Magazine article American Banker

Slack Economy Mars Outlook for Megamerger Stock Offerings

Magazine article American Banker

Slack Economy Mars Outlook for Megamerger Stock Offerings

Article excerpt

Slack Economy Mars Outlook For Megamerger Stock Offerings

With some big banks planning record stock offerings in 1992, experts are divided about how investors will respond.

The list of announced and potential stock issuers is mainly the result of megamergers that reshaped the banking industry earlier this year.

The new Chemical Banking Corp., for example, has already announced that it will issue $1.3 billion in equity upon completion of the merger with Manufacturers Hanover Trust. Other candidates are NCNB Corp., BankAmerica Corp., and Bank of Boston Corp.

Performance Could Drag

Short of scotching a megamerger, a poor reception for new stock issues could weigh down a merged bank's performance for years. By diluting shares, an ill-timed offering could depress stock prices and trip up severance benefits to employees.

Chemical executives sound confident. "We believe there will be a good response," a spokesman said. But factors like a sagging economy, lingering real estate problems, and sluggish progress in promised cost cuts could dash the high hopes.

Bankers planning stock issues are counting on investor bullishness, which took off early this year after a prolonged spell in the doldrums.

What's Needed in Boston

NCNB plans to raise $250 million in the wake of its merger with C&S/Sovran, and analysts anticipate that BankAmerica may tap the market for as much as $400 million.

Analysts foresee a need for $625 million in new stock if Bank of Boston and Shawmut National come to terms on a merger and regulators approve.

"These deals can sell stock," said one investment banker. "People perceive them to be institutions that are growing and have opportunities for profits in the future."

So far this year, banks have had success in boosting capital, particularly compared with 1990. Back then, only a dozen banks issued stock, raising $821 million. This year, stock prices have rebounded considerably, an average of 50% for money-center banks and big regionals.

Thus far in 1991, 24 banks have sold stock, raising more than $2.5 billion, according to Securities Data Corp.

"If conditions are the same next year as in the first half of this year, banks won't have any problem at all raising equity," said Mark Alpert, an analyst with Bear, Stearns & Co. …

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