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Fulton Financial Corporation Message Board

  • ar2743 ar2743 Apr 27, 2007 8:50 AM Flag

    What the hell is going on, Part II

    Holy cow! FULT announces $100 million in new debt (yes, $100 million) to be used for "general corporate purposes".

    What could Scott and Rufus be up to?

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    • It really has nothing to do with them being under capitalized, or trying to avoid a takeover.

      As any bank grows its deposit base, it must maintain a certain amount of equity as a ratio by law. You don't want to far exceed that ratio, since your ROE will go down. You don't want to come in under that ratio, or the fed will start to penalize with you nasty overnight rates and reduced ability to get access to funds. So banks actively manage their ratio of equity to asset base.

      When it comes time to tweak the ratio to stay "optimal" banks have 2 options. They can sell new stock in an offering to increase equity, or they can take on certain types of debt that the fed counts as "tier 2 equity".

      Fulton chose to go with the later, which is the more aggressive and arguably not more risky approach. The bottom line as far as I can tell is that its a non event, and more about the every day running of a bank than something special on the horizon.

    • Instead of all us bitching,including myself, why don't we put it up to the shareholders for a vote to sell the bank? After all, we shareholders do own the bank, not the board members.

    • The more I think about this, the more convinced I become that the $100 million issuance is an anti-takeover measure, to make FULT debt-heavy and unattractive to other banks.

      (If FULT was so concerned with its tier 2 capital - as has been postulated - it could easily have cut the dividend to save money).

    • Probably using to complete the stock purchase (1MM shares at $15/share = $15MM), and then a nice bonus ($85MM) for Scott and the other fat cats!

      • 1 Reply to cindersandashes
      • Seriously - Can anyone explain the significance of this? Typically I'd say 100m in debt is a sign that they're getting more aggressive leveraging their balance sheet, which should yield a higher return for shareholders. Then again, 5.75% is a hefty cost of funds for bank debt. Wouldn't it be better to go find 100m in deposits instead?

        It smells like its probably a good thing, but I really don't understand the mechanics. I mean, what kind of spread are they going to get loaning this money back out when the 30 year rate is at 5.75?

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