First Horizon moves to pay bailout debt

First Horizon, the parent company of First Tennessee Bank, is taking steps to begin repaying more than $866 million in federal bailout aid it received indirectly from taxpayers and directly from the U.S. Treasury two years ago.
The bank said Monday it plans to sell $250 million in common stock to help repay federal funds it had borrowed as the financial crisis mounted.

First Tennessee's parent, a major player in retail banking in Nashville and statewide, said it would combine the proceeds of the equity offering with net proceeds of a planned debt offering to repurchase all 866,540 shares of preferred stock it sold to the U.S. Treasury in November 2008.

The deal still needs approval of the Treasury.

The Treasury borrowing was part of First Horizon's participation in the Capital Purchase Program, part of the government's Troubled Asset Relief Program that was instituted during the financial crisis.

First Horizon borrowed $866.5 million in TARP funds.

Moving to repay the money could be a sign that regional banks are seeing light ahead after many quarters of loan losses and weak loan demand.

First Horizon's stock edged higher on the news, rising 3.7 percent to close at $10.92 a share on the New York Stock Exchange.

But another regional bank, based in Columbus, Ohio, saw its stock slide when some analysts questioned whether its plan to repay the federal government $1.4 billion in bailout funds was premature.

Huntington shares fall

Huntington Bancshares, which trades on Nasdaq, could be in danger of diluting its stock by issuing more shares to repay the federal treasury, at least one bank analyst said.

The Ohio bank's offering comes as shares of Huntington have surged in 2010, but analysts questioned the timing and size of its stock offering. Its share price is up 87 percent this year, and 19 percent in the fourth quarter alone.

Huntington said it also planned an offering of $300 million in subordinated debt to cover the remainder of its bailout repayment.

"Two quarters from now, could they have waited and gotten a better deal? Probably," said Morgan Keegan & Co. analyst Bob Patten. "But the stock has performed well, and this gets them out from under the government and back into being a buyer for small, troubled banks in the Midwest."

Huntington's stock offering will cover nearly two-thirds of its government repayment obligation, but will increase outstanding shares by 19 percent, diluting the value of stock, analyst Erik Oja of Standard & Poor's said in a research note.

The rating agency cut its recommendation from "buy" to "hold" for Huntington's stock.

Huntington's shares fell 2.7 percent in value on Nasdaq on Monday.

Tennessean Business Editor Randy McClain and Bloomberg News contributed to this story.

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