Banks are rushing to the preferred stock market, racing against rising interest rates and an imminent competing issue by International Business Machines Corp.

Citicorp, Spain's Banco Santander, and Bankers Trust New York Corp. this week launched a total of $595 million in preferred shares or issues convertible into preferred stock.

Britain's National Westminster Bank PLC on Monday is expected to follow with the launch of a $250 million preferred stock offering.

The $845 million in new preferred deals equals about half of the total volume of bank issues since the start of the year, according to Securities Data Co.

"Impending new supply and the uptick in rates are the two most important reasons why we're coming into the market now," a Citicorp official said.

"We don't know of specific names, but we have been told by our investment bankers that there are several issues likely to come in the next few weeks, especially in June," he added.

An inflation scare has caused long-term interest rates to shoot up in the last week. For example, the 30-year Treasury bond yielded 6.97% late Thursday, versus 6.85% a week earlier.

Oversupply a Concern

The spike in preferred stock volume has raised the question of whether the market will suffer from oversupply.

"I think there's enough room in the market to do the [bank] deals that are out, but I wouldn't necessarily want to have a lot more supply right now," said an investment banker. "A big issue from IBM would not help."

IBM is expected to issue about $1 billion in preferred stock in the next three weeks.

In addition, one source said a French industrial company is likely to issue $300 million of preferred stock within three weeks, using a current shelf registration.

BankAmerica in Wings?

BankAmerica Corp. was also mentioned as weighing issuance of a hybrid debt-preferred security.

The Citicorp issue has a proposed dividend yield of 8%, which investment bankers generally thought would be sufficient for a successful deal. Lehman Brothers is the lead underwriter.

Citicorp has $325 million remaining on its shelf registration with the Securities and Exchange Commission and could expand the issue to that amount if the deal finds strong investor demand, investment bankers said.

BT Issue Similar to NBD's

"If there's good interest and demand we would increase the size, but there's no plan for that at the moment," said the Citicorp official.

The Santander issue is being marketed by lead manager Goldman, Sachs & Co. with price talk in the 8% area. The $195 million size is the amount left on the Spanish bank's registration, an investment banker said.

The Bankers Trust convertible capital security is similar to a hybrid offered earlier this year by NBD Bancorp. It starts as 40-year subordinated debt, with price talk at 7.6%.

The bank has the option of lowering the interest rate by 1.5 percentage points after issuance. At that point, investors can opt to accept the lower rate for the debt or exchange the debt for preferred stock, with a dividend equal to the debt's original rate.

National Westminster is expected to launch $250 million in straight preferred on Monday. Goldman is lead manager, and the proposed yield is expected to be 8.75%.

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