Last Friday Huntington Bancshares Incorporated (HBAN) has commenced a public offering of $400 million worth of common shares to strengthen its common equity position.

The company has priced 95.2 million shares of its common stock at $4.20 per share. Additionally the underwriters will have a 30-day option to purchase up to an additional 14.3 million shares of common stock from the company.

The book-running manager for the offering is Goldman Sachs & Co. (GS) while Sandler O’Neill & Partners L.P. is acting as co-manager.

The company has also completed its discretionary equity issuance program launched Sep 9, 2009 in which it issued 35.7 million shares worth $150 million at an average price of $4.20 each.

Huntington has implemented several capital bolstering initiatives in the recent past. The company has successfully raised $675 million in regulatory common equity, which was required following the stress test. In addition to that, the recent capital raise should significantly strengthen the company’s capital levels and add to its flexibility to repurchase debt. Huntington also intends to repay its $1.4 billion of bailout fund.

However, we note that Huntington ’s loan composite remains heavily weighed to the mid-Ohio to eastern-Michigan markets, which are under severe stress currently. Problem loan status has also migrated to commercial and industrial loan lines. Delinquencies are expected to remain high.

Hence, given the stressed economic environment along Huntington ’s footprint, we expect earnings to remain depressed due to continued pressure on interest margin and the deterioration of credit quality. Charge-offs and provisioning are expected to remain at elevated levels. Though the capital bolstering initiatives add to its capital base, they also lead to share dilution.

Zacks Investment Research
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