Chase Manhattan Corp. will redeem a $125 million issue of preferred stock next month, a move aimed at reducing its capital costs.

A handful of banks in the last few weeks have announced plans to refinance higher-cost subordinated debt or preferred stock, taking advantage of low interest rates and strong investor demand

Citicorp and Sun Trust Banks have already taken steps to refinance equity or subordinated debt this summer. Chemical Banking Corp. said it may refinance outstanding preferred stock with proceeds of a $350 million issue of preferred sold in May.

$2.5 Million Yearly Savings

Chase will lower its dividend costs by $2.5 million annually with the redemption of the series D preferred. On Aug. 17, the bank will redeem all 2.5 million shares of preferred at $52.10 per share, a 4% premium over the original $50 per-share price.

The dividend yield on the issue being redeemed is 10.5%. Last month, the bank issued $170 million of fixed-rate preferred stock with a dividend yield of 8.5%.

Taking the premium and transaction costs into account, Chase will break even on the refinancing in about four years.

Raphael Soifer, banking analyst at Brown Brothers, Harriman & Co., said Chase's moves show that the bank has raised sufficient capital and has turned its attention to lowering equity costs.

"This says that regulators are not standing over their shoulder saying raise capital at all costs, as some other banks have had to do," he said.

Other Possible Redemptions

Chase reported good capital levels at the end of last quarter, even after taking into account plans to redeem the preferred issue. The Tier 1 capital ratio was 6.1% at June 30, and its Tier 2 capital ratio was 10.6%, after adjusting for the planned redemption.

Another candidate for refinancing is Chase's $250 million of series E adjustable-rate preferred stock, according to a market source. Chase declined comment. This series currently has an 8.9% dividend, which cannot go lower than 7.5%. The issue is redeemable at par, or $50 per share.

Market sources have speculated that another preferred stock issue likely to be called is Chemical's $191.5 million of series A adjustable-rate preferred stock, which is currently paying 8.9%.

The issue, which has a minimum dividend of 7.5%, is redeemable at par, or $50. A Chemical spokeswoman declined to comment on possible refinancing moves.

Citicorp moved to cut its dividend costs by $15 million annually as a result of an exchange of 9.3 million shares of common stock for shares of two series of adjustable-rate preferred stock.

In addition, Citicorp last week announced plans to redeem $217,000 of floating-rate extendible notes, due to mature in 1998. The bank also will call $2 million of floating-rate notes, due in 2010.

Atlanta-based SunTrust will reduce its interest costs by about $4 million by replacing higher-cost debt. SunTrust this month raised $200 million in 10-year subordinated debt yielding 7.43%, and plans to call $125 million at 11% notes at par in September.Redeeming ValuePreferred stock being redeemedby Chase Manhattan Corp.Issue Series D preferredNumber of shares 2.5 millionDividend yield 10.5%Redemption price $52.10 per shareSource: Chase Manhattan Corp.

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