Sovereign Bancorp to raise just over $1 billion: source

By Jonathan Stempel

NEW YORK (Reuters) - Sovereign Bancorp Inc SOV.N, the second-largest U.S. savings and loan, plans to raise just over $1 billion in an equity offering to help it navigate a difficult economic environment, a person close to the transaction said on Thursday.

The offering will be broadly distributed to institutional investors and will likely be conducted over the weekend, the person said. Sovereign is determining how much Banco Santander SA (SAN.MC), which has a 24.99 percent stake in the thrift, might participate in the offering, while keeping any transaction with the Spanish bank at arms-length, the person said.

An infusion would help the Philadelphia-based thrift combat mounting credit losses. Chief Executive Joseph Campanelli is trying to shrink Sovereign's balance sheet, in part by selling a troubled portfolio of mortgages and auto loans, and focus on Sovereign's core Northeast and mid-Atlantic markets.

By raising capital, Sovereign would join a growing list of U.S. banking companies to do so this year, including Citigroup Inc (C.N) and Washington Mutual Inc WM.N, the largest thrift.

Sovereign spokesman Edward Shultz and Santander spokesman Peter Greiff declined to comment. Earlier Thursday, the Financial Times said on its Web site that Sovereign would raise $1 billion to $2 billion from a group of investors led by Santander.

Sovereign shares closed down 30 cents at $7.46.

Several analysts said Sovereign would need new capital after it last quarter posted a 43 percent decline in first- quarter profit, excluding a large year-earlier charge.

Earlier on Thursday, at Sovereign's annual shareholder meeting in Brooklyn, New York, executives from Sovereign and Santander said the companies have not held talks about boosting or reducing the Santander stake.

Santander initially paid $2.4 billion in 2006 for a 20 percent stake and won conditions under which it might later seek to buy the entire thrift. Sovereign used the initial investment to help fund a simultaneous, $3.6 billion purchase of Brooklyn-based Independence Community Bank Corp.

But Sovereign has written off some of that purchase and at the annual meeting, several unhappy shareholders questioned Sovereign about its performance and its share price, which has fallen 69 percent in the last year.

"Daily, when I look at my statements, the value seems to be going down and down and down," one woman said.

Campanelli has overhauled management and in February fired Mark McCollom, Sovereign's chief financial officer.

"We're a very different company than we were a year ago," Campanelli said. He pledged to "stop being distracted about leverage" and said that, to bolster the stock price, "in the end, it's really about performance."

On an April 24 conference call, new Chief Financial Officer Kirk Walters said he saw no immediate need for capital, but that "dependent on our success at reducing the bank's risk profile, internally generating additional capital and the severity of the current economic downturn, we could decide we will need to augment our capital base."

Sovereign operates about 750 banking offices in eight U.S. states and ended March with $81.9 billion of assets.

(Editing by Carol Bishopric and Andre Grenon)