Public Stock Offerings

Some financial companies like Morgan Stanley and Wells Fargo & Coy. uses their own in-house bankers to guide them on wide public stock offerings that are being executed to bolster weak balance sheets owing to the conclusion of "stress tests" that regulators did on them recently.These advisers don't work for free, even when they're doing deals for their personal firms. The charges will ultimately go back into corporate offers, a roundabout way for the banks to make profits.Securities law experts say these maneuvers also can mask a company's financial status and potentially an avenue for conflicts of interest."Commercial banks that need capital are going down the drain and asking their colleagues for investment banking advice. Then they are charging themselves a fee for helping themselves," said Anthony Sabino, a professor of law at St. John's University. "That sure doesn't seem like it propagates independent thinking."These arrangements don't go against securities laws and the companies are fully disclosing that in-house advisers are part of the underwriting group. But Sabino and other finance experts still say this is something investors need to keep tabs on as banks look for ways to boost profits in tough times. One thing to watch is what kind of fees they charge.It's not that the banks wouldn't need the services of investment bankers otherwise. Whether they hire their own staff or an outside firm, these advisers are helping them figure out how to raise money or spread their business tentacles. That could amount to sell off business units, making acquisitions, issuing debt or commercial sales of stocks.That has been the fortunate route to quickly raise capital in the wake of the government's May 7 release of the "stress tests" conducted on the nation's 19 largest banks and other known financial institutions.Those tests found that 10 of the banks need to raise a total of $75 billion in additional capital in order to be strong enough in case the economy gets even worse. That has spurred the likes of KeyCorp, Morgan Stanley and Wells Fargo to rush out stock offerings to fill the capital holes the government discovered.Others that aren't required by the government to increase capital have decided to raise funds anyway. Bank of New York Mellon Corp., U.S. Bancorp, Capital One Financial Corp. and BB&T Corp. say they want to use the proceeds from common stock offerings to repay federal bailout funds received last fall.
Since the results of the "stress tests" were announced, there have been about $20 billion of stock offerings from banks that accepted money from the government's Troubled Asset Relief Program, according to data-tracker Dealogic. The fees for advising those deals top $530 million.
The marked fees for lead underwriters in charge of an initial public offering -- the very first time a company sells stock to the public -- can run around 5 percent or more of the amount raised. Fees run around 3 percent to 5 percent when a company does a subsequent, or follow-on offering, which is what the banks are currently in to.
Some financial companies like Morgan Stanley and Wells Fargo & Coy. uses their own in-house bankers to guide them on wide public stock offerings that are being executed to bolster weak balance sheets owing to the conclusion of "stress tests" that regulators did on them recently.These advisers don't work for free, even when they're doing deals for their personal firms. The charges will ultimately go back into corporate offers, a roundabout way for the banks to make profits.Securities law experts say these maneuvers also can mask a company's financial status and potentially an avenue for conflicts of interest."Commercial banks that need capital are going down the drain and asking their colleagues for investment banking advice. Then they are charging themselves a fee for helping themselves," said Anthony Sabino, a professor of law at St. John's University. "That sure doesn't seem like it propagates independent thinking."These arrangements don't go against securities laws and the companies are fully disclosing that in-house advisers are part of the underwriting group. But Sabino and other finance experts still say this is something investors need to keep tabs on as banks look for ways to boost profits in tough times. One thing to watch is what kind of fees they charge.It's not that the banks wouldn't need the services of investment bankers otherwise. Whether they hire their own staff or an outside firm, these advisers are helping them figure out how to raise money or spread their business tentacles. That could amount to sell off business units, making acquisitions, issuing debt or commercial sales of stocks.That has been the fortunate route to quickly raise capital in the wake of the government's May 7 release of the "stress tests" conducted on the nation's 19 largest banks and other known financial institutions.Those tests found that 10 of the banks need to raise a total of $75 billion in additional capital in order to be strong enough in case the economy gets even worse. That has spurred the likes of KeyCorp, Morgan Stanley and Wells Fargo to rush out stock offerings to fill the capital holes the government discovered.Others that aren't required by the government to increase capital have decided to raise funds anyway. Bank of New York Mellon Corp., U.S. Bancorp, Capital One Financial Corp. and BB&T Corp. say they want to use the proceeds from common stock offerings to repay federal bailout funds received last fall.
Since the results of the "stress tests" were announced, there have been about $20 billion of stock offerings from banks that accepted money from the government's Troubled Asset Relief Program, according to data-tracker Dealogic. The fees for advising those deals top $530 million.
The marked fees for lead underwriters in charge of an initial public offering -- the very first time a company sells stock to the public -- can run around 5 percent or more of the amount raised. Fees run around 3 percent to 5 percent when a company does a subsequent, or follow-on offering, which is what the banks are currently in to.