Bloomberg News

Regions Plans $900 Million Stock Sale to Repay Taxpayer Bailout

March 13, 2012

Regions Financial Corp. (RF), the 10th- largest U.S. lender by deposits, said it plans to sell $900 million of its common stock to help repay a $3.5 billion taxpayer bailout.

The action was part of the bank’s capital plan submitted for the Federal Reserve’s tests of how financial firms would fare in an economic decline, Birmingham, Alabama-based Regions said yesterday in a statement. The Fed didn’t object to the plan, the company said.

“We appreciate the U.S. Treasury’s investment in Regions during the financial crisis,” Chief Executive Officer Grayson Hall, 54, said in the statement.

Regions is laying plans to repay the rescue it received in 2008 from the Treasury’s Troubled Asset Relief Program. Most of the biggest U.S. banks already returned bailout funds. The lender was among the worst performers in the KBW Bank Index (BKX) in 2008 and 2009 as defaults contributed to four straight years of losses totaling $7.7 billion for common shareholders.

Regions climbed 4.2 percent to $6.02 at 7:11 p.m. in extended trading in New York yesterday. The shares had surged 34 percent this year through the close of regular trading, the third-best performance in the 24-company KBW index after Bank of America Corp. and Citigroup Inc.

‘Very Defensive’

“A TARP repayment and any associated capital raise will benefit us and enable us to get investment-grade ratings,” Chief Financial Officer David Turner said during a March 5 conference for investors. “When we were downgraded, we became very defensive with our liquidity, which is why we have $4.9 billion in cash at the Federal Reserve.”

Regions, under former CEO Dowd Ritter, almost doubled its real-estate construction-loan portfolio and mortgage loans climbed 59 percent from the end of 2005 through 2007. Soured loans (DLQTDLQT) surged as home prices began to drop, with Regions writing off $3.8 billion in 2008 and 2009.

Ritter told investors in July 2009 his goal was to repay the bailout by the end of that year and that the bank was “positioned well” to do so. “I can’t envision any situation with what we know today where we would have a remote need to raise additional capital,” he said at the time.

Regions’s stock had fallen 49 percent in the first half of that year, from a high of $38.87 on Oct. 13, 2006, to a low of $2.50 on Feb. 4, 2009.

Sustainable Profitability

Hall, since succeeding Ritter in 2010, has reduced the amount of funds set aside for soured loans every quarter except one. Hall said he has sought a return to sustainable profitability and diversifying holdings to include more consumer loans, rather than rushing to repay TARP.

Regions agreed in January to sell the Morgan Keegan & Co. brokerage unit to Raymond James Financial Inc., the St. Petersburg, Florida-based brokerage and investment bank, under terms that ultimately will generate proceeds of $1.18 billion for the bank.

Regions expects first-quarter net interest income to decline from the prior three-month period as mortgage prepayments rise, the lender said yesterday in a regulatory filing. Net interest margin, the difference between what banks pay for deposits and charge for loans, probably will be “consistent” with the 3.08 percent reported for the fourth quarter, it said.

Non-interest revenue is expected to climb as mortgage income increases, and non-interest expense is likely to rise, according to the filing.

Regions is scheduled to report full first-quarter results on April 24.

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Barclays Plc (BARC), Deutsche Bank AG (DBK) and Morgan Keegan are firms working on the offering.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Rick Green at rgreen18@bloomberg.net


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