Morgan Stanley and Wells Fargo wasted no time in seeking to raise additional capital in the wake of the Federal Reserve's publication last evening of the Supervisory Capital Assessment Program (SCAP) results for them and 17 other U.S. bank holding companies (BHCs). The SCAP assessment concludes that 10 of the 19 BHCs need to establish "SCAP capital buffers" totaling approximately $75 billion, of which Morgan Stanley and Wells Fargo need buffers totaling $1.8 billion and $13.7 billion, respectively.
This morning, Wells Fargo announced that it has priced a $7.5 billion offering of common stock at $22.00 per share (an approximately 11% discount from yesterday's closing price), plus shares subject to an over-allotment option that if exercised, would generate an additional $1.125 billion of gross proceeds. In addition to the expected proceeds received as part of this offering, Wells Fargo announced that it expects to "increase our Tier 1 common equity" and meet the recommended $13.7 billion SCAP capital buffer through "earnings from the operation of our business, expense reductions (including continuing to pursue expense reductions relating to the Wachovia merger), maintaining our current reduced common stock dividend rate of $0.05 per share for an appropriate period, deferred tax asset realizations and issuing common stock to our benefit plans, as well as possible additional capital raises."
Separately, Morgan Stanley announced this morning that it has priced a $3.5 billion public offering of common stock at $24.00 per share (an approximately 11% discount from yesterday's closing price), and that it has further exercised the over-allotment option to purchase an additional $525.6 million of common stock for total gross proceeds of approximately $4 billion. Morgan Stanley also announced that it has priced a public offering of $4 billion in aggregate principal amount of senior notes, which are not guaranteed by the FDIC. Although the capital raised by Morgan Stanley pursuant to these offerings is well in excess of the Federal Reserve's recommended SCAP capital buffer of $1.8 billion, Morgan Stanley indicated that it "intends to repay the U.S. Treasury's TARP investment as soon as possible from its strong Tier 1 capital reserves, pending the approval of its regulators." Morgan Stanley also disclosed that Mitsubishi UFJ Financial Group, Inc. (MUFG), which acquired a 21% stake in Morgan Stanley last fall, purchased 25 million of the 146 million shares sold in the public offering and that Morgan Stanley "agreed to repurchase from MUFG shares of our non-convertible 10% Series C Non-Cumulative Non-Voting Perpetual Preferred Stock at a price per share equal to 110% of liquidation preference and with an aggregate repurchase price equal to the aggregate price to be paid by MUFG for its purchase of common stock in the offering."