Capital Markets

Banks Aim to Fortify Their Vaults

Citigroup and BofA join big competitors in efforts to raise new billions through stock sales.
Stephen TaubApril 30, 2008

Two more large banks have passed the hat in a bid to strengthen their capital position.

Citigroup priced $4.5 billion of common stock — 50 percent more than the $3 billion it initially planned to raise — at $25.27 per share. The move slightly dilutes current holders, who have already seen their shares fall more than 50 percent from their high last year.

On a pro forma basis, and after including Citi’s recent issuance of $6 billion of preferred stock and the $4.5 billion of common stock, as of March 31 the company’s Tier One capital ratio would have been about 8.6 percent.

“We were pleased to increase the offering size to $4.5 billion in response to strong demand from a broad base of investors,” said Citi’s CFO, Gary Crittenden. “This optimizes our capital structure and further strengthens our balance sheet.”

Altogether, Citi has raised more than $40 billion from investors, according to The Wall Street Journal.

Meanwhile, Bank of America announced that it priced $4 billion in preferred stock. The company said it intends to use the net proceeds for general corporate purposes.

These offerings come on the heels of others from Citigroup, Merrill Lynch, and JPMorgan Chase.

Dow Jones explains that the credit crunch has forced embattled banks to become more creative in order to boost their Tier I capital, which is a bank’s core capital. It stresses that if the core falls below a required level, regulators can step in and the bank may be vulnerable to downgrades.

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