Fed raises bar for banks hoping to exit bailout plan

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Back to the well: Major financial companies are raising billions of dollars in capital today via stock sales, after the Federal Reserve on Monday imposed new requirements on institutions that want to exit the government bailout program.

The new shares mean more dilution for existing stockholders. That is weighing down financial issues today.

Banks including JPMorgan Chase & Co. and Morgan Stanley have said they want to quickly repay the billions of dollars they received under the Troubled Asset Relief Program last fall, to get out from under the government’s thumb (or one of its thumbs, anyway).

But the Fed on Monday said, not so fast: It said the 19 major banks that were subjected to the government’s ‘stress test’ this spring must ‘successfully demonstrate access to public equity markets’ before repaying TARP money. That requirement applies even for the nine banks in the group of 19 that weren’t ordered to raise more capital based on the stress test.

‘This is just making it more costly to leave TARP, which may discourage some of the lesser players from stretching to try to leave TARP,’ Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, told Bloomberg News. The government is saying ‘we need to make sure that in a dynamic world you can continue to raise capital.’

JPMorgan Chase said it raised $5 billion by selling 142 million new shares at $35.25 each, a discount of 2.4% to the stock’s closing price of $36.11 on Monday. At about 10:45 a.m. PDT JPMorgan’s shares were down $1.20 to $34.91.

Morgan Stanley sold 80.2 million shares at $27.44 each, to raise $2.2 billion. That discount of 8.2% from Monday’s closing price enticed China Investment Corp. to buy nearly 45 million of the shares, Morgan said. China Investment already was a big investor in the bank.

Morgan Stanley shares were off 25 cents to $29.64.

American Express said it raised $500 million by selling 19.8 million shares at $25.25 each. Its stock was off $1.28 to $24.71.

-- Tom Petruno