Atlanta-based SunTrust Banks(STI) is the latest to announce a secondary offering as they plan to sell $1.25 billion worth of common stock. In addition, the company will conserve capital as they slashed their dividend for the fourth time, this time they dropped it 90% to just a penny per quarter. Quarterly dividends have been on a steady decline from 77 cents per share to 54 cents then to 10 cents and now finally as low as they can go. The move will save an additional $128 million per year given current shares outstanding. Interestingly, STI stock was trading up about 2% this morning on the news that shares will be diluted and the dividend is getting cut yet again. Furthermore, they are considering an asset sale and other options in order to $2.2 billion the authorities are requiring via the stress test results.
“Finally, from SunTrust, we get what we’ve seen Citi do and what BofA is going to do, we expect, which is mainly pursue and exchange the preferred or hybrid securities for common it doesn’t tell us that it is definitely going to do that. But SunTrust does say that that is yet another one of its considerations as it seeks to meet that $2.2 billion mark, essentially, that has been given it by the U.S. — by the stress testers, if you will, in order to be in compliance. So there you have SunTrust. We’ll see if — we still haven’t heard from Fifth Third or look at the stock performing well this morning.”CNBC’s Squawk on the Street 5/15/2009
There has been a total of $38 billion worth of secondary offers thus far in May, which is far more than any month in recent history. Of course, a large portion of this comes from the results of the government’s stress tests and the capital shortfalls they exposed in 10 of the 19 largest financial institutions. However, it is not just banks raising capital in this fashion as Ford(F), Simon Property Group(SGP), and Anadarko Petroleum(APC) just to name a few are also entering the fray. One has to wonder, how much more can the market absorb at this juncture? There has to be a point where institutions and individuals coffers are tapped out, at least in the short term. Luckily, it appears that this point has not yet been reached.
The flood of secondary offerings may continue on for at least the next few weeks, as companies are seeing more favorable conditions for such a move than have been seen in at least the last 2 years. Consumer confidence is up and the markets have rallied close to 30% from the March bottoms. A company, like SunTrust, that is looking to raise capital in this fashion is probably going to want to tap the well now, instead of risking waiting for a pull back, especially as so many other are doing it that it doesn’t make your stock stand out. Overall, this is a pretty friendly time to strengthen your balance sheet, and that is a good thing for the market.