First Interstate on Wednesday became one of only a handful of banks to issue public debt this year- unveiling $100 million in seven-year subordinated bonds.
The note is noncallable for three years, and is priced at 110 basis points over the seven year Treasury note for a yield of 8.15%.
First Interstate will use the note for Tier 2 capital.
"Corporate bonds are just running out the door if they're fairly priced," said Tony Smith, a bank analyst at Donaldson, Lufkin & Jenrette. "Portfolio managers have a lot of cash right now."
The option adjusted price of the new issue - approximately 75 basis points over the comparable Treasury - was termed fair by market sources.
"There is so little supply in the bank market, that whenever something comes out, it tends to sell well," said Ethan M. Heisler, a fixed income analyst at Salomon Brothers Inc.
The supply of fixed-income investments in the bank market is low because banks are generally well capitalized, and First Interstate is no exception.
"First Interstate has been getting its debt down," said Ann Robinson, a fixed income analyst at Bear, Stearns & Co. "I'm glad to see them issuing paper."
Noncallable deals have become more prevalent, because of their financial flexibility and because many banks had secured longer-term debt in 1992 and 1993, said analysts.
Noncallable issuers in the past year include: NBD Bank of Indiana, NationsBank Corp., Capital One Bank, Chase Manhattan Bank, and Citicorp.
While analysts thought the deals generally did well in the market, they said that some names did better than others.
Investors have been concerned about Latin America and about the potential for interest rate increases necessitated by weak currency, said one analyst. "Banks perceived with either of these problems have seen spreads widen more," said the analyst. "First Interstate has not had either of these concerns surrounding it."
Lehman Brothers was the lead underwriter, in conjunction with Salomon Brothers and Smith Barney Inc.
