Sovereign Bancorp to raise just over $1 billion: source

By Jonathan Stempel

NEW YORK (Reuters) - Sovereign Bancorp Inc (SOV.N: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz) and Washington Mutual Inc (WM.N: Quote, Profile, Research, Stock Buzz), 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.