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Sovereign to Raise $1.5 Billion

The bank is selling common stock and issuing debt.

Sovereign Bancorp


shares were rising 5.5% Monday afternoon, after the bank said it is raising $1.5 billion in capital through stock and debt offerings.

The Philadelphia-based bank said it plans to raise roughly $1 billion through the sale of common stock, while a separate announcement said that it plans to offer as much as $500 million of fixed-rate subordinated notes due in 2018. Sovereign expects to commence the debt offering as soon as it has obtained regulatory approval from the Office of Thrift Supervision.

Lehman Brothers


is acting as the sole book-running manager of the common stock offering. Lehman will have an option to purchase up to $150 million of additional shares of the company's common stock to cover over- allotments.

The bank said it intends to use the net proceeds of both offerings for general corporate and banking purposes.

Late last week, Sovereign was

rumored to be raising capital

, as it struggles through the credit crisis and housing downturn. Sovereign joins a laundry list of regional banks that have raised capital this year, including

Washington Mutual

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Through the offering, Sovereign estimates that its Tier 1 capital ratio at the holding company level will rise to 8.91% by the end of the second quarter and to 9.42% by the end of the year from 7.15% at the end of March, according to additional information in a

Securities and Exchange Commission


One investor that may not partake in the common stock offering is Sovereign's largest shareholder,

Banco Santander



The two entered into an agreement last week in which Santander agreed to waive certain rights in relation to the common stock offering outlined in the companies' original 2005 investment agreement, according to the filing. At the time, the Spanish bank had taken a 20% stake -- subsequently raised to 25% -- in Sovereign so that it could stave off a heated shareholder battle begun by activist shareholder Relational Investors.

Through the agreement, Santander can opt to not participate in the public stock offering, even though its ownership stake is diluted, and appoint the same number of directors it presently does through Sovereign's 2009 annual meeting.

Sovereign shares were up 43 cents to $8.29 in recent trading.