BB&T offers $750 million in stock to bolster capital

After taking over most of Colonial Bank (CNB) on Friday, BB&T Corp. (BBT) said Monday it has commenced a public offering of $750 million of common stock, saying the proceeds, which will qualify as tangible common equity and Tier 1 regulatory capital, will be used for general corporate purposes.

The southeast regional bank also said the underwriters in the offering will have a 30-day option to purchase up to an additional 15 percent of the offered amount of common stock from the company to cover over-allotments, if any. Credit Suisse (CS) and Deutsche Bank (DB) are the joint book runners.

Last week, the Federal Deposit Insurance Corp said BB&T will buy about $22 billion of Colonial's assets. But as DailyFinance's Tim Catts noted, "BB&T will be insulated from the riskiest assets on Colonial's books, thanks to a deal that will see the Federal Deposit Insurance Corp. absorb losses on $15 billion in toxic loans." Colonial is the largest of the 77 banks that have failed so far this year.

Colonial's $20 billion in deposits have been transferred to Winston Salem, North Carolina-based BB&T. BB&T also will add Colonial's 90 branches to its own three in Alabama. In Florida, where BB&T has 107 offices, it is gaining Colonial's 204 branches.

Meanwhile, the "loss-sharing" agreement between BB&T and the FDIC is seen as very favorable to BB&T. It calls for the FDIC to reimburse BB&T for 80 percent of losses of up to $5 billion, and for 95 percent over that amount, BB&T said today. Even in the event that all the assets prove to be worthless and the entire portfolio is charged off, "BB&T's maximum exposure would be less than $500 million (pretax)," the lender said, according to Bloomberg.

It's no wonder then that BB&T CEO Kelly King said, "We're gaining solid market shares in great markets in Alabama, Florida and Georgia. And it comes with minimal asset risk to BB&T because of our loss-sharing agreement with the FDIC."

Still, while BB&T shares surged Friday on the favorable deal, they are down about 4.5 percent so far today in reaction to the stock offering BB&T needed to bolster capital.

At Friday's closing price of $28.23, BB&T would have sold 26.6 million new shares, but the offering is likely to be discounted. As of July 31, it had 648.1 million shares on the market.

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