With Tax Break Threatened, A Flurry of Trust-Preferred

Banks are now rushing to issue a popular security because the House Ways and Means Committee may act as early as Monday on a measure that would kill its most attractive feature as of then.

Market sources said they expect the Ways and Means to decide by then if future trust-preferred securities will get to keep the precious tax deductibility status that has made them attractive to most banks. The measure could be retroactive to the day the committee takes action.

Banks issue the securities because they are the cheapest way for them to raise Tier 1 capital.

In spite of the looming deadline, banks have issued more than $1.5 billion worth of securities in the past few days, and another several hundred million is expected to be issued over the next week.

Some of the biggest deals include Wachovia Corp., which privately placed $300 million on Tuesday, Bank of New York, which issued $400 million on Monday, and BankBoston Corp., which issued $250 million on May 30.

Banks up against the deadline include Commerce Bancorp, Cherry Hill, N.J., and First Empire State Corp., Buffalo, which only this week filed for approval with the Securities and Exchange Commission.

Commerce's executive vice president C. Edward Jordan Jr. is dubious about the June 9 deadline. He says Congress will take action around June 16. "We are hoping to beat the deadline," he said. "As soon as we get approval, we would price the securities that very day."

Some market observers expect Congress to remove tax deductibility only on subordinated debt with maturities of 20 to 25 years. If that is the case, the window of opportunity could be kept open a little longer.

But some observers are doubtful. "I think if the window shuts, it's going to stay shut," said bank bond analyst Thomas Stone of Duff & Phelps Credit Rating Co.

Tax specialist Eli Jacobson of New York law firm Sullivan & Cromwell also noted it remains unclear if the proposal on trust-preferred securities will be in the next tax bill at all.

"Chairman (Bill) Archer (of House Ways and Means) has indicated that he is not in favor of roiling the capital markets," said Mr. Jacobson."But if you have to bet on a single day, Monday would be the best bet."

Meanwhile, superregionals, which issued most of their trust- preferred securities earlier in the year, are issuing subordinated debt.

Most recent issuers include Citicorp, BB&T Corp., and Comerica Inc., which issued $250 million, $250 million, and $200 million of 10-year subordinated notes, respectively, earlier this week.

"Banks are taking advantage of the pricing environment," said bank bond analyst Katharine Rossow of Chase Securities Inc. She added that banks also want to issue before the start of the "quiet period" - a few days before the quarter ends.

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