Banks and financial institutions have quickly issued more than $1 billion dollars of debt this week to take advantage of sliding interest rates as well as to tap the foreign market for U.S. bank paper.
American Express Co. and a banking unit of KeyCorp issued $1 billion of Eurobond and global notes, and Norwest Corp. priced a 10-year, $250 million senior note deal Tuesday.
Analysts said they expect more banks to jump into the market if rates continue to fall. At least one subordinated debt offering by a bank is expected this week, and other bank global issues are expected as overseas demand for U.S. bank paper becomes more significant.
"Banks have been looking to expand their investor base for the last two years," said bank bond analyst William King of UBS Securities Inc. "Many U.S. investors may be full on specific bank names; the banks are looking to get new investors for their paper."
American Express is expected to price its $500 million issue of seven- year global bonds today. It said the move was part of its regular funding activities.
Global bonds are sold simultaneously in the United States, Europe, and Asia.
The notes are expected to price at 39 to 41 basis points over comparable Treasury securities. Market experts said a substantial number of foreign institutional investors had expressed interest in the deal Tuesday. But U.S. investors could just pass when the notes price.
"American Express is a company that is well-regarded by investors," said Jack Ablin, the new head of Barnett Capital Advisors, Jacksonville, Fla. "But its paper is expensive for its rating."
Moody's Investors Service rates American Express A1; Standard & Poor's rates it A-plus. The issue was underwritten by Lehman Brothers International.
Key Bank Association, the KeyCorp subsidiary, issued $500 million of notes, a portion of the company's $5 billion note program filed in early June.
The issue, which was underwritten by J.P. Morgan International, priced at 11 basis points over Libor-the London interbank offered rate.
Market sources said a substantial number of foreign banks had invested in the issue.
Foreign banks are also inclined to invest in U.S. paper because "clearly a bank will understand the credit of another bank better than they would another company," said a source who declined to be identified.
Meanwhile, yields on trust-preferred securities widened by 3 to 4 basis points on news that the Senate Finance Committee did not address the hybrid securities in its budget Tuesday. Some market observers expected the committee to eliminate the securities' tax deductibility, which has let banks raise regulatory capital cheaply.
Last week, investors dumped their securities after the House Ways and Means Committee unsettled the market by failing to address the issue.
Elsewhere in the bank debt market, Bayerische Landesbank, based in Munich, Germany, is issuing $1 billion of 10-year senior notes through its New York office. The deal is expected to price today.
Market sources said the global issue is expected to draw U.S. investors. Merrill Lynch & Co. is lead manager.
