UPDATE 5-Two U.S. banks reveal TARP repayment plans

Mon Dec 13, 2010 3:47pm EST

* Huntington to offer $920 mln shares, $300 mln in debt

* First Horizon to offer $400 mln debt, $250 mln stock

* Huntington shares down 3 pct, First Horizon up 3.2 pct

* Offerings could spur more bailout aid repayment by banks (Adds details on other large banks with TARP aid, updates share prices)

By Maria Aspan and Joe Rauch

NEW YORK/CHARLOTTE, N.C., Dec 13 (Reuters) - Two regional U.S. banks plan to repay their government bailout loans, a sign of health that could put pressure on other lenders to shed government aid.

Huntington Bancshares (HBAN.O) said it was issuing stock and bonds to help repay $1.4 billion it received under the U.S. Government's Troubled Asset Relief Program in November 2008.

First Horizon National Corp (FHN.N) said it is selling debt and equity to pay off $867 million of TARP aid.

Huntington's shares fell after the news because the bank will sell so much equity to repay the government, analysts said. First Horizon's shares rose as investors cheered its move to shed government support.

Analysts said these repayment plans could be the first of another wave of TARP repayments, and suggest that the U.S. banking system is continuing to heal after the 2008 crisis.

Banks that have yet to repay the government should think about doing it soon, said Jeff Davis, bank analyst at boutique bank Guggenheim Partners.

"If you're a bank that does wait now, the market might be left to assume there are deeper problems," Davis said.

The offerings from Huntington and First Horizon come one year after the largest U.S. banks -- including Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) -- raised tens of billions of dollars to repay their government bailout aid. The first wave of banks to repay TARP came in the summer of 2009, and included Goldman Sachs Group Inc (GS.N) and JPMorgan Chase & Co. (JPM.N)

BIG, BUT NOT TOO BIG

Despite the latest round of offerings from smaller lenders, the largest U.S. regional banks may still be months away from buying back the government's temporary investment.

Regional banks SunTrust Banks Inc (STI.N), Regions Financial Corp (RF.N), Fifth Third Bancorp (FITB.O) and KeyCorp are the four largest U.S. lenders that have yet to repay TARP.

The four banks were part of a larger group of the 19 biggest banks that underwent U.S. government stress testing in Spring 2009.

Huntington, with $53 billion in assets, and First Horizon, with $25 billion, fell well below that threshold.

Now, the Federal Reserve is retesting all of the "stress test" banks before allowing them to repay TARP, raise their dividends or repurchase shares.

Results are not expected until first quarter 2011, leaving a window for smaller banks to repay TARP.

Atlanta-based SunTrust has $5 billion outstanding under the program. Birmingham, Alabama-based Regions has $3.5 billion.

Cleveland, Ohio-based KeyCorp has $2.5 billion in government aid, while Cincinnati, Ohio-based Fifth Third received $3.4 billion.

DILUTION

Columbus, Ohio-based Huntington Bancshares said it would raise $920 million in common stock and offer $300 million in debt to repay TARP. Analysts said the move could result in the bank boosting its outstanding shares by 19 percent.

The bank's shares were down 3 percent at $6.63 on Monday afternoon.

Memphis, Tennessee-based First Horizon National Corp said it would raise $250 million through a common stock offering and issue $400 million in debt to pay off its TARP obligation.

First Horizon's shares were up 3.2 percent at $10.87.

In recent weeks, bank stocks have surged.

Huntington's price has increased 19 percent in the fourth quarter alone, and is up 87 percent for the year.

Standard and Poor's cut its recommendation to "hold" from "buy" after the stock offering was announced, but noted the TARP payoff would be a positive move for the company.

"Two quarters from now, could (Huntington) have waited and gotten a better deal? Probably," said Morgan Keegan & Co analyst Bob Patten. "But the stock has performed well, and this gets them out from under the government and back into being a buyer for small, troubled Midwestern banks."

Both offerings remain subject to regulatory approval. (Reporting by Maria Aspan in New York, Joe Rauch in Charlotte, N.C., and Brenton Cordeiro in Bangalore. Editing by Jarshad Kakkrakandy, Dave Zimmerman, Matthew Lewis and Robert MacMillan)

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