets and the exchange of preferred shares to common shares.
The company also will cut its dividend to 1 cent from 10 cents beginning in September.
Other banks required by the government to raise capital have also announced or completed stock offerings, including PNC Financial Services Group Inc., KeyCorp, Wells Fargo & Co. and Morgan Stanley.
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. – also are raising capital through stock offerings. They plan to use proceeds to repay federal bailout funds received last fall, pending government approval.
The offerings have been an encouraging sign to analysts, proving that companies can once again go to the public to raise capital – an action that was all but impossible just a few short months ago as investors shunned the capital markets for fear of plunging stock prices. While the offerings dilute current shareholders' stakes, the demand from investors has been palpable.
SunTrust said its capital raising efforts should put it in a position to repay the government's $4.9 billion investment made last fall "at the appropriate time."
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 intent to return the funds as soon as possible.
SunTrust has six months to raise the additional capital following the results of the government's "stress tests" of the 19 largest U.S. banks, which determined that 10 banks need to raise a total of $75 billion in case the economy worsens.
Like its peers, the regional bank continued to face credit and earnings challenges in the first quarter brought on by the weak economy. But at the same time, SunTrust was among several banks that benefited from an increase in mortgage banking activity and deposit growth. Its loss for the quarter was smaller than analysts had been expecting.
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