Hi, Can you explain why Wells Fargo can issue $8.6 billion in new shares at $22 and trade at $28 at the end of the day? Do prices not normally fall below the offering price, or does the implication of the “news” in light of the stress test overshadow the offering price?
Wells Fargo & Co., $26.24, symbol WFC on New York (Shares outstanding: 4.7 billion; Market cap: $123.4 billion), failed the U.S. government’s recent stress test. That required it to raise $13.7 billion in new capital.
In response, Wells Fargo sold $8.6 billion worth of new common shares at $22 each on Friday, May 8. It sold these to underwriting brokerage firms, who will now sell them to institutional investors and the public. The bank feels that it can cover the remaining $5.1 billion through higher earnings resulting from its January purchase of Wachovia, savings from its recent dividend cut, and by contributing shares to its employee-benefit plans instead of cash.
At $22, Wells Fargo priced the shares at an 11.1% discount to the bank’s closing price of $24.76 on Thursday, May 7 (the day the results of the stress test were released).
Selling new shares at a discount will often pull down a stock’s trading price. However, a number of factors…
Privacy Policy and Terms of Use
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The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
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Changes to this Policy
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