Updated to include First Horizon TARP repayment, updated stock prices



) --

Huntington Bancshares'

(HBAN) - Get Report

decision to raise more than $1.2 billion in order to repay taxpayer funds doesn't bode well for other regional banks that still owe Uncle Sam.

Shares of Huntington Bank dropped more than 6% at the start of the trading day after it announced plans to raise $920 million through a common stock offering. The stock was more recently trading down 5% to $6.50 on very strong trading volume of 17 million shares in the first hour of trading.

Huntington also plans to raise $300 million through a debt offering of subordinated notes at a future date, it said. The two offerings are not co-dependent on one another, the bank said.

Huntington plans to use the offerings proceeds to repurchase all of the $1.4 billion shares still held by the U.S. Treasury Department through ithe Troubled Asset Relief Program (TARP).

"We are very pleased to announce the repurchase of our TARP capital," Huntington's CEO Stephen Steinour said in a statement. "The equity offering we are announcing today, along with the future debt offering, will significantly strengthen our balance sheet. Repurchasing our TARP capital is very important for our investors as it completes the last step in positioning Huntington for growth and improving long-term shareholder returns."

First Horizon National

(FHN) - Get Report

also said Monday that it plans to raise $250 million through a common stock offering. The Memphis-based bank plans to grant underwriters a 30-day option to purchase up to an additional 15% of common shares.

First Horizon intends to use proceeds of the equtiy offering combined with a planned debt offering, to repurchase in full, preferred stock currently owned by the Treasury. It also plans to redeem in full $103 million worth of junior subordinated notes.

First Horizon shares were most recently rising 1% to $10.63.

Andrew Marquardt, a bank equity analyst at Evercore Partners, said Huntington's planned shareholder dilution, at 57%, is the highest among the banks that he covers which have repaid TARP.

Marquardt writes in a note to clients that the large equity raise - 66% vs. the "40% rule-of-thumb" he assumed for banks with TARP capital outstanding, is likely to be negative for other banks that still need to repay taxpayer funds.

"That said, it still remains unclear how regulators are determining degree of common equity raise and we would not be surprised if each bank treated somewhat differently (though we do expect some common equity raise required)," Marquardt writes.

The analyst reiterated an underweight rating for Huntington due to the high shareholder dilution and lower than average "norm EPS power" among his coverage list.

Huntington had previously noted three factors before it would be comfortable repaying TARP - evidence of a relatively stable economy, sustained profitability and additional clarity on capital requirements by regulators.

"We have gained sufficient comfort with each of these factors that makes the timing of today's announced actions appropriate," Steinour said.

"Though the economic environment remains fragile, and the period of recovery more prolonged, the possibility of a double dip recession appears unlikely," he added. "Further, having delivered three consecutive increases in quarterly profitability gives us confidence in our ability to continue to grow earnings."

Following the offering, Huntington estimates its pro-forma Tier 1 common equity would be 9.4%, up from 7.39% at September 30. It estimates total risk-based capital following the offerings and repayment of TARP of 14.66% pro forma, down from 15.08% at September 30.

Huntington said it is comfortable with its pro forma capital levels, it said.

Goldman Sachs will act as sole book runner; Sandler O'Neill & Partners will act as co-manager for the proposed equity offering.

Now that the government is further decoupling from


(C) - Get Report



(AIG) - Get Report

, its next focus will be on the

large-cap regional banks that still owe government funds


Marquardt speculates that

Fifth Third Bancorp

(FITB) - Get Report

could be the next large-cap bank to announce its TARP repayment.

Other large regional banks with TARP outstanding include


(KEY) - Get Report


Marshall & Ilsley



SunTrust Banks

(STI) - Get Report


Regions Financial

(RF) - Get Report


SunTrust said during the Goldman Sachs conference last week that it is waiting for the outcome of

government stress tests

to determine when it can repay the $4.85 billion it owes through TARP.

-- Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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