KEY Keycorp

By Dow Jones

NEW YORK (Dow Jones) -- A handful of big U.S. banks on Monday unveiled plans to sell common shares in the open market to raise money they want to use to repay the federal government to free themselves from restrictions on salaries and other items.

The news follows Thursday's results of government-mandated stress tests on the nation's largest banks to determine how much capital they would be required to raise. The results generally showed that they would require less new capital than had been expected.

Investors' relief over the stress tests fueled a "meltup" in the banking sector on Friday, helping some of the nation's largest lenders raise more than $12 billion in new equity capital.

While the banks that received Troubled Asset Relief Program investments in the form of preferred shares could have converted those into common stock to cover their capital requirements, most would rather raise capital in the public markets as able, and pay back the government quickly.

The banks are looking to get out from under the conditions of the TARP investments, which include restriction on executive pay and employee bonuses.

Capital One Financial (COF), U.S. Bancorp (USB), KeyCorp (KEY) and BB&T Corp. (BBT) all announced plans to sell shares on Monday. Wells Fargo (WFC) on Friday said it was selling additional stock.

Winston-Salem, N.C.-based BB&T said it would reduce the size of its dividend as part of a plan announced Monday to repay the federal government's investment in the company under TARP.

BB&T also will issue $1.5 billion of common stock to be paired with other funds to repay all preferred stock and warrants held by the Treasury, Chief Executive Kelly King said.

With the move, BB&T said it would be one of the first U.S. financial institutions to free itself from TARP. The company reportedly took $3.1 billion in TARP funds.

BB&T's board of directors declared a 15-cent dividend to be paid on common stock in the third quarter, a reduction of 68% from its current quarterly payout of 47 cents a share.

The move to temporarily cut the dividend is intended to preserve about $725 million in capital on an annualized basis, BB&T said.

Current earnings "are not likely to justify our 47-cent dividend in the near term," King said in a statement.

Added King: "Our board carefully weighed many factors in making this decision. We have a long and proud history of paying dividends and understand how important the dividend is to our shareholders, so this decision to temporarily reduce the dividend was extremely difficult."

The reduced dividend will be paid Aug. 3 to shareholders of record as of July 10.

BB& T shares fell 5% to $24.98 in early trade.

Shares of Capital One fell 11% to $27.87, after the credit-card company said it plans to sell 56 million common shares, a move that would dilute existing stockholders.

Meanwhile, U.S. Bancorp said that it would offer around $2.5 billion in common stock for sale to the public. Subject to consultation, the firm expects to notify the Treasury that it intends to repurchase all Series E preferred stock and related warrants issued to the U.S. Treasury.

If permitted to do so, the firm expects to fund a portion of any such repurchase with the proceeds of this offering. U.S. Bancorp may also, concurrently with this stock offering, offer medium-term notes in a benchmark amount in a public offering.

U.S. Bancorp fell 6% to $19.25.

Rounding out Monday's stock sellers, KeyCorp on Monday filed with regulators a plan to offer up to $750 million worth of common shares. The Cleveland-based bank said the move is the first step to increasing its common equity capital following the government's stress test, which judged that KeyCorp needs $1.8 billion in capital.

KeyCorp dropped 5% to $6.63.

Last week, Morgan Stanley (MS) said it raised roughly $4 billion selling 167.9 million shares of new common stock for $24 each. The investment bank also issued new debt without government guarantees, bring total capital raised to $8 billion.

Also, Bank of America Corp. (BAC) said it plans to sell 1.25 billion shares through a so-called at-the-market transaction, which enables the giant lender to issue new common stock from time to time, when the market is most receptive.

And on Friday, Wells Fargo said it raised about $8.6 billion through the offering of 392.15 million shares after underwriters fully exercised their option to purchase an additional 51.15 million shares.