Sovereign ready to raise $1.5B

Sovereign Bancorp Inc. said today it planned to raise $1.5 billion in the latest move by big banks to replenish balance sheets depleted by the failure of risky loans made during the credit boom that collapsed last year.

Sovereign, which is officially headquartered in Philadelphia, although its chief executive works in Boston, said it will attempt to sell $1 billion in common stock, plus $500 million in fixed-rate subordinated notes.

Last year, Sovereign was the fourth-largest bank in the region, with 82 branches and $10.28 billion in deposits, according the the Federal Deposit Insurance Corp.

Lee Calfo, a financial services analyst at Boenning & Scattergood Inc., a regional brokerage and investment bank in West Conshohocken, said the bank bringing in a reasonable amout of capital, though it will be "painful near term due to any dilution" of existing shareholders.

Another analyst, Robert Hughes, at Keefe, Bruyette & Woods said "the $1.5 billion capital raise should provide sufficient cushion against probable losses over the next two years."

Sovereign estimated in an SEC filing today that its provisions for loan losses in the last nine months of this year could range from $303.5 million to $636.8 million.

Sovereign shares were up 27 cents to $8.13 on the New York Stock Exchange.

After a string of acquisitions built Sovereign into the second-largest savings and loan in the United States, the bank got into financial trouble with expansions of home equity and auto-lending, leading to huge write-downs and a $1.4 billion loss in 2007.