Bank stock prices have rebounded, spurring more capital raising discussions. Banks would be wise to consider raising capital while this window is open, but it’s crucial that they evaluate the advantages, disadvantages and relative value of issuing common equity or coupon-oriented capital in their strategic situation.
Strong fundamentals have pushed bank stock prices higher over the last year, with many bank stocks hitting 52-week or even three-year highs. The median price-to-tangible book value among publicly traded banks is 162%, up 27 percentage points from a year ago. (Source: S&P Capital IQ Pro.) Elevated prices and higher bank stock multiples have prompted some banks to consider raising common equity, while emboldening others to use their stock currency to pursue acquisitions.
Issuing common equity might be the best option for many banks, but there are important factors that must be evaluated beyond current pricing multiples. Would-be issuers often consider how they would deploy the capital they raise, but they should also ask what they are sharing when issuing common equity, with whom and for how long. In the case of common equity, an institution is sharing future growth in tangible book value per share plus dividends per share, which could vary widely across future interest rate environments and credit scenarios. On the other hand, common equity is extremely durable and can be the nicest form of capital to have if what ends up being shared is an unexpected hardship.
With coupon-oriented capital — preferred equity or subordinated debt issuances — the institution shares only defined coupons no matter what happens to rates or credit quality but carries interest obligations and often defined sunsets.
On both fronts, conditions might be as good as they get. Net interest margins might be near their peak today — the banking industry’s median margin rose 11 basis points to 3.87% in the second quarter of 2026, the highest level in the last decade, according to S&P Global Market Intelligence. Credit losses have been minimal in recent quarters as well. Either form of capital will look pretty good to investors right now.
Against that backdrop, the case can be made to raise common equity given how positive current conditions are. If the homework supports issuing common equity, it makes sense to move while the window is wide open. However, the homework also requires evaluating other capital options that might be on the table, including issuing coupon-oriented capital.
At first blush, issuing subordinated debt might seem expensive today compared to transactions five years ago, when coupons were roughly 300 basis points below current levels, but many institutions are finding that when analyzed through its whole value chain, it can be very attractive.
Evaluating All Capital Options
Some banks regret missing the chance to tap the market when coupons were low and optically cheap, but the opportunity to issue in current market conditions is almost as attractive as it was then. Bank stock multiples, meanwhile, stand at their highest level in six years, making equity issuance appealing as well.
The window to act, in fact, is wide open — but it will close at some point. When it does, the relative cost of capital could rise considerably. Many banks’ capital ratios sit at some of the highest levels in history, leaving many to believe that banks need less capital, not more. Institutions that have done their homework have discovered adding capital, even when they don’t need it, could prove more valuable over the long run than trying to add capital only for an immediate use case.
Coming to market now with either form of capital could prepare the institution to play offense in the event a downturn forces competitors to play defense. If your institution hasn’t considered raising capital, it’s worth evaluating your options in current market conditions. Just make sure you do your homework first.
Performance Trust Capital Partners, LLC, is a registered broker/dealer, member FINRA/SIPC. This article is for educational and informational purposes only and is not intended to be legal, tax, financial or accounting advice. This is not an offer or solicitation to purchase or sell securities. The information is subject to change without notice. Investing involves risks, including the possible loss of principal. Past performance is not indicative of future results.
