NEW YORK – Financial stocks came under pressure Tuesday as several big banks scrambled to raise capital to help repay government bailout funds. A negative outlook on the sector from Moody's also weighed on stocks.
JPMorgan Chase & Co., American Express Co. and Morgan Stanley all priced stock offerings at a slight discount on Tuesday, while Goldman Sachs Group Inc. sold part of its stake in Industrial & Commercial Bank of China.
The moves came as the banks try to prove to regulators that they can raise money without relying on guarantees against losses from the Federal Deposit Insurance Corp. Many banks that received federal bailout funds last fall have balked at the increased government scrutiny and restrictions on executive compensation that are contingent to the funding.
A spate of recent stock offerings have been a welcome sign that banks can once again go to the public to raise capital, but they are dilutive to future earnings and current shareholders' stakes. Shares of banks have often sold off immediately after capital raises are announced.
JPMorgan shares dropped $1.29, or 3.6 percent, to $34.82 in early afternoon trading after the bank priced a $5 billion stock offering at $35.25 per share — a 2.4 percent discount to Monday's closing stock price.
American Express shares fell $1.38, or 5.3 percent, to $24.61, while Morgan Stanley shed 69 cents, or 2.3 percent, to $29.20. Goldman Sachs lost $2.05 to $142.28.
Meanwhile, a group of analysts at Moody's Investors Service led by Curt Beaudouin reaffirmed a negative credit outlook on the U.S. banking industry, which weighed on shares. The ratings agency estimated that U.S. banks will take about $470 billion of loan and security losses through 2010.
"Due to these asset quality problems, many U.S. banks will be unprofitable in 2009, putting stress on capital levels," the analysts wrote.
While the government's stress test results released early last month have cleared up some of the concerns about banks, analysts say the industry's credit problems are far from over so long as housing prices are falling and unemployment is rising.
The stress tests determined that 10 of the 19 largest U.S. banks needed to raise $75 billion in fresh capital to withstand potential future losses.
A number of banks the government said needed more capital, such as Bank of America Corp. and Wells Fargo & Co., have recently completed stock offerings to bridge that gap in reserves.
Banks that were deemed to have sufficient capital, like JPMorgan and American Express, have been working to prove they can stand on their own without reliance on government funding.
Other decliners Tuesday included Wells Fargo, which fell $1.01, or 4 percent, to $24.42, and U.S. Bancorp, which lost 99 cents, or 5.2 percent, to $17.91. Citigroup Inc. shares dropped 17 cents, or 4.6 percent, to $3.52.
Bucking the trend, shares of SunTrust Banks Inc. shot up more than 10 percent as the regional bank announced plans to speed up its capital raising efforts to meet a $2.2 billion capital shortfall.
Morgan Keegan & Co. analyst Robert Patten subsequently raised his rating on the stock to "Outperform" from "Market Perform," noting that the details of the capital-raising plan clear up concerns about potential dilution.
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