Another Issue from Banc One: $900M of Subordinated Debt

Banc One Corp., having completed a big issue of medium-term notes last month, has come to market with $900 million of subordinated debt.

The new issue, which is expected to be priced today, is the largest public subordinated debt deal by a commercial bank this year. It faces competition from other debt issues and caution in the investment community.

The deal is in two parts: $400 million of 10-year notes and $500 million of 30-year debt.

Banc One issued $750 million of medium-term notes last month, coming to market just before the Federal Reserve raised short-term interest rates by 25 basis points.

Steven Bluhm, senior vice president of funds management at Banc One, said the company is raising money to pay off commercial paper it issued to buy back equity.

Mr. Bluhm added that the Columbus, Ohio, banking company is also raising capital to fund the rapid asset growth of a nonbank subsidiary, Banc One Finance company.

Traders asserted Wednesday that a deal of $900 million would have to be priced cheaply to investors considering the market's somber mood.

"The market is very difficult," said a trader who declined to be identified. "Spreads have been widening," and it appears as "if buyers are on strike."

Banc One "knew it would be hard to place this week because there is a tremendous amount of debt-at least $3.5 (billion) to $4 billion in debt- coming to market and pricing this week," said bank bond analyst Katharine Rossow of Chase Securities Inc.

"It doesn't matter what your name is; this would be a difficult week for anyone to issue debt."

In addition to heavy issuance by nonbanks, several major foreign banks are coming to market with debt. (See article on page 1.)

Bank bond analyst Eric J. Grubelich of Keefe, Bruyette & Woods Inc. said that Banc One officials could be coming to market today "because they may be concerned about the direction of interest rates."

The government is to issue unemployment numbers and other economic data next week that could spur rate increases, he said.

An investor who declined to be identified said that buyers were staying away because they are unhappy with Banc One's announced acquisition of First USA Inc., a credit card specialist.

Indeed, Standard & Poor's Corp. put Banc One on credit watch with negative implications in January after the banking company announced the deal.

Moody's Investors Service rates Banc One's subordinated debt A1; Standard & Poor's, A-plus.

Lead underwriter on the 10-year portion of the deal is Salomon Brothers Inc. Morgan Stanley & Co. is underwriting the 30-year debt.

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