Regional Banks Plan TARP Repayment - Analyst Blog

Regional banks are gearing up to repay the bailout money received under the U.S. Government's Troubled Asset Relief Program (TARP). Yesterday, two regional U.S. banks – Huntington Bancshares Inc. (HBAN) and First Horizon National Corp. (FHN) announced their capital raise plans in this context. It comes roughly after a year when biggies such as Bank of America Corp (BAC) and Citigroup Inc. (C) went for capital raises through stock offering to repay the TARP loan.

Columbus-based Huntington Bancshares has announced a $920 million of common stock offering. The bank also expects a $300 million of subordinated debt offering in the future. It would use the proceeds to repurchase $1.4 billion of Series B Fixed Rate Cumulative Perpetual Preferred Stock it issued to the U.S. Treasury under TARP. The time of repurchase would depend on the authorization of the banking regulators and the approval of the Treasury.

Similarly, Memphis-based First Horizon National Corp. also announced a $250 million common stock offering. In addition, the bank plans to grant the underwriters a 30-day option to purchase up to an additional 15% of common shares sold. The company plans to use the net proceeds of this offering, together with the net proceeds of a planned debt offering to repurchase 866,540 preferred shares issued to the Treasury under TARP and redeem $103 million of other debt.

The repayment of TARP money can be viewed as a sign of recovery of the institutions as well as the economy. The banks would be free of significant government interventions. In addition, this is expected to create a pressure on the other banks that are yet to repay the bailout money as their capital strengths would be questioned by investors. Yet, the capital raise through common stock offering would result in future earnings dilution, thereby somewhat muting investors' appetite for the stocks.

Both Huntington and First Horizon retain their Zacks #3 Rank, which translates to a short-term ‘Hold' rating.

 
BANK OF AMER CP (BAC): Free Stock Analysis Report
 
CITIGROUP INC (C): Free Stock Analysis Report
 
FIRST HRZN NATL (FHN): Free Stock Analysis Report
 
HUNTINGTON BANC (HBAN): Free Stock Analysis Report
 
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