May 11 (Bloomberg) -- Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession.

BNY Mellon, the world’s largest custody bank, said today it will sell $1 billion of stock in a public offering and may use the funds to repurchase preferred shares sold to the U.S. Treasury under the Troubled Asset Relief Program. Capital One said it would sell 56 million shares of common stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would total about $2.5 billion and BB&T began a public offering of $1.5 billion of stock while reducing its dividend.

Regulators examining the 19 largest U.S. lenders last week said the four firms wouldn’t need more capital to survive a deeper, longer recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as possible. BNY Mellon got $3 billion from TARP.

“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, a Sandler O’Neill & Partners LP analyst. “It’s very opportunistic for the banks to be looking to raise given how high the stock prices have gone.”

Capital One, the McLean, Virginia-based credit-card lender that received $3.56 billion from TARP, said in a statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange composite trading.

Shareholder Interest

“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”

KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The bank said it expects to raise about $739.4 million from the offering after expenses and commissions.

Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”

TARP Restrictions

Banks that accepted TARP money are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to repay the funds must get approval from the government and show they can sell debt in the public market without federal backing.

The government’s stress test found that 10 lenders needed to raise a total of $74.6 billion in capital and that a deeper recession could lead to potential losses of $599.2 billion in 2009 and 2010 for the 19 lenders examined.

Winston-Salem, North Carolina-based BB&T dropped $1.99, or 7.6 percent, to $24.34 at 4 p.m. in New York Stock Exchange composite trading and Minneapolis-based U.S. Bancorp slid 9.9 percent to $18.50. KeyCorp fell 69 cents, or 9.9 percent, to $6.28. BNY Mellon fell $2.60, or 8.1 percent, to $29.55.

U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.

Bank Index Rallies

The 24-company KBW Bank Index rallied 36 percent last week and the KBW Regional Bank Index advanced 18 percent, both outpacing the 5.9 percent jump of the Standard & Poor’s 500 Index during the same period.

Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”

Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.

To contact the reporter on this story: Linda Shen in New York at lshen21@bloomberg.net

Last Updated: May 11, 2009 17:19 EDT