It might have been the most turbulent month in memory for global stock markets but equity capital raisings did not grind to a halt. In fact, September has seen a spate of equity raisings from banks despite, or rather because of, the fact that they are at the centre of the market’s turbulence.
The banks that sold equity can be divided into two groups: those selling shares to shore up capital ratios such as Goldman Sachs, Morgan Stanley and Natixis; and those selling shares to pay for acquisitions that have been agreed such as Barclays, Lloyds TSB, Commerzbank and Deutsche Bank. The fact that they were successful in their marketing efforts despite the condition of the markets is testimony to the "you can sell anything at the right price" mantra of syndicate bankers.
Goldman raised $10 billion through a public placement of shares and the sale of $5 billion in preferred stock to Warren Buffett’s Berkshire Hathaway. The deal might have been as good as one could think of for the priceless effect on confidence that it had but the financial price was high. Goldman had to pay Buffett a 10% dividend and promise attractively priced warrants. The bank can buy back the shares at any time but at a 10% premium.
Morgan Stanley meanwhile agreed to sell 10% to 20% of itself to Japan’s largest bank MUFG for up to $8.5 billion and Natixis closed its €3.7 billion rights issue, which was priced at a whopping 60% discount.
In the UK, Barclays raised $1.3 billion to fund its purchase of the US bits of Lehman Brothers and Lloyds TSB announced that it would seek to raise up to 5% of its share capital to improve its capital base following its decision to purchase stricken rival HBOS for £12.2 billion in an all-share deal.
The consolidation story continued in Germany as Commerzbank placed $1.6 billion of shares through an accelerated deal to fund its €9.8 billion purchase of Dresdner and Deutsche Bank sold €2.2 billion of shares to fund its 30% purchase of Postbank.