capital raising

Dividends, the best source of capital right now?

Jim Kim — Tue, 22 Jul 2008 08:30:33 -0400

We've noted that most big banks have fewer options when it comes to capital raising. Public offerings are increasingly hard, given concerns about dilution, among other things. Outside investors have been licking their wounds as their early investments have really tanked. So that leaves asset sales and dividend cuts. Asset sales can be a tricky, especially at a time when valuations are an issue. Just ask Merrill Lynch. And for the second time in three months, Wachovia has cut its dividend. It now will pay a nickel a share, compared with 37.5 cents earlier, and 60 cents a share at the start of the year. The move will effectively raise $700 million each quarter. This, of course, is bad for shareholders, but in this environment, what choice did the bank have? It's second quarter earnings were much worse than anticipated--a loss of $4.20 a share. Analysts were expecting 78 cents a share. Ouch. The fourth largest U.S. bank is also slashing 6,350 jobs.

For more:
- here's the AP article

Shareholders paying for banks' sins

Jim Kim — Mon, 23 Jun 2008 21:28:22 -0400

Banks have been a capital raising binge of late. Banks big and small are busy issuing more stock, of various types, and cutting their dividends--even as they look for big investors. Fifth Third and KeyCorp were among the regional banks that joined the trend recently. Things likely will get worse as other asset classes, such as constructions and small business-type loans, start to feel the heat of rising delinquencies. Unfortunately, as the AP reports, the losers in all this are shareholders. The article notes that 16 banks have cut dividends this year. All agree that more capital raising measures are necessary, so we may be in for more of the same. Perhaps this is one reason (of several) why some analysts have discerned some capitulation on the part of Mr. Market.

For more:
- here's the AP article on capital issues

Winning deals abound

Wed, 16 Apr 2008 06:59:59 -0400

The deal of the decade? Banks seemingly have their hats out. They need capital and pretty darn fast. Washington Mutual merely is the latest ink a capital raising deal. This is one of those Rorschach moments: When you think of the investors, be they sovereign wealth or private equity funds, do you think "suckers" or "lucky dogs"? Right now, I'm inclined to think that preferred convertible buyers are pretty lucky, either way. That's a roundabout way of saying I think most of the top firms, save Bear Stearns, are at their nadir--with a lot of upside over the next few years. The outsized yields are enviable in this environment. But that's just me.
- Jim