Under the gun to satisfy a government mandate to shore up its capital base, SunTrust said Monday it plans to raise $1.4 billion through a common stock offering.
The move is a disappointment for Atlanta-based SunTrust, which just two weeks ago said it planned to sell shares over time on the open market, which the company hoped would fetch higher prices than a single stock offering, minimizing the impact on existing shareholders.
But SunTrust pulled the plug on that strategy after raising $260 million, far short of the bank's initial $1.25 billion goal. The stock offering announced Monday will likely be completed in a day, analysts said, but will come at a cost as institutional investors demand a discounted price.
In a news release, SunTrust said the stock sale plan accelerates the company's effort to meet the capital-raising target.
Some analysts criticized the company for not holding a large stock offering in early May, when the government announced that SunTrust and nine other banks had to raise capital in order to cover potential losses should the economy worsen.
At the time, SunTrust stock traded at more than $20 per share. On Monday, the company's stock opened at about $13.
SunTrust hoped share prices would keep rising, but "events have not gone their way in the last two weeks," said Jeff Davis, an analyst at Howe Barnes who follows SunTrust stock.
SunTrust announced the stock sale less than a week before a June 8 deadline to give the government a detailed plan to boost its capital buffer by $2.2 billion. In addition to the stock sale, the bank -- struggling with soured real estate loans -- plans to raise $300 million by selling securities and other assets.
The stock sale will dilute the holdings of existing shareholders, shrinking dividend payments and eroding earnings per share. That could weaken the company in the eyes of investors and cause SunTrust to find a merger partner, Davis said.
"Companies have to earn the right to remain independent, and how they do that is earn more money than their peer or have better earnings per share than peers," he said.
Another analyst, Chris Marinac of FIG Partners in Atlanta, said the capital-raising plan puts the company on solid footing to weather the current economic storm and emerge in shape to make new loans and even make acquisitions.
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