Bank Stock Issues Become a Tougher Sell

Seven banks have sold common or preferred stock since the beginning of October, but it looks as if the window for capital raising is about to close, as big institutional investors turn bearish.

For most of 1991, investors demonstrated a renewed confidence in the banking industry by buying bank debt with low interest rates and oversubscribing to new stock issues. But the climate is changing. To issue preferred stock today, banks must pay higher dividends or settle for less cash than planned.

"The sentiment on bank stocks is bearish and that affects the demand for new issues," said Harry Rosenbluth, senior vice president at Boston Co., one of the biggest institutional investors in bank stocks. "Right now, there is not much demand for them."

Better Rates Demanded

Until the economy is righted and banks turn the corner on asset problems, stock issues will probably remain tough to sell.

"Investors are demanding better rates to take the paper," said Mr. Rosenbluth.

Banks have sensed the cooling of investor interest.

"There has been a dwindling appetite for retail preferred stock," said Richard R. Pannone, treasurer at Fleet/Norstar Financial Group.

Fleet tried to raise $125 million through a preferred stock offering in November. Unfortunately, the day the issue was sold was the day the stock market fell 120 points. The banking company ended up raising $100 million, $25 million less than planned.

Fleet's is not the only hardluck story. Bank stocks have been dropping for the past month. That fall helped convince Bank of New York Co. recently to cancel a plan to sell common shares.

PNC's Success

To be sure, some of the banks that issued common stock have seen no weakening in investors' interest. PNC Financial Corp., for example, raised more than $400 million in November.

Some banks are not discouraged. Last Friday, BankAmerica announced a plan to sell $150 million in preferred shares.

But investors and bankers see signs that the window of opportunity is closing. "We got the best terms we could have gotten for the five months before we issued and since," said Richard Zona, chief financial officer of First Bank Systems, which raised $115 million at the end of October.

The preferred shares of First Bank Systems pay a 7 1/8% coupon. Mr. Zona said if he issued now, the coupon might be the same. But the price at which the preferred shares can be converted to common shares would have been $1 lower, reflecting a drop in the stock price.

Even so, Mr. Zona said some institutional investors declined to buy the shares because they did not pay a sufficiently high dividend. Institutional investors say banks planning to issue preferred shares can expect demands for better rates to escalate.

Moody's Investors Service downgraded Wachovia Corp. senior debt to Aa3 from Aa2 on Friday and upgraded South Carolina National Corp., which Wachovia recently acquired.

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