Capital: Morgan Joins the Rush To Issue a New Breed Of Preferred Stock

J.P. Morgan & Co. came to market Tuesday with $750 million of trust preferred securities.

The issue, priced at 104 basis points over comparable Treasuries, was the biggest of a string of trust preferred securities - or TOPRs - sold by banks over the last week.

Banks have sold over $6.57 billion of the securities - also called bank capital notes - since the Federal Reserve ruled such preferred securities could be used as Tier I capital, a bank's cushion against loan losses.

The securities, sold through J.P. Morgan Capital Trust I, will mature in 30 years. J.P. Morgan Securities will underwrite the sale.

In late October, J.P. Morgan, the nation's fourth-largest bank, filed with the Securities and Exchange Commission to sell as much as $1 billion of preferreds.

Trust preferred securities provide banks with the benefits of stocks and bonds. Similar to bonds, banks can deduct dividend payments from their taxes. Yet like preferred stock, they don't add to the company's debt load, and dividend payments can be deferred for up to five years.

Still, investors are confident that banks will meet the dividend payments on a timely basis since bank earnings are strong.

Bloomberg Business News contributed to this report

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Fitch Investors Service rated Chase Capital I's $600 million issue of 7.67% series A cumulative quarterly income preferred securities a-minus.

The issue is similar to the trust preferred issued by J.P. Morgan.

Chase Manhattan Corp., whose senior debt is rated A by Fitch with a positive outlook, owns all of Chase Capital's common shares.

The unit was formed solely to issue tax-advantaged securities and advance the proceeds to its parent by purchasing junior subordinated debt of Chase.

The issue will qualify as Tier I capital for Chase and be available for general corporate purposes, including the repurchase or redemption of its common and preferred shares.

The rating reflected the company's improving profitability, strong capital ratios and sound asset quality, Fitch said.

The agency cited concerns about remaining merger integration challenges, Chase's ability to focus resources on core businesses and, in light of the competitive challenges facing the new Chase, generation of sustainable revenue growth.

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Norwest Corp.'s $200 million 6.55% medium-term notes gained a double-A rating from Fitch Investors Service. The rating reflects the diversity of Norwest's operations, particularly the size and strength of its nonbank subsidiaries, and its conservative operating philosophy.

Fitch cited such strengths as Norwest's consistent and diverse earnings, very low problem assets, strong reserve coverage and capital levels, once reserves and significant off balance sheet values are considered.

Rating concerns included the company's relatively high expense to revenue ratio and its active acquisition appetite.

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