Raising Capital Gets Tougher, Even For Some Financial Giants
Wednesday July 16th, 2008 / 23h55
By Alistair Barr U.S. financial institutions raised almost $80 billion in capital by selling new securities during the second quarter to repair balance sheets gouged by the mortgage-fueled credit crunch. But in recent weeks the money may have stopped flowing, some experts worry. Freddie Mac (FRE) unveiled plans to raise $5.5 billion selling new equity earlier this year. However, the company hasn't managed to do that yet and has said more recently that any offering wouldn't take place until late August. Amid mounting concern about the financial strength of Freddie and mortgage-finance rival Fannie Mae (FNM), the U.S. government said this weekend that, if needed, it would provide the capital they need to survive the depression in the housing market and turmoil in financial markets. IndyMac Bancorp (IDMC), one of the biggest thrifts in the nation, was taken over by regulators late Friday in one of the largest U.S. banking failures ever. The company had been trying to raise new capital, but Chief Executive Mike Perry said on July 8 that it had failed to do that. "We don't expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets," he wrote in a letter to stakeholders. Even Merrill Lynch (MER), one of the largest brokerage firms, is reportedly selling its stake in Bloomberg LP to raise capital, rather than issuing new securities. If such large financial institutions are struggling to raise capital, smaller banks may be having an even tougher time, some analysts said this week. "Regional banks' ability to raise capital is becoming more limited, especially among smaller regional banks which may have less robust deposit franchises or strategic attraction to private-equity players," David Hendler, an analyst at CreditSights, wrote in a note to investors this week. CreditSights calculates that banks raised $77.5 billion in new capital during the second quarter. Since the credit crunch began, Goldman Sachs estimates that U.S. banks have raised more than $120 billion, while all global financial-services companies have raised over $300 billion. However, the investment bank noted that this has merely replaced the capital that's been devoured by write-downs and other losses from the credit crunch so far. Another $65 billion needs to be raised by U.S. banks alone, Goldman estimated. "The next round of capital raises will be harder and more dilutive given the performance of previous deals," the investment bank warned. By the middle of June, only four of the 42 deals Goldman tracked were trading above the prices at which the capital raising took place. And the KBW Bank Index (BKX) has slumped 15% since mid-June. That's going to make the investors in those deals more wary of committing when banks come round asking for money next time, the firm explained. 'Escape Hatch' Closed Regional banks under pressure have often been able to sell themselves to stronger banks. But this "traditional escape hatch" may be closed this time around because many potential acquirers are dealing with their own credit problems or integrating big acquisitions they've already announced, CreditSight's Hendler said. That leaves dividend cuts and asset sales as other ways to increase capital. Regions Financial (RF), a large regional bank, has a dividend yield of more than 20%, the largest of any major U.S. bank, according to Stuart Plesser, an analyst at Standard & Poor's Equity Research. That payout may need to be cut as the company sets aside more money to cover bad loans, he added. Asset sales are becoming a favored way to raise capital because they can generate cash while also shrinking institutions' balance sheets, CreditSights' Hendler said. Citigroup (C) said recently that it plans to sell assets over the next two to three years. The bank has already agreed to sell its German retail banking business for $7.7 billion in cash. -Alistair Barr; 415-439-6400; AskNewswires@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=tbcz0xXX1Jauzo6mglEnJg%3D%3D. You can use this link on the day this article is published and the following day.
La Bourse de Paris a tenté un rebond à l'ouverture vendredi, est repassée dans le rouge dix minutes après, pour revenir en territoire positif. Dans le sillage de l'indice...
Les valeurs américaines s'inscrivent toujours en fort recul jeudi avec la publication de mauvais chiffres hebdomadaires de l'emploi et les inquiétudes concernant...
La Bourse de Tokyo a fini en hausse de 2,70% vendredi, se retournant après la mi-journée grâce à des rachats de découverts motivés par l'attente d'un redressement de Wall...
L'euro se replie face au dollar, et le billet vert perd du terrain face au yen après la publication de l'indice américain des prix à la production, qui a...
Le baril de brut léger américain a clôturé jeudi sur le marché Nymex en baisse de 7,46%, sous les 50 dollars le baril, la chute des Bourses ne faisant qu'alimenter la crainte...
