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Regional Banks Stampede To Sell Stock

Regional banks priced nearly $2 billion worth of stock last week, moving to shore up their balance sheets while sentiment towards equities is bullish.

NEW YORK (

TheStreet

) -- Regional banks took the opportunity last week to hit the capital markets with equity offerings and observers say that more banks are likely to get on the bandwagon.

In the past week or so, banks priced a total of $1.96 billion in stock offerings, according to Dealogic. The proposed sales follow the recent rally in U.S. stocks amid the growing belief among investors that the economy is improving. Following Friday's close, the Dow Jones Industrial Average had bounced more than 50 percent from its March low, and was closing in on 10,000.

The largest deal was

Synovus Financial Corp.

(SNV) - Get Synovus Financial Corp. Report

, which priced $600 million worth of stock late Wednesday.

Huntington Bancshares

(HBAN) - Get Huntington Bancshares Incorporated (HBAN) Report

and

Washington Federal

(WFSL)

also priced $399.8 million and $350.2 million worth of stock respectively last week, according to Dealogic. (Huntington also completed last week a $150 million at-the-market offering announced on Sept. 9.)

Also getting in the act were smaller banks, such as

Home Bancshares

(HOMB) - Get Home BancShares, Inc. Report

,

Flushing Financial

(FFIC) - Get Flushing Financial Corporation Report

,

Eagle Bancorp

(EGBN) - Get Eagle Bancorp, Inc. Report

and

Heritage Financial Corp.

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, among others, Dealogic says.

Several other banks announced plans for at-the-market equity injections last week.

E*Trade Financial

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is offering up to $150 million worth of common stock, while

Zions Bancorp

(ZION) - Get Zions Bancorporation (ZION) Report

, a Salt Lake City-based company, said it anticipates selling up to $250 million worth of common stock over the next several quarters. Zions also priced $450 million worth of senior notes.

"They're all in the same boat -- shoring up their balance sheets, protecting against downturn in commercial real estate market and protecting against regulators balance sheet

requirements," says Roger Cominsky, a partner in Hiscock & Barclay's financial institutions and lending practice.

"You have sort of a break in the clouds right now, with

Fed chairman Ben Bernanke saying the recession is over," Cominsky says. "So it's good opportunity to go out and raise this capital if they know they're going to have to meet

additional regulatory capital levels and before the commercial real estate default storm hits shore."

There may also be some pressure from regulators as new rules are likely forthcoming that will require banks to have higher capital ratios.

"I think you're going to see a lot of banks raising capital in the immediate time frame," says Andrew Marquardt, also of Fox Pitt Kelton. "The bottom line is that credit is still an issue. Capital is still not completely repaired. Earnings power is still under pressure for a lot of banks.

The hurdles for capital are moving up."

Earlier this week,

Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report

warned that credit worsened during the quarter.

Regional banks may also want to shore up their balance sheets in order to make themselves less vulnerable to takeover bids from healthier institutions or large money-center banks looking to grab deposits, Cominsky says.

Indeed, conditions could be ripe for another round of consolidation as more small banks fail and survivors face heightened competitive pressures in a difficult lending environment crowded by big banks like

JPMorgan Chase

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,

Bank of America

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and

Wells Fargo

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.

"The unknown is which way does the economy break in 2010," says according to Jeff Davis, an analyst who covers regional banks at FTN Equity Capital Markets. "If the economy breaks to the upside some of this capital may not have been needed. The problem assets don't go away but they're more manageable.

"The commentary coming out of the management teams we visited in the last month is they don't see an upturn today, but that doesn't mean it cannot happen," Davis says. "And maybe that's what the equity market is telling us that the economy is going to break to the upside next year."

-- Written by Laurie Kulikowski in New York.