May 8 (Bloomberg) -- Wells Fargo & Co., the fourth-largest U.S. bank by assets, raised $8.6 billion by selling shares, more than planned, after the government found the bank didn’t have enough capital to withstand a prolonged recession.
Wells Fargo sold 392.2 million shares for $22 each, pulling in 43 percent more than the $6 billion estimate it gave yesterday. The offering price was 11 percent below yesterday’s closing price of $24.76. Wells Fargo was told it needed an additional $13.7 billion after the U.S. government’s stress tests on 19 banks.
The demand obviously turned out to be very significant, which is obviously very pleasing and exceptional,” Chief Financial Officer Howard Atkins said in an interview today. “We generate a lot of capital internally, mostly through retained earnings, and we expect the natural course of business to get us” the rest.
Stress tests results released by the Federal Reserve and other U.S. bank regulators showed 10 U.S. firms must raise a total of $74.6 billion to bolster capital against the threat of a worsening recession. The banks will have six months to fill their capital shortfalls, and may be forced to accept expanded federal ownership that could lead to changes in management.
The advantage may go to those who are able to raise capital quickly, said Michael Moebs, an economist who has done work for the Federal Reserve and president of Moebs Services, an economic research firm in Lake Bluff, Illinois.
‘Take Whatever You Can’
“They need to get capital as fast as possible,” he said. The philosophy should be “take whatever you can, from wherever you can.”
Morgan Stanley raised $8 billion selling stock and debt, 60 percent more than it announced yesterday, to cover its $1.8 billion capital shortfall and to repay government funds.
Wells Fargo, the biggest U.S. mortgage originator, may face losses for 2009 and 2010 of $86.1 billion, or 8.8 percent of total loans, should the economy worsen, the government said. Atkins said “particularly satisfactory” for the bank was that the government’s credit-loss estimates for the stressed scenario were “basically the same” as Wells Fargo’s internal estimates.
This is the biggest week for U.S. equity sales since the week ended Sept. 26 when $19.4 billion was raised, according to Bloomberg data. That week included an $11.5 billion offering by JPMorgan Chase & Co. and a $5.75 billion sale by Goldman Sachs Group Inc. Equity issuances pulled in $16.4 billion this week.
JPMorgan and Wachovia Securities managed the sale. JPMorgan sold $12.6 billion in shares for Wells Fargo in November when it bought Wachovia. JPMorgan leads all others in selling stock so far this year, Bloomberg data show.
Wells Fargo’s shares rose $3.42 to $28.18 at 4:03 p.m. in New York Stock Exchange composite trading. The stock has fallen 4.4 percent this year.