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Extra Credit, Wednesday Edition   Welch Gets It: Don't Criticize Your ...
Apr 16 2008 11:38PM EDT

JP Morgan's Really Weird Capital Raise

File under "WTF?":

JPMorgan Chase & Co., hours after saying the credit-market crisis is almost over, made plans to raise $6 billion in its biggest offering of perpetual preferred stock, according to data compiled by Bloomberg.
The non-cumulative securities priced to yield 419 basis points more than U.S. Treasuries due in 2018 and pay a fixed rate of 7.9 percent for 10 years. If not called, the debt will begin to float at 347 basis points more than the three-month London interbank offered rate, a borrowing benchmark, currently set at 2.73 percent...
Joseph Evangelisti, a JPMorgan spokesman, declined to comment about the preferred stock sale.

This is really, really weird. Paul Jackson has the obvious reaction:

"I can't imagine that a $6 billion capital raise would just have slipped the minds of the execs [at JPMorgan]," said one source, who asked not to be named. "I really don't know what to say."

A yield of 7.9% over 10 years is expensive capital indeed for a bank which is (a) profitable, (b) currently well capitalized, and (c) doesn't have an obvious stock of loans needing to be written down. That's $474 million a year in interest payments: three years' interest, and you've got the entire Bear Stearns acquisition price. And raising this money the day of your earnings announcement, without so much as mentioning it on the conference call?

I'm assuming that more details will emerge on Thursday. But something very unusual does seem to be going on.

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