Once burned, twice shy. Banks are having a tough time persuading investors to partcipate in sorely-needed capital raises, according to the WSJ. Many big institutional investors, including prominent private equity firms, have poured billions of dollars into bank stocks in an attempt to call a bottom on the credit crisis, only to see their investments evaporate. WSJ:
Most of the banks that issued new securities in recent months have continued to see their share prices slide, some by 40% or more. That means investors who bought into those transactions are far underwater. And existing investors who didn’t bite have had their holdings diluted by the issuance of piles of new shares.
“Investors are tired of trying to catch a falling knife,” says one investment banker who specialises in the financial-services industry.
Increasingly skittish investors means that many banks will need to reevaluate their strategies for raising cash. As share issues become more costly, banks will need to turn to more agressive methods, such as shedding assets or cutting dividends. WSJ:
Growing queasiness could force some banks to downsize their capital-raising ambitions. That is how some analysts and investors interpreted the actions of Fifth Third Bancorp, which on Tuesday said it would raise $1 billion through an offering of convertible preferred stock and sell $1 billion in assets. The Cincinnati bank also cut its dividend for the first time in three decades.
Image courtesy WSJ