Raising capital still a breeze for banks
Even as financial firms have raised a whopping $51 billion in capital this year from stock sales, experts suggest that there is plenty of demand for new shares.
NEW YORK (CNNMoney.com) -- If banks ever had a capital problem, it certainly isn't showing.
Large and small lenders alike have successfully raised billions of dollars in recent months, thanks in large part to a renewed appetite in the banking industry by investors. And some experts anticipate it won't slow down anytime soon.
Secondary offerings of stock, for example, have become quite popular among banks in recent months. So far this year, financial firms have generated more than $51 billion in fresh capital through sales of new shares, up 43% from a year ago, and more than 5 times the amount issued in 2007 or 2006, according to data from research firm Dealogic.
"The amount of secondaries has been just mind boggling," said Scott Sweet, a senior managing partner at IPOBoutique.com, a research firm. "I have not seen a period like this in 35 years."
The rush to raise capital began in earnest after the government completed its stress tests of the nation's 19 largest financial institutions in May. Regulators ordered 10 firms, including Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and Wells Fargo, to raise nearly $75 billion combined in order to weather the recession.
But since then, healthier banks have tapped the public markets for a variety of reasons.
JPMorgan Chase (JPM, Fortune 500) sold $5 billion in stock in June with the specific aim of repaying money received under the government's Troubled Asset Relief Program, or TARP. Two weeks ago, BB&T (BBT, Fortune 500) raised $870 million by issuing new shares to help facilitate its purchase of failed Alabama-based lender Colonial BancGroup.
Prior to the stress test results, banks like BB&T and even Chase, would have struggled to raise any capital, as investors recoiled from any company even remotely associated with the banking industry.
There were fears about the underlying assets of many U.S. financial institutions. There were also concerns about how much of the government's preferred stakes in various banks might be converted into common stock. Doing so could effectively reduce the value of stakes owned by existing shareholders.
Many of those worries however, seem to have subsided, if not vanished altogether. As such, high profile investors are flocking back to the banking sector.
Private equity investors have already made several key purchases of banks so far this year, and are poised to do more after the Federal Deposit Insurance Corp. agreed last week to lower requirements for buyout shops to purchase failed banks.
Top hedge fund managers have shown interest in the banking group as well recently.
John Paulson, whose firm Paulson & Co. profited handsomely by making bets against banks before the subprime mortgage crisis unfolded, acquired large stakes in leading lenders like Bank of America (BAC, Fortune 500) as well as regional banks Marshall & Ilsley (MI), Capital One (COF, Fortune 500) and Regions Financial (RF, Fortune 500) during the second quarter, according to regulatory filings.
At the same time, banks are feeling plenty of pressure from industry regulators to get their capital reserves to healthy levels, said Gary Townsend, president of the Chevy Chase, Md.-based investment adviser Hill-Townsend Capital. The rash of bank failures this year is a sign that the FDIC is willing to shut down those banks that are unable to raise new capital.
"Most [banks] out there right now are not so large that they are viewed as systemically important," he said. "And indeed, regulators would probably like to see fewer of these banks overall simply to reduce costs and headaches."
Still, it remains to be seen how sustainable this level of interest is by private investors and whether there will truly be enough demand for more stock sales by banks in the weeks and months ahead.
Dan Bass, a managing director at investment bank Carson Medlin, contends that there won't be a lack of willing buyers though. He points out that many investors are still sitting on a pile of uninvested cash and that bank stocks are likely to keep rising -- at least for the near term.
"I think people are getting confident that a lot of banks are at the bottom and on the way up," he said. 
