By Francesco Guerrera and Greg Farrell in New York
Published: June 2 2009 13:20 | Last updated: June 2 2009 23:43
US financial groups hoping to repay government aid sold more than $7bn in fresh equity on Tuesday after the authorities told them how much capital they had to raise if they wanted to be in the first wave of lenders to return bailout funds.
JPMorgan Chase, Morgan Stanley and American Express all raised equity they had claimed they did not need, to comply with the new targets set by the Federal Reserve and US Treasury, bankers said.
On Monday, Goldman Sachs raised $1.9bn on top of the $5bn gained from a previous share issue through the sale of part of its stake in Industrial and Commercial Bank of China.
Bank executives said the Fed and the Treasury had given them specific amounts of how much they had to raise in order to be allowed to repay funds from the troubled asset relief programme (Tarp).
People close to the situation said some banks pushed back, claiming they needed less equity than requested by regulators. The final amounts were agreed after negotiations between Wall Street executives and the authorities, bankers said.
The government could announce the first group of Tarp repayers as early as Monday, when the 10 banks that had to bolster their balance sheets following last month’s “stress tests” present their capital raising plans to the government.
The authorities’ request for additional funds underlines their desire to ensure banks that repay Tarp have enough capital not only to survive but also to increase lending.
Morgan Stanley could be the only large institution that needed to plug a capital shortfall after the tests to be included in the early wave of repayers. The Wall Street bank, whose estimated capital requirement was $1.8bn, raised more than $5bn in equity in the aftermath of the test. It added $2.2bn on Tuesday by selling shares at $27.44 each – a discount of about 8 per cent to Monday’s close.
Three quarters of the offering went to China Investment Corporation – the state-owned investment fund – and Mitsubishi UFJ Financial Group, the Japanese bank, which purchased shares to avoid dilution of their Morgan Stanley stakes.
JPMorgan sold $5bn shares at $35.25 each, a discount of about 2 per cent to Monday’s close, while Amex sold $500m of new shares at $25.25.
Copyright The Financial Times Limited 2009