Wall Street analysts cheer U.S. banks' capital raise

BANGALORE (Reuters) - The recent capital raising measures at big U.S. banks including JPMorgan Chase & Co, American Express Co and SunTrust Banks Inc is a step in the right direction, several Wall Street analysts said.

Bank of America Corp, JPMorgan and several other banks said they have raised at least $18 billion as lenders scramble to extricate themselves from Washington’s grip.

JPMorgan sold $5 billion of stock, Morgan Stanley $2.2 billion and American Express Co $500 million after the Federal Reserve on Monday imposed capital-raising requirements on large lenders hoping to repay bank bailout funds.

“New rule of thumb to repay TARP: Raise 20 percent (of outstanding TARP amount),” FBR Capital Markets analyst Paul Miller said.

JPMorgan has beaten its peers to repay federal money with its actions, which may give it the title of the safest bank in America, veteran banking analyst Richard Bove said.

“This is likely to be viewed very positively by the markets,” analyst Bove said in a note referring to JPMorgan’s capital raise.

Robert W. Baird analyst David George said the move by JPMorgan has minimal impact on capital ratios and the elimination of the TARP preferred dividend is roughly 3 percent accretive to normalized earnings per share.

“We believe the competitive positioning of the company will be enhanced given the emancipation of the TARP restrictions including salary limits and potential politicizing of lending practices,” George said.

The repayment of TARP is an “obvious positive” and the company should benefit from an improved capital markets environment and mortgage revenues should also contribute to a strong second quarter, the analyst said.

Nineteen of the largest banks underwent the stress tests, and the Fed plans to announce next week which of the 19 will be permitted to repay bailout funds.

The Fed on Monday said large banks hoping to repay TARP must show they can access public equity markets, sell long-term debt without government backing, foster lending, maintain sufficient capital, meet their funding obligations, and support their subsidiaries.

Oppenheimer analyst Chris Kotowski said the development makes him more dubious about the “stress test” and attendant processes, and although the near-term financial impact of the raise is minor for JPMorgan, the dilution will be somewhat more keenly felt when the company’s earnings are higher.


Morgan Keegan upgraded the stock of SunTrust Banks Inc to “outperform” from “market perform,” saying the capital raise clarifies dilution concerns at the company.

On Monday, the U.S. Southeast regional bank ordered by federal regulators to raise $2.2 billion of equity capital, on Monday speeded up a previously announced capital-raising plan, hoping to benefit from recent investor demand for banks’ securities.

“We believe investor focus should now shift to credit and the longer term normalized earnings power,” Patten said in a note.

Baird’s George said following these actions, SunTrust should be largely complete with its plans to address its capital shortfall, eliminating a notable overhang on the stock.

“Now that the company’s capital needs have largely been addressed, SunTrust appears to have enough capital to make it through the cycle,” the analyst said.


Deutsche Bank analyst Matt O-Connor, however, said capital raise in JPMorgan may have negative impact for Bank of America, PNC Financial Services Group Inc and Wells Fargo.

“With JPMorgan set to be the first major bank to repay TARP, we think there are important implications for other banks -- most notably additional capital will need to be raised,” the analyst said.

He identified Bank of America, PNC and Wells Fargo to be ones that would need to raise capital the most in absolute dollars, while M&T Bank, US Bancorp and Zions Bancorp would need modest raises.

“Some banks may be below 9 percent Tier 1 if they repay TARP -- especially as banks exchange non common securities for common equity. This may also limit banks ability to repay TARP or force more common issuance,” O-Connor said.

More than 600 banks took TARP money; about 20 have paid it back, Treasury Department data show.

To free themselves from Washington, banks still need to buy back or get rid of government warrants to buy their shares. The government got these when they injected money from TARP.

Editing by Jarshad Kakkrakandy