KeyCorp. joins other banks in offering stocks

NEW YORK (AP) — KeyCorp, which is among 10 major banks ordered by the government to raise more capital as a buffer against future losses, joined several other banks Monday in announcing public stock offerings.

The offerings put pressure on financial shares, but underscore the improving conditions in the capital markets and the increasing demand for bank stocks, which have skyrocketed in the wake of the market’s massive two-month rally.

Four banks that have received a clean bill of health from the government — Bank of New York Mellon Corp., U.S. Bancorp, Capital One Financial Corp. and BB&T Corp. — said proceeds from their common stock offerings would go toward repayment of federal bailout funds received last fall, pending government approval.

Banks that received money under the U.S. Treasury’s financial rescue effort, called the Troubled Asset Relief Program, have become subject to increased government scrutiny as well as limitations on executive pay. A number of banks, including JPMorgan Chase & Co. and American Express Co., have expressed their desire to return the funds as soon as possible.

“We believe that the TARP investment, philosophically, is not good for our company from a long-term point of view, because of the entanglements of how we run the business, including how we compensate our people,” said BB&T President and Chief Executive Kelly King in an interview with The Associated Press. “We believe long-term that the political involvement in the lending process is not good.”

The original intent of the rescue program was to boost lending and stimulate the economy after the collapse of investment firm Lehman Brothers Holdings Inc. and the subsequent freezing up of the credit markets.

But King and others insist that lending is taking place and will continue to do so even once the funds are returned.

“We have people in the street looking to give loans,” he said. “This notion that people can not get loans is a myth. Banks are making all the good loans they can find.”

Analysts are encouraged by banks’ ability to go to the public to raise funds.

“As capital markets are now open and banks are raising common equity, our concerns are partially mitigated,” wrote Friedman, Billings, Ramsey & Co. analyst Paul Miller in a note to clients Monday. As such, he and a team of FBR analysts raised their price targets on 17 banks “to reflect less dilution risk, stronger capital levels and easier access to capital.”

KeyCorp shares fell 69 cents, or 9.9 percent, to $6.28 Monday, after the Cleveland-based bank said it will sell up to $750 million of its common shares. The bank must increase its capital levels by $1.8 billion to satisfy the findings of the government’s “stress tests,” the results of which were announced late last week.

The tests were designed to determine which of the nation’s 19 largest banks might need more capital to cover rising loan losses if the economy worsened.

Ten banks, including Bank of America Corp. and Citigroup Inc., must raise a total of $75 billion in new capital as a backstop against possible future losses. Bank of New York Mellon, U.S. Bancorp, Capital One and BB&T were among the nine banks deemed to have sufficient capital to withstand a deeper recession.