SunTrust (STI), KeyCorp (KEY) Raising Capital to Pay Back TARP

Now that some bank competitors are able to boost their dividends and repurchase shares, it's apparent the announcement by SunTrust (NYSE:STI) and KeyCorp (NYSE:KEY) that they're going to raise capital to pay back TARP was pressured by the advantage its peers will have over them until they pass their stress tests.

KeyCorp CEO Henry Meyer said, "Our goal has been to be patient in repaying TARP in order to reduce shareholder dilution. We believe this is the appropriate time to put TARP repayment behind us and that repayment now is in the best interests of KeyCorp and our employees, customers and shareholders."

The bank will said they will have a public offering of $625 million of its common stock in connection with its plan to repurchase the $2.5 billion of the preferred stock. Morgan Stanley (NYSE:MS) and JPMorgan (NYSE:JPM) will act as bookrunners for the offering.

SunTrust said it will raise $1 billion in common stock and $1 billion senior debt offering to repurchase preferred stock issued under TARP.

SunTrust CEO James M. Wells III noted, "SunTrust also looks forward to returning capital to its shareholders at the appropriate time."

Bookrunners for the SunTrust offering are Morgan Stanley and Goldman Sachs (NYSE:GS).

KeyCorp was trading at $9.10, up $0.24, or 2.77 percent, as of 2:44 PM EDT. SunTrust was at $29.78, gaining $1.53, or 5.42 percent.