Posted by: Ben Steverman on May 12, 2009
Why should the banks have all the fun?
Financial institutions from Wells Fargo (WFC) to Capital One (CFC) are issuing millions of new shares and raising billions in new capital. It’s a move that dilutes current shareholders but the extra cash should help these firms absorb future losses or pay back government bailout funds.
On May 12, another firm, Bank of New York Mellon (BK) said it would raise $1 billion through a stock offering.
But it’s not just banks seeking riches in the equity market:
Great Plains Energy (GXP) said it would begin raising about $400 million.
Camden Property Trust (CPT) offered 10.35 million shares for sale, which could net more than $300 million for the real estate investment trust.
Unlike big banks, these firms aren’t required to raise capital by any government stress test. Nor are they paying back U.S. Treasury bailout funds.
So why now? Executives appear to be seizing an opportunity provided by the stock market’s strong rally over the last two months. Since Mar. 9, the broad S&P 500 index is up 33%. In that same time frame, Ford shares are up 210%, Camden has jumped 65%, Andarko 38% and Great Plains 22%.
As with many banking stocks, offering equity now will bring in a lot more capital than an equity raise one or two months ago.
“Why delay if you have the ability to raise the capital now?” said Mark Batt, an equity analyst with PNC Capital Advisors (PNC). He was referring to the banks, but the same could be applied to all sectors. “You’ve got to go to the market when the window is open,” he said.
And all these share offerings beg the question: How long will the window be open? If executives thought stock prices were set to climb higher, they would wait. The offering of so many shares now is a sign these executives are concerned about a pullback for their own stocks in the future. It’s also a reason to worry this equity rally may be running out of steam.
*It’s interesting that Ford is offering shares for sale at the very same time that skittish General Motors (GM) executives are apparently selling their personal stakes. SEC filings showed six executives, including GM Vice Chairman Bob Lutz, dumped more than 200,000 shares. GM shares traded just above $1 on May 12. Shares of Ford, which so far hasn’t needed a government bailout, fell below $6 per share on news of the stock offering.