Some Fund Firms' Parents Accept Government Money as Others Ponder Capital Infusion
Armie Margaret Lee
Three fund shops' parents are accepting government cash as part of the second leg of the Treasury's Capital Purchase Program. Meanwhile, two insurers with fund businesses are reportedly mulling over the possibility of getting government aid.
On Sunday, Fifth Third Bancorp, whose Fifth Third Asset Management subsidiary manages mutual funds, said it applied to receive $3.5 billion under the program (see press release below).
Monday morning, KeyCorp, parent of asset manager Victory Capital Management, and SunTrust Banks, parent of RidgeWorth Capital Management (previously known as Trusco Capital Management), said they will be receiving $2.5 billion and $3.5 billion, respectively (see press releases below). Northern Trust, which sponsors the , will be receiving $1.5 billion.
Meanwhile, the Treasury is reportedly looking into buying stakes in insurance companies. The Wall Street Journalreported that Prudential Financial,
which sponsors the JennisonDryden mutual fund family, is among the insurers "interested in exploring" a sale of equity stakes to the Treasury.
On Monday, The Journal reported that Aegon NV is contemplating following in the footsteps of ING by seeking capital infusion from the Dutch government. Aegon is in the fund business in the U.S. through Transamerica Funds.
Fifth Third Bancorp Press Release
CINCINNATI, Oct. 26 /PRNewswire-FirstCall/ -- Fifth Third Bancorp (Nasdaq: FITB) today announced its plans to participate in the U.S. Treasury Capital Purchase Program ("CPP" or "Program").
The Treasury has announced plans to purchase up to $250 billion of senior preferred shares on a voluntary basis in U.S. financial institutions, as part of its efforts to provide a firmer capital foundation for financial firms and to increase credit availability to consumers and businesses. Nine institutions participated initially in this plan and several others have subsequently announced their participation. We expect many additional institutions to also avail themselves of this program.
Last week, we announced that we were considering participation in this program. Subsequently, Fifth Third has had the requisite discussions with its primary regulator and submitted an application for participation, which was filed Thursday. Our application was for an amount equal to 3 percent of risk-weighted assets, or approximately $3.4 billion. We anticipate that our application will be approved shortly by Treasury. Upon approval, we will provide further information regarding the benefits and the impact on Fifth Third of its participation in the program.
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of September 30, 2008, the Company has $116 billion in assets, operates 18 affiliates with 1,298 full-service Banking Centers, including 93 Bank Mart(R) locations open seven days a week inside select grocery stores and 2,329 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Missouri, Georgia and North Carolina. Fifth Third operates five main businesses: Commercial Banking, Branch Banking, Consumer Lending, Investment Advisors and Fifth Third Processing Solutions. Fifth Third is among the largest money managers in the Midwest and, as of September 30, 2008, has $196 billion in assets under care, of which it managed $30 billion for individuals, corporations and not-for- profit organizations. Investor information and press releases can be viewed at www.53.com. Fifth Third's common stock is traded on the NASDAQ(R) National Global Select Market under the symbol "FITB."
KeyCorp Press Release
CLEVELAND, Oct. 27 /PRNewswire-FirstCall/ -- KeyCorp (NYSE: KEY) will bolster its capital position by $2.5 billion by participating in the U.S. Department of the Treasury's Capital Purchase Program, a move that will significantly fortify Key's balance sheet, enhance lending capabilities and enable business investment.
KeyCorp announced today that the company has received preliminary approval from the U.S. Treasury Department for participation in the Capital Purchase Program, subject to customary closing conditions and standard documentation. U.S. regulatory officials announced the Capital Purchase Program earlier this month as one of a series of actions designed to strengthen market stability and enhance market liquidity. Closing of the transaction is expected within 30 days.
"With this move, we further elevate our position of strength, gain flexibility in managing our balance sheet, enhance our ability to lend to our relationship clients, and enable continued investments in our businesses," said Chief Executive Officer Henry L. Meyer III.
"Capital is the most fundamental building block of a financial services company," Meyer said. "By adding capital, we significantly strengthen Key now and for the future, and join other major U.S. financial services companies in collectively addressing the weak credit markets and uncertainty that threaten to harm the American economy."
At September 30, 2008, KeyCorp's capital levels were well above "well- capitalized" regulatory benchmarks. Had the $2.5 billion capital increase been in place on September 30, KeyCorp's Tier 1 Risk Based Capital Ratio would have been raised to approximately 10.76 percent from 8.48 percent, and Total Risk Based Capital Ratio increased to approximately 14.59 percent from 12.31 percent.
KeyCorp completed a successful $1.74 billion public issuance of common and preferred shares in June and has moved in recent quarters to increase loan loss reserves and redeploy capital to its core relationship businesses.
The Capital Purchase Program is voluntary and is designed to encourage participation from the nation's healthy institutions, according to information provided by the Department of the Treasury. Earlier this month, nine large financial services organizations were named as participants in the program, which is expected to expand to include other banks that meet the Treasury Department's criteria for participation.
Key will raise capital by issuing Senior Preferred Stock and Warrants to the U.S. Department of the Treasury in a transaction structured according to their standardized terms. A "Summary of Senior Preferred Terms" is posted on the Treasury Department's website at http://treasury.gov/initiatives/eesa under "Capital Purchase Program." See "Announcement and Term Sheet."
Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of approximately $101 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. For more information, visit https://www.key.com/.
SunTrust Press Release
ATLANTA, Oct. 27 /PRNewswire-FirstCall/ -- SunTrust Banks, Inc., (NYSE: STI) said today that it has received preliminary approval from the U.S. Treasury for the sale of $3.5 billion in preferred stock and related warrants to the U.S. Treasury under the Capital Purchase Program of the Emergency Economic Stabilization Act of 2008. The approval is subject to certain conditions and the execution of definitive agreements.
"Our participation in the Capital Purchase Program enhances SunTrust's already solid capital position and will permit us to further expand our business and take advantage of growth opportunities," said James M. Wells III, Chairman, President and CEO. "In addition, we are pleased to support the Treasury in its ongoing effort to address dislocations in financial markets and spur the market stabilization that is in the public interest."
Mr. Wells said he would anticipate "prudent deployment" of some of the capital in areas such as expansion of careful lending, expansion of business capabilities and the exploration of potential acquisitions in line with the Bank's long-term strategic goals. In addition, Mr. Wells said that as long as the current uncertain and challenging economic environment persists, maintenance of capital at elevated levels is desirable.
Separately, Mr. Wells said SunTrust's Board of Directors has approved a 30% reduction in the Company's dividend on its common stock. Effective with the next dividend, the quarterly dividend rate will be $.54 per common share.
"Although it has become common in our industry, reducing the dividend was not a decision we took lightly," said Mr. Wells. "But the reality is that even though SunTrust has been managing successfully through this difficult period, and our expectation is that will continue to be the case, reducing the dividend is the responsible thing to do given recent deterioration in the economy, the prospect of continued weakness in 2009, and the implications of this on the near-term outlook for SunTrust and our industry."
Mr. Wells noted that the dividend decision followed an extensive evaluation of the Company's overall capital structure in light of current and projected market conditions and the economic environment.
"We consistently have said that we would be taking the steps necessary to manage through the current turmoil, while also looking appropriately to position ourselves for post-cycle growth," said Mr. Wells. "The developments announced today are right in line with those priorities."
SunTrust Banks, Inc., headquartered in Atlanta, is one of the nation's largest banking organizations, serving a broad range of consumer, commercial, corporate and institutional clients. As of September 30, 2008, SunTrust had total assets of $174.8 billion and total deposits of $115.9 billion. The Company operates an extensive branch and ATM network throughout the high- growth Southeast and Mid-Atlantic states and a full array of technology-based, 24-hour delivery channels. The Company also serves customers in selected markets nationally. Its primary businesses include deposit, credit, trust and investment services. Through various subsidiaries the Company provides mortgage banking, insurance, brokerage, investment management, equipment leasing and capital markets services. SunTrust's Internet address is suntrust.com .