City National, other banks get a boost from U.S. infusions

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The banking industry had worried that the U.S. Treasury’s plan to inject capital into lenders might brand the recipients as distressed.

But investors’ reaction today is mostly positive to announcements of capital infusions into more than a dozen regional banks.

The perception problem is more likely to be with who isn’t on the Treasury’s list than who is: If a bank doesn’t get money under the program, investors may infer that the lender has been turned down -- and that the government wants to force the bank into a shotgun marriage with a stronger institution.

‘In our view, Treasury can use the withholding of [capital] as a way to encourage companies to merge,’ analysts at investment bank Keefe, Bruyette & Woods wrote in a report today. ‘We expect the shares of weaker banks that do not receive capital to be under significant stress,’ the report said.

Treasury has set Nov. 14 as the deadline for banks to apply under the $250-billion program.

Among the winners in the first round of capital allocations today was Beverly Hills-based City National Corp., which said Sunday it would get $395 million under the plan. City’s shares were up $1.69 to $48.30 at about 11:40 a.m. PDT. They had traded as high as $50.83 earlier in the session.

SunTrust Banks Inc. of Atlanta was up $1.49 to $36.60 after saying it would get $3.5 billion from Treasury. Dallas-based Comerica Inc. was up $1.67 to $26.08 after announcing a $2.25-billion infusion.

In return for the capital, the banks will sell the Treasury preferred stock that will pay a 5% annual dividend. They’ll also grant the government warrants to buy common stock. The warrants could pay off for taxpayers if the banks thrive and their stocks rise over time.

Other banks announcing capital deals with the Treasury today include Cleveland-based KeyCorp., BB&T Corp. of Winston-Salem, N.C.; and McLean, Va.-based Capital One Financial.

The government’s strategy of seeking to weed out weak banks was evident on Friday, when it awarded $7.7 billion in capital to PNC Financial Services of Pittsburgh as part of its deal to buy troubled National City Corp. of Cleveland.