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Bank Sells Discounted Shares to Its Pension Plan

While the stock's barred from trading for six months, BB&T Corp. is discounting it to compensate pensioners for the risk that not being able to sel...
David Katz and Stephen TaubJuly 23, 2008

BB&T Corp. is turning to its future retirees to boost its capital, but providing them with a discount to pay for the risk. The Winston-Salem, N.C.-based financial services firm said its pension plan bought about 2.45 million shares of BB&T common stock for nearly $53 million in a private placement.

On Wednesday, after the transaction was completed, 5 percent of the fair-market value of the pension plan’s assets was held in BB&T common stock, up from 2 percent before the sale. While the privately placed shares are barred from trading for six months, the company is discounting them to compensate pensioners for the risk that not being able to sell the stock over the period could result in a loss, Bob Denham, director of corporate and executive communications for the Winston-Salem, N.C. regional bank holding company, told CFO.com. Under the terms of the Tuesday sale, the shares sold to the pension plan were discounted to $21.51 each from the $25.91 a share cost at Monday’s close.

The bank’s board “believed the stock is undervalued, and this represented a great plan to buy. And that’s the principle driver,” Denham said. Indeed, the company is touting relatively strong results in what has become a battered sector.

On a recent conference call discussing second-quarter earnings, John Allison, BB&T’s chairman and chief executive officer, told investors that the bank’s earnings per share calculated according to generally accepted accounting principles were down just 6 percent from last year. For the year-to-date, the bank’s net income was $856 million, down just 2.6 percent over the previous year.

Further, the bank originated $4.7 billion worth of residential mortgages in the second quarter, up 57 percent from the $3 billion it originated in the second quarter of 2007. Revenue from residential mortgage originations was up 25 percent.

As of June 30, BB&T’s pension plan had more than $1.5 billion in assets. BB&T, which has a market cap of $15 billion, reported that the price of the shares was determined by an independent appraisal firm and is subject to the review and approval of an independent fiduciary retained on behalf of the plan. Denham identified the latter as Independent Fiduciary Services of Washington, D.C.

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