Magazine article American Banker

Wells Offering Worked, but Timing Wasn't Ideal

Magazine article American Banker

Wells Offering Worked, but Timing Wasn't Ideal

Article excerpt

Byline: Kevin Dobbs

Talk about bittersweet.

Wells Fargo & Co.'s $11 billion stock offering Thursday proved that banking companies - at least strong ones - can tap the markets to raise capital. Wells raised a billion dollars more than it had aimed for.

But the sale also provided a chilling reminder for any company that wants to raise capital: You're gambling that the volatile markets won't swing painfully low just as you make the sale. The Dow Jones industrial average shed 9.7% Wednesday and Thursday, its worst two-day drop in 21 years.

"There is, intuitively, plenty of risk right now" for any company tapping the market, Lou Brien, a market strategist at DRW Trading Group in Chicago, said in an interview Friday.

A broad market slide drove down Wells' stock and helped ignite brisk demand for its shares because of the suddenly cheap price. The day Wells made the offering, the KBW Bank Index fell 5.9%.

To ensure interest at a time when investors are skittish, when Wells' underwriters firmed up plans for the offering on Wednesday they priced the stock at 6.2% below the next day's closing price. As it turned out, Wells' shares, which closed at $35 Tuesday, fell 10% Wednesday and 9% the next day.

Had it timed and priced the sale based on Tuesday's close, Wells would have sold about 320 million shares to raise the same amount of cash. Instead, it ended up selling 407 million shares, at $27 apiece, diluting existing shareholders' stock much more than initially expected.

"It turned out to be clearly more dilutive than what I'm sure their shareholders had hoped for," Jack Ablin, the chief investment officer at Bank of Montreal's Harris Private Bank, said in an interview Friday. …

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