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TORONTO (Reuters) - Canada's two largest banks announced equity financings on Monday that will increase their regulatory capital ratios.
After markets closed, Toronto-Dominion Bank said it will issue common shares worth up to C$1.38 billion, boosting its Tier 1 capital ratio with the goal of reassuring investors about its capital strength.
Toronto-Dominion, Canada's second largest bank, said it plans to issue 30.4 million common shares at C$39.50 each, for proceeds of C$1.2 billion. A group of underwriters led by TD Securities will be able to buy up to 4.56 million additional shares, for maximum gross proceeds of C$1.38 billion.
TD Bank shares closed at C$42.90 on the Toronto Stock Exchange on Monday, up 3.9 percent. Most Canadian bank stocks got a lift from news of U.S. government support to Citigroup.
In a separate announcement after the bell, Royal Bank of Canada said it would issue C$225 million of five-year rate reset preferred shares. Earlier in the day, RBC had said its quarterly profit would be lower than analysts had expected because of C$670 million in pretax losses on various securities.
For its part, TD said that its new common equity issue, plus a preferred share issue done earlier this month, would push up its Tier 1 capital ratio to about 9 percent, versus 8.3 percent as of November 1.
The market had expressed concern about the low number, and TD would not have been able to issue a large amount of preferred shares quickly, TD President and CEO Ed Clark said in an interview.
"Part of the attraction of common shares is you can do that overnight," Clark told Reuters.
"You hate to issue at this price, but in the end we can easily overcome the dilution involved with better growth," he said.
Clark said the issuance was "going out the door right now" on strong retail investor interest, and the bank would have room to issue preferred shares in future as needed.
Moody's Investor Service revised the ratings outlook on TD Bank and its subsidiaries to negative last week, after TD said credit-trading losses of C$350 million would hurt quarterly earnings.
Moody's cited a deterioration in "risk positioning," and noted that TD's adjusted Tier 1 ratio at 8.3 percent was the lowest among Canadian banks.
The credit rating agency had warned that TD's ratings could be downgraded if its Tier 1 ratio dropped below 8 percent, or if other events occurred.
Canada's financial institutions regulator requires domestic banks to have a Tier 1 capital ratio of at least 7 percent.
Moody's also revised the outlook on RBC's ratings on Monday to negative, citing the potential for further charges on RBC's structured credit exposures and its off-balance sheet exposure to conduits.
RBC shares closed at C$39.00 on Monday, up 6.9 percent. The S&P/TSX financial index, composed of banks, insurance companies and asset managers, gained 4.7 percent.
Reporting by Lynne Olver; editing by Rob Wilson