Big banks expected to tap the markets.

Big Banks Expected to Tap the Markets

Four major banks look likely to tap the capital markets, though the overall pace of issuing activity is expected to slow in the second half of the year.

First Fidelity Bancorp., Security Pacific, Chase Manhattan, and Citicorp are the names on which market sources have focused lately, in addition to Mellon Bank Corp. and Union Planters Corp., which announced plans Tuesday to sell fixed-rate preferred stock.

First Fidelity, for example, is a candidate to issue some form of equity, experts said. After a $150 million loss in the second quarter of 1990 and a $23 million loss on the fourth quarter of 1989, the company seems to be on the mend after four profitable quarters in a row.

Although it issued $220 million in equity to Banco Santander in March, experts said First Fidelity may require a further infusion of equity, which currently stands at 5.43% of assets.

Turnaround Candidate

The company's stock is selling at 131% of book value, in part because of the bank is widely looked upon as a solid turnaround prospect. Security Pacific, Citicorp, and Chase are all top candidates for subordinated debt issuance, experts said.

One debt trader speculated that Security Pacific could issue as much as $100 million in debt soon. He and another trader said the bank, which reported sharply lower second-quarter results because of higher nonperforming loans, needs the capital. Subordinated debt counts for Tier 2 capital.

Another debt trader predicted that Citicorp and Chase would issue subordinated debt. Neither money-center bank issued subordinated debt during the first half of 1991, but both still have effective registration statements allowing them to go to market at any time.

Mellon's Issues

Mellon is issuing six million shares at $25 apiece. Merrill Lynch, the underwriter, said the dividend under discussion is about 9.625%. The Pittsburgh bank issued 6.4 million preferred shares in March with a dividend of 10.4%. The shares should be issued next week.

Union Planters is issuing 600,000 shares at $25 a share.

Experts said they didn't expect additional debt issuance until after the Treasury Department's estimated $30 billion quarterly refunding issue of government securities. That issue usually distracts investors and drives up yields.

Furthermore, experts said issuers are less concerned that the markets will suddenly become unreceptive. They were concerned about that early this year, prompting the rush to issue that occurred earlier this year.

Still, they said the debt market is improving. Rates on 10-year Treasury bonds have fallen from 8.32% to 8.20% and spreads are narrower than they have been in years.

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