The pricing on two debt issues from Norwest Corp. on Thursday and Friday has raised concerns about the increasingly competitive underwriting market.
The returns for investors on two deals, totaling $450 million, were so low that analysts wondered whether underwriters were trying to "buy the business" to boost their position in the league tables.
But what's bad for underwriters of bank debt is good for banks, presenting opportunities for them to lock in low costs of funds.
Indeed, bank treasurers are faced with several factors that would make the cost of debt issuance attractively low - from a high investor interest to low bond rates, and finally, to competitive bids from underwriters.
Analysts said that the underwriter, Salomon Brothers, probably took a loss on Norwest Corp.'s $250 million in three-year notes and $200 million in five-year notes. A bank trader estimated that, based on the going rate for other Norwest bonds, Salomon Brothers lost about four basis points on the three-year deal and eight to 10 basis points on the five-year deal.
Salomon Brothers declined to comment.
Charles White, the treasurer at Norwest Corp., said that the company brought debt issues to market on successive days because of the combination of aggressive pricing and a healthy market appetite for bank paper.
"The first deal was sold within an hour or so, and that's why we came out with a second one," he said. He added that the willingness of Wall Street firms to be "aggressive" on their pricing encouraged the Minneapolis-based bank to market both issues.
Describing the issues as "opportunistic," Mr. White said that accessing the attractive capital markets helped him ensure that commercial paper is not too large a percentage of parent company debt.
It also provides capital for Norwest's nonbank subsidiaries, such as Foothill Leasing, and its mortgage warehouse.
"U.S. bank business is hyper-competitive right now," said one fixed- income bank analyst. "Banks realize there are enough dealers who will bid for their business, so they get the best pricing."
Even if the firms don't make money, said another analyst, winning the business at least helps boost their position in the league tables.
"The biggest problem in our market right now is that there are too many players," said a bond trader. "It's a commodity now."