Low interest rates and positive investor sentiment spurred a rush of bank securities offerings this week.
NationsBank Corp., Chase Manhattan Corp., Chemical Banking corp., First Chicago Corp., and West One Bancorp raised a total of about $750 million in capital through equity and subordinated debt offerings.
Waiting in the wings is Bank of New York Co., which is seeking to raise about $318 million through a common stock offering.
Meanwhile, bank issuance in the market in asset-backed securities is also picking up. A unit of Shawmut National Corp. raised $402.1 million through an offering of securities backed by auto loans.
Today, Citicorp is expected to price about $1.6 billion in securities backed by credit card loans. Citicorp is the biggest issuer of credit card securities, but this would be its first such offering this year.
NationsBank, Chemical, and First Chicago issued subordinated debt at significantly lower yields than were available earlier this year.
"Many banks are taking advantage of what's a pretty good market to issue debt," said Dennis Shea, a bank analyst with Morgan Stanley & Co.
Besides lower interest rates, banks are also taking advantage of a friendlier investments climate, with many investors convinced that bank loan portfolios are on the mend.
NationsBank on Monday was able to increase its subordinated debt issue to $350 million from an originally planned $250 million. The 10-year subordinated notes were priced by underwriters led by Merrill Lynch & Co. to yield 8.16%, 90 basis points over U.S. Treasuries.
At the end of March, NationsBank's outstanding subordinated debt was trading at 115 basis points over Treasuries.
Chemical and First Chicago each hit the market Tuesday with $100 million in 10-year subordinated note offerings.
Chemical's issue was priced by Goldman, Sachs & Co.' to yield 8.23%, 97 basis points over Treasuries, and First Chicago's was priced by Salomon Brothers Inc. to yield 8.30%, 104 basis points over U.S. Treasuries.
This represented a sharp reduction in the cost of funding for both. At the end of March, First Chicago subordinated debt traded at 160 basis points over Treasuries, and Chemical's debt traded at 140 basis over Treasuries.
Chase, via Merrill Lynch, sold $152.5 million of fixed-rate perpetual preferred stock on Monday. The dividend was set at 8.50%, a rate that some capital market sources thought was too low. The issue had not sold well enough to be freed to trade by midday Tuesday.
One investment banker predicted that other banks would sell preferred after the market takes a breather to digest recent offerings.
West One, based in Boise, Monday raised about $63 million through the sale of 1.5 million shares of common stock through Merrill Lynch. West One is increasing capital levels in anticipation of the completion of its planned purchase of Washington-State branches from BankAmerica Corp.
Backed by Cash
Citicorp's credit card offering will include a $1.5 billion three-year class A tranche, expected to yield 45 to 48 basis points over Treasuries. The tranche, which is being managed by Citicorp Securities, is expected to be rated triple A by Standard & Poor's Corp. and Moody's Investors Service Inc.
In a twist, the class A tranche will be supported by a 5% cash collateral account, which is usually used to enhance only subordinated tranches.